On 5 March 2025, the Prudential Regulation Authority (PRA) published a consultation paper, CP2/25, on the Leverage Ratio: changes to the retail deposits threshold for application of the requirement. Background The leverage ratio is intended to give a simple percentage indicator of how much capital a firm has to fund its activities. Firms with over £50 billion in retail deposits, or £10 billion in non-UK assets, are currently required to meet a minimum leverage ratio requirement of 3.25% plus buffers. These thresholds took effect in 2016 and 2023 respectively and are designed to capture major UK banks, building societies and investment firms. Proposed increase Under the proposals, the PRA would increase the retail deposits threshold by £20 billion to £70 billion, which it explains is to reflect nominal GDP growth since 2016. The higher threshold is intended to ensure that major UK firms continue to be captured, whilst smaller firms below the new threshold would have more space to grow before becoming subject to the leverage ratio requirement. The £10 billion non-UK asset threshold would remain the same, as it was implemented much more recently than the retail deposits threshold and the PRA notes that it continues to operate as intended. Commenting on the proposals, the PRA’s CEO and Deputy Governor for Prudential Regulation, Sam Woods, highlighted that whilst it is essential to protect against excessive leverage in the banking system, this must be done in a proportionate way. The proposals set out in CP2/25 aim to support growth and innovation by giving smaller banks more space to grow before entering the leverage regime. Next steps The consultation closes on 5 June 2025.

On 5 March 2025, the European Banking Authority (EBA) issued a Discussion Paper on fees to be paid by financial and non-financial counterparties requiring the validation of pro forma models under the European Market Infrastructure Regulation (EMIR). The European Commission previously issued a request for technical advice on a possible delegated act on fees to be charged to financial and non-financial counterparties requiring the validation by EBA of pro forma models, with the request to submit such advice by Q2 2025. The Discussion Paper outlines: The EBA budgeting approach (section 4.2). The main EBA costs incurred by the EBA for the performance of its new tasks resulting from its new role as central validator of pro-forma IM models (section 4.3). The expected fees per counterparty including the calculation methods (section 4.4). The modalities of payment (section 4.5). Next steps The consultation closes on 7 April 2025.

On 5 March 2025, the European Commission issued a Notice which contains technical clarifications responding to frequently asked questions on the technical screening criteria set out in the Taxonomy Climate Delegated Act (including the amendments to the Taxonomy Climate Delegated Act) and the Taxonomy Environmental Delegated Act, as well as the disclosure obligations for the non-climate environmental objectives laid down in the amendments to the Taxonomy Disclosures Delegated Act.

On 26 February 2025, the European Commission published an “Omnibus package” aimed at simplifying and aligning its sustainability reporting and due diligence laws. The Omnibus seeks to introduce amendments to the EU Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CS3D) and Taxonomy reporting. The proposal consists of two draft Directives which cover, respectively, a) dates for implementation and b) scope of application and substantive requirements. In our briefing note we consider the substantive amendments to the CSRD and CS3D and the new thresholds and implementation dates.

On 5 March 2025, the Financial Conduct Authority (FCA) published its detailed findings from its multi-firm review of valuation processes for private market assets. Background The FCA sees good valuation practices as key to maintaining fairness and confidence as the private market grows. There is also global interest in valuation practices in private markets with, for example, the International Organization of Securities Commissions previously issuing a report which highlighted a relative lack of transparency and consistency in approaches to valuations. The FCA’s review assessed the robustness of firms’ valuation processes and governance, including the checks and balances that help address the risk of poor conduct and harm to investors. It did not seek to independently validate firms’ fair value assessments for specific assets. The FCA’s findings will primarily be of interest to asset managers, alternative investment fund managers (AIFMs), investment and portfolio managers and investment advisers. The key message from the regulator is that whilst firms generally demonstrated good practice in certain areas such as investor reporting there are areas that need improving including better identification and documentation of potential conflicts of interest in the valuation process. Findings In summary, the FCA found examples of good practice in firms’ valuation processes, including the quality of reporting to investors, documenting valuations, using third-party valuation advisers to introduce additional independence and expertise, and consistent application of established valuation methodologies. In some areas, such as transparency and disclosure, good practice went beyond existing requirements and the FCA has set out some of these so that firms may consider them. The regulator also identified areas where firms needed to make improvements. For example: Whilst all firms identified conflicts in their valuation process around fees and remuneration, and in many cases had limited these through fee structures and remuneration policies, other potential conflicts were only partly identified and documented. These included potential valuation-related conflicts related to investor marketing, secured borrowing, asset transfers, redemptions and subscriptions and uplifts and volatility. The FCA expects firms to identify, document and assess all potential and relevant valuation-related conflicts, their materiality and actions they may need to take to mitigate or manage them. Firms had different levels of independence within their valuation processes. The FCA expects firms to assess whether they have sufficient independence in their valuation functions and the voting membership of their valuation committees to enable and ensure effective control and expert challenge. Many firms did not have defined processes or a consistent approach for ad hoc valuations to revalue assets during market or asset-specific events. Firms are encouraged to consider the types of events and quantitative thresholds that could trigger ad-hoc valuations and document how they are to be conducted. Next steps The FCA expects firms to consider the findings from the review and identify any gaps in their approach, considering their size and the materiality of identified gaps. In particular, the regulator expects firms to consider whether they should make improvements in: The governance of their valuation process. Identifying, documenting, and addressing potential conflicts in their valuation process. Ensuring functional independence for their valuation process. Incorporating defined processes for ad hoc valuations. The findings will be used in the FCA’s review of Alternative Investment Fund Managers Directive as it updates its rules in the Handbook and will inform the FCA’s contribution to IOSCO’s review of global valuation standards to support the use of proportionate and consistent valuation standards globally in private markets.

On 28 February 2025, the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) reminded companies offering group insurance policies of the upcoming licence requirement, effective 1 October 2025. This requirement follows a 29 September 2022 ruling by the Court of Justice of the EU, clarifying licensing obligations for group insurance providers. What is Group Insurance? The AFM notes that group insurance is an agreement where a company acts as the policyholder and adds customers (individuals or businesses) as insured parties. If a customer consciously chooses to be insured under the policy and the company receives remuneration, the company will be considered an insurance intermediary and must obtain a licence from the AFM as of 1 October 2025. Remuneration includes any financial or non-financial benefit, except for passing on premiums and administrative costs. If no financial advantage is involved, no licence is required. Exemption to the licensing requirement Companies offering group insurance may qualify for an exemption under Article 7 of the Exemption Regulation under the Financial Supervision Act (Vrijstellingsregeling Wft) insofar as their activities only relate to the collection of premiums. This article provides that, under certain circumstances, persons who carry out insurance mediation activities complementary to the supply of a product or service, i.e. ancillary insurance intermediaries, are largely exempt from the Act on the Financial Supervision, if: the insurance covers the risk of breakdown, loss of or damage to the product supplied by the ancillary insurance intermediary; or the insurance covers non-use of a service supplied by the intermediary. The premium may not exceed €600 on a pro rata basis per year in the cases mentioned under (i) and (ii), or in case it is complementary to a service and the duration of the service is equal to or less than three months, the premium may not exceed €200 per person. Although the exemption generally applies to affiliated companies, the AFM allows group insurance policyholders to also rely on it if they can demonstrate that the insurance product meets the ancillary insurance intermediary exemption criteria. Timeframe for licence application Companies requiring a licence must apply before 1 October 2025. The AFM takes at least 13 weeks to process applications, so submitting well in advance is recommended.

On 28 February 2025, the House of Commons (HoC) Work and Pensions Committee announced that it would hold an evidence session to examine progress towards delivering online pensions dashboards, which are intended to enable individuals to find information on all of their pension pots and their value in one place. While it is not yet clear when the first pensions dashboard will be introduced, pension schemes and providers are required to have their data ready for the dashboards by 31 October 2026. However, the Committee flags that recent news reports have raised concerns as to whether this is achievable. In the evidence session, the Committee will therefore ask industry representatives about (among other things) their preparation to have the data ready to share by the autumn 2026 deadline and their experience of developing commercial dashboards. It will also question representatives from the Financial Conduct Authority and The Pensions Regulator, both of which have jurisdiction over elements of the dashboards project, on how they are working with each other and stakeholders to ensure reasonable and responsible regulation. There will also be evidence from the Money and Pensions Service, which oversees the Pensions Dashboard Programme and construction of the Government’s MoneyHelper dashboard, on the industry reaction to and progress towards a staged connection between industry data and the dashboards (which aims to help prevent technical hitches on the deadline date for data preparation).

On 28 February 2025, the Financial Conduct Authority (FCA) issued Handbook Notice 127. This Handbook Notice describes the changes to the FCA Handbook and other material made by the FCA Board under their legislative and other statutory powers on 30 January and 27 February 2025. On 30 January 2025, the FCA Board approved these instruments which were set out in Policy Statement 25/1: Commodity Derivatives (Position Limits, Position Management and Perimeter) Instrument 2025. Markets in Financial Instruments (Non-Equity Transparency Rules) (Amendment) Instrument 2025. Technical Standards (Commodity Derivatives) (Position Limits, Management and Reporting) Instrument 2025. On 27 February 2025, the FCA Board approved the Consumer Credit (Regulatory Reporting) (Amendment) Instrument 2025. On 6 December 2024, the FCA published Consultation Paper 24/26 (CP24/26) which set out certain miscellaneous amendments to the Handbook including amendments to SUP 16.11, SUP 16 Annex 20G and SUP 16 Annex 21R, to clarify or improve the wording for better understanding in relation to consumer credit product sales data reporting. In Handbook Notice 127 the FCA provides feedback on this part of CP24/26 and sets out final rules. The FCA Board also approved the Sustainability Labelling and Disclosure of Sustainability-Related Financial Information (Amendment) Instrument 2025. In CP24/26 the FCA consulted on amendments to the Environmental, Social and Governance (ESG) sourcebook and certain guidance provisions in other related sourcebooks for the purposes of clarifying certain existing rules and giving proper effect to the policy proposals consulted upon in Consultation Paper 22/20 and finalised in Policy Statement 23/16. In Handbook Notice 127 the FCA provides feedback on this part of CP24/26 and sets out final rules.

In our latest Global Regulation Tomorrow Plus podcast, Kevin Harnisch, Mark Highman, Katie Stephen and Hannah McAslan-Schaaf discuss the failure to prevent fraud offence under the UK’s Economic Crime and Corporate Transparency Act 2023, which comes into force on 1 September 2025, and how it might impact US firms. Listen to the podcast here. For further resources in relation to the offence, please see our dedicated failure to prevent fraud knowledge hub.

On 27 February 2025, the Financial Conduct Authority (FCA) published a speech on supporting growth, delivered by its chief executive Nikhil Rathi at the Association of British Insurers roundtable. In the speech, Mr Rathi covers topics including: Consumer Duty champions: From 27 February 2025, firms will be able to choose whether to have a Consumer Duty champion. (The FCA published more information on this on its Consumer Duty – information webpage.) Progress on growth proposals: Mr Rathi notes that the industry “may be surprised in the coming weeks at the pace we will move on the 50 or so growth proposals we made to the Prime Minister”, including in relation to mortgage affordability, digital payments, removing redundant data returns, supporting international promotion of UK financial services, opening up to more innovative firms and cutting barriers between regulators. Risk in relation to consumer harm: As it works with the Government on its financial and professional services strategy, one area where the FCA has asked for bold thinking is around articulation of the Government’s risk appetite – particularly in relation to consumer harm. Mr Rathi notes that the FCA would value metrics against which it can be held to account. Call for input on simplifying the Handbook: The FCA has received 170 responses from firms of all sectors and sizes as well as consumer groups, and is working through the feedback. Points raised in the responses included concerns around the pace of regulatory change, and the FCA is aiming for fewer large-scale changes in its next 5-year strategy, although given the diversity of views there is a debate to be had around the speed of change. Consumer resilience: Although it is “serious about growth”, the ability of consumers to access the right products for them (i.e. good quality, fair value products) when they need to is central to the FCA’s purpose and will be an important part of its next 5-year strategy.

On 27 February 2025, the European Banking Authority (EBA) issued its opinion responding to the European Commission’s (Commission) proposed changes to its draft regulatory technical standards (RTS) on the information to be provided to Member State competent authorities when authorising the offer to the public of asset-referenced tokens (ARTs) or the admission to trade them under the Markets in Crypto-Assets Regulation (MiCAR). In substance, the EBA accepts the envisaged changes from the Commission, and in particular with those of them considered as substantive, but at the same time invites the Commission to consider amending the Level 1 text at the next available opportunity, to include the following elements that were set out in the draft RTS, given their importance from a supervisory perspective. Namely, the requirements of a market policy abuse, of an independent third-party audit about the issuer’s proprietary distributed ledger technology that is operated by the issuer or by a third-party operator, and a comprehensive notion of good repute aligned with the rest of the financial sector.

On 27 February 2025, the European Commission adopted the following delegated acts supplementing the Regulation in markets in crypto-assets (MiCA): Commission Delegated Regulation (EU) supplementing MiCA with regard to regulatory technical standards (RTS) specifying records to be kept of all crypto-asset services, activities, orders and transactions undertaken. Article 68(9) of MiCA requires crypto-asset service providers (CASPs) to keep records of all crypto-asset services, activities, orders, and transactions undertaken by them. Those records must be sufficiently detailed to enable competent authorities to fulfil their supervisory tasks and to perform enforcement measures, and in particular to ascertain whether CASPs have complied with all obligations under MiCA, including those with respect to clients or prospective clients and to the integrity of the market. These RTS further specify the records to be kept of all crypto-asset services, activities, orders and transactions undertaken. Commission Delegated Regulation (EU) supplementing MiCA with regard to RTS specifying the requirements for policies and procedures on conflicts of interest for crypto-asset service providers and the details and methodology for the content of disclosures on conflicts of interest. Article 72 of MiCA provides for the requirements for CASPs to implement and maintain effective policies and procedures to identify, prevent, manage and disclose conflicts of interests, as well as to make public those conflicts and the steps taken to mitigate them. More particularly, Article 72(1) of MiCA details the types of conflicts that should be covered by such policies and procedures. These draft RTS further specify the requirements for conflicts of interest policies and procedures and the details and methodology for disclosing those conflicts and steps taken to mitigate them. Commission Delegated Regulation (EU supplementing MiCA as regards RTS specifying the requirements for policies and procedures on conflicts of interest for issuers of asset-referenced tokens. These RTS set out the requirements for policies and procedures on conflicts of interest for issuers of asset-referenced tokens (ARTs) under the MiCAR as well as the details and methodology for the content of the disclosure of the general nature and sources of conflicts of interest and the steps taken to mitigate them. The RTS also contains specific provisions related to personal transactions and provisions related to the remuneration procedures, policies and arrangements. The RTS includes requirements for the arrangements with third parties providing one of the functions as referred in Article 34(5), point (h) of MiCAR as well as for the resources dedicated to the management of conflicts of interest.

On 26 February 2025, the Financial Action task Force (FATF) issued a public consultation seeking input on best practices in mitigating proliferation financing risks. The consultation is intended to help FATF produce a report that will improve country and private sector understanding of current proliferation financing risks. This will cover the evasion techniques used by those evading the targeted financial sanctions detailed in Recommendation 7, which is required by the FATF Standards, as well as other national and supranational sanctions that are not covered by the FATF Standards. The report will focus on providing a comprehensive up-to-date understanding of typologies in complex sanctions evasion schemes relevant to proliferation financing and identifying enforcement challenges and best practices, which helps to inform countries’ proliferation financing risk assessment and risk mitigation. The deadline for comments on the consultation was 21 March 2025.

On 18 February 2025, the Dutch Central Bank (De Nederlandsche Bank, DNB) posted an update on the Instant Payments Regulation (IPR). The IPR entered into force on 8 April 2024 and payment service providers (PSPs) needed to comply with a first set of obligations from 9 January 2025, with more to follow. For PSPs authorised to provide their services in the Netherlands, DNB is responsible for monitoring compliance with the IPR obligations and can also take enforcement action in instances of non-compliance. The IPR aims to promote the use of instant credit transfers (ICTs), both domestically and across borders. In doing so, the IPR aims to make ICTs in euro available to citizens, businesses and institutions holding a payment account in the EU, increasing competition and stimulating development of new payment products throughout the EU. What are the key obligations? The IPR prescribes the following key obligations that PSPs must adhere to: Offering ICTs PSPs must ensure that all payment service users (PSUs) in the EU can place payment orders for and receive ICTs in euros. This applies to all payment accounts that PSPs maintain for their PSUs. This service must be available 24 hours a day, every day. In addition, the cost of an ICT may not exceed the fees charged to the PSUs for other similar types of euro transfers. Verification of the payee PSPs must provide a service ensuring verification of the name of the payee to whom the PSU intends to transfer the credit, free of charge. If the PSU provides both the payment account identifier and the name of the payee, the PSP must provide a service for matching these details, free of charge. This matching service must be offered immediately after the PSU provides the relevant information about the payee and before the PSU is offered the choice to authorise the transfer. Harmonised sanction procedure The IPR includes specific rules for sanctions screening. PSPs must periodically (at least once every calendar day) verify whether their PSUs are subject to targeted financial restrictive measures. Transaction-based screening is no longer permitted. Obligation to submit reports to competent authority PSPs must report to their competent authority (in this case DNB) on (a) the level of charges for credit transfers, ICT and payment accounts and (b) the share of rejections, separately for national and cross-border payment transactions, due to the application of targeted financial restrictive measures. These rejection reports are to be shared every 12 months by the PSP to the competent authority. What are the key deadlines? The deadlines for compliance with the IPR for PSPs in the Netherlands are: Since 9 January 2025: PSPs must be able to receive ICTs in euros and must use a harmonised sanctions screening procedure. By 9 April 2025: PSPs must inform DNB on the level of charges and on rejections during the period starting on 26 October 2022 until the end of preceding calendar year. By 9 October 2025: PSPs must be able to send ICTs and must offer a verification service to ensure the name of the payee corresponds to the IBAN number provided. By 9 April 2027: Non-bank PSPs’ (payment and electronic money institutions) can send and receive ICTs.

On 26 February 2025, the European Commission (Commission) issued a targeted consultation on the review of the functioning of commodity derivatives markets and certain aspects relating to spot energy markets. The consultation seeks feedback on a broad range of issues including: Data aspects relating to commodity derivatives. The ancillary activity exemption. Position management and position reporting. Position limits. Circuit breakers. Other elements stemming from the Draghi report on EU competitiveness. The consultation is launched in conjunction with the Action Plan on Affordable Energy adopted by the Commission on 26 February 2025. Next steps The deadline for comments on the consultation paper is 9 April 2025. The Commission states that outcome of the consultation serves several objectives: It will feed into the MiFID report exercise, with a view to making the EU commodity derivatives markets more efficient and resilient. It will allow the Commission to collect evidence to feed into broader reflections on the wholesale energy and related financial markets that may inform future policy choices in this area where appropriate, this may call for legislative amendments of the relevant legislation, including MiFID and REMIT. The solutions under consideration may in some cases be specifically targeted at certain types of contracts or commodities. It could, for example, be possible to identify specific solutions as regards gas‑related contracts (as opposed to other commodities)

On 26 February 2025, the European Commission (Commission) adopted an Omnibus Sustainability package and an Omnibus Investment package. The Commission’s work programme, published on 11 February 2025, announced a first series of “Omnibus” packages intended to address overlapping, unnecessary or disproportionate rules that are creating unnecessary burden for EU businesses. The proposals now published are designed to provide substantial simplification in the field of sustainability and EU investment programmes. Omnibus Sustainability package The Omnibus Sustainability package includes a: Proposal for two Directives amending the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). Draft Delegated act amending the Taxonomy Disclosures and the Taxonomy Climate and Environmental Delegated Acts subject to public consultation. Proposal for a Regulation amending the Carbon Border Adjustment Mechanism (CBAM) Regulation. Proposal for a Regulation amending the InvestEu Regulation. The main changes being proposed to the CSRD and the CSDDD are summarised in Q&As. In particular, the CSRD is being changed so that the number of companies in scope will be reduced by about 80%. The reporting requirements would only apply to large undertakings with more than 1,000 employees (i.e. undertakings that have more than 1,000 employees and either a turnover above EUR 50 million or a balance sheet total above EUR 25 million). Companies outside the scope of CSRD (companies with up to 1,000 employees) may choose to report voluntarily on the basis of a simplified voluntary standard to be adopted by the Commission, based on the voluntary standards for SMEs developed by the European Financial Reporting Advisory Group. A key proposed change to the CSDDD is to give companies more time to prepare for implementing the new framework by postponing, by one year, the transposition deadline (26 July 2027) and the first phase of the application of the sustainability due diligence requirements, covering the largest companies (to 26 July 2028). Also, the necessary guidelines by the Commission will be advanced to July 2026, allowing companies to build more on best practices and reduce their reliance on legal counselling and advisory services. The proposed amendments to the Taxonomy Disclosures Delegated Act and the Taxonomy Climate and Environmental Delegated Acts include simplifying the reporting templates, introducing a materiality threshold to make disclosure of alignment for companies with less 10% eligible activities not mandatory, introducing the option of reporting partial disclosure to foster transition finance, simplifying and make more useful the Green Asset Ratio used by banks, reducing the scope for mandatory reporting on operational expenditure and simplifying certain ‘Do no significant harm’ criteria. The changes to the CBAM Regulation include simplifying the small occasional importations of CBAM goods, below the maximum threshold of 50 tonnes per year. This threshold corresponds to approximately 80 tonnes of CO2 equivalent on average per importer. These importers will no longer be subject to any CBAM obligation. Omnibus Investment package The Omnibus Investment package amends the InvestEu Regulation, the Regulation on the European Fund for Strategic Investments (EFSI Regulation) and legacy financial instruments. The InvestEU and EFSI Regulations will be simplified with a view to reducing the frequency and the content of some reports. The proposal to amend the InvestEU Regulation would also help mobilise additional EUR 50 billion of investment by increasing the size of the EU guarantee by EUR 2.5 billion and facilitating the combined use of the InvestEU guarantee with existing capacity available under three legacy programmes (EFSI, CEF Debt Instrument and InnovFin Debt Facility) to support new InvestEU financing and investment operations. Next steps The legislative proposals will be submitted to the European Parliament and the Council for their consideration and adoption. The changes on the CSRD, CSDDD, and CBAM Regulation will enter into force once the co-legislators have reached an agreement on the proposals and after publication in the EU Official Journal. In line with the Communication on simplification and implementation published on 11 January 2024, the Commission invites the co-legislators to treat these packages with priority, in particular the proposal postponing certain disclosure requirements under the CSRD and the transposition deadline under CSDDD, as they aim to address key concerns identified by stakeholders. The Commission has issued a call for evidence on the draft Delegated act amending the Taxonomy Disclosures and the Taxonomy Climate and Environmental Delegated Acts. The call for evidence closes on 26 March 2025. The draft Delegated Act will be adopted after public feedback and will apply at the end of the scrutiny period by the European Parliament and the Council.

On 25 February 2025, the Financial Action Task Force (FATF) updated Recommendation 1 and its Interpretive Note, with corresponding amendments to Interpretive Notes to Recommendations 10 and 15, as well as related Glossary definitions to better support financial inclusion. The updates follow the February 2025 FATF Plenary where it was noted that the risk-based approach and financial inclusion was a key priority under the Mexican Presidency. To embed the updates the FATF is also issuing a public consultation on proposed changes to its guidance on anti-money laundering / countering the financing of terrorism measures and financial inclusion that are intended to equip policy makers and regulators with practical examples. The deadline for comments on the consultation is 4 April 2025.

On 26 February 2025, the Unauthorised Co-ownership Alternative Investment Funds (Reserved Investor Fund) Regulations 2025 (the Regulations) were laid before Parliament and published on legislation.gov.uk, along with an explanatory memorandum. The Regulations are intended to support the Government’s introduction of the Reserved Investor Fund, which will be a new type of UK-based investment fund vehicle legally structured as an unauthorised co-ownership alternative investment fund (AIF). The Regulations (alongside the Co-ownership Contractual Schemes (Tax) Regulations 2025) enable the establishment of Reserved Investor Funds by ensuring that prospective investors have the appropriate rights and liabilities, and that there is appropriate provision for the making of contracts. The Regulations will come into force immediately after the Co-ownership Contractual Schemes (Tax) Regulations 2025 come into force.

On 26 February 2025, the Financial Conduct Authority (FCA) published a speech on ‘Helping markets thrive and managing systemic risk: the FCA’s approach to non-bank leverage’, which was delivered by its executive director of consumers, competition and international, Sarah Pritchard, on 25 February 2025. Key points from the speech include: The UK non-bank finance sector manages around £14.3 trillion in assets and continues to grow. Ms Pritchard notes that whilst the sector’s use of leverage can help boost returns, enhance efficiency and manage risks, it can become a vulnerability and source of systemic risk when the leverage is concentrated or crowded. The FCA is of the view that targeted improvements to public and private disclosure could go a long way in mitigating the build-up of systemic risk from non-bank financial intermediation (NBFI) leverage, by giving NBFIs access to adequate data and information about the markets in which they operate and the risks to which they are exposed. Regulators also need to have the necessary data, systems and tools in place to effectively monitor NBFI leverage use and identify systemic risk. Considering the FCA’s regulatory remit and patterns of leverage use in the UK market, fund managers covered by the Alternative Investment Fund Managers Directive will be an area of focus for the FCA, although the NBFI sector is much broader than that. The FCA is playing a leading role in this area, and co-chairing a working group to support the ongoing Financial Stability Board consultation on a suite of proposals on monitoring and addressing systemic risk arising from NBFI leverage. Ms Pritchard notes that in many cases, the issues highlighted in the report are the same ones the FCA is already prioritising in its domestic work.

On 26 February 2025, the Financial Conduct Authority (FCA) published a portfolio letter setting out its supervisory strategy for the asset management and alternatives sector. Background The letter explains the importance of the UK asset management sector for the Government’s growth objectives and highlights that the way in which asset managers and alternatives firms manage their responses to geopolitical and market events will continue to be crucial. It also flags the importance of robust operational resilience to the smooth functioning of markets given the increasing interconnectedness of the sector and reliance on third parties. Outside its supervisory work, the FCA explains that it will undertake work to strengthen and streamline its regulatory and data frameworks to support investment in areas such as private assets and digital innovation, including tokenisation. It plans to engage with firms to discuss initiatives to unlock capital investment and liquidity, accelerate digital innovation to improve productivity, and take forward ideas to reduce the regulatory burden. Supervisory approach The FCA notes that it will continue its focus on how effectively firms’ governance arrangements are assigning senior accountability for the risks identified in its priority areas, oversight by governance bodies and ensuring appropriate management information about those risks supports good decision making. It also flags that it is continuing to improve how it uses data and technology and considering how this can help reduce regulatory burden, as well as reviewing its data collection to make it more efficient and effective. The FCA also plans to engage with industry during 2025 on a review of the Alternative Investment Fund Managers Directive, with the aim of streamlining regulatory requirements and collecting data that is proportionate to its supervisory needs and cost-effective for firms. Supervisory priorities The letter sets out the following current supervisory priorities for the FCA in this sector: Private markets: The FCA has carried out supervisory work to support confident investing in private assets and plans ‘shortly’ to release its multi-firm review on Private Market Valuation Practices, the findings of which firms should consider to ensure their valuation processes are robust with a strong governance framework and audit trail. It also flags that it will start a multi-firm review in 2025 focusing on conflicts of interest at firms managing private assets, which will assess how firms oversee application of their conflict-of-interest framework through governance bodies and reviews by the three lines of defence. Market integrity and disruption: Informed by vulnerabilities identified in the Bank of England’s System Wide Exploratory Scenario, the FCA plans to focus surveillance on prudent risk management, liquidity management and operational resilience, and to continue to improve its supervisory processes to strengthen oversight of these market vulnerabilities. It also intends to continue to monitor liquidity risk and ensure that the recommendations in the International Organization of Securities Commissions’ consultation paper on liquidity management for collective investment schemes are in place across its systems, and to consider recent findings on margin preparedness. Consumer outcomes: The FCA plans to start a multi-firm review of model portfolio services (MPS) in 2025 to look at how firms are applying the Consumer Duty, as well as publishing the findings from its ongoing multi-firm review of unit-linked funds later in the year. It notes that it will also engage with firms affected by key policy proposals to make its disclosure regime more flexible, to support smooth implementation of these proposals. Targeted work – sustainable finance: The FCA flags that it will engage with firms with sustainability-related products, to understand how they are implementing the labelling, naming, and marketing rules, so that it can identify any outliers and engage with them. Targeted work – financial crime and market abuse: Where it identifies weaknesses, the FCA plans to review the effectiveness of firms’ financial crime systems and controls, with a supervisory focus on anti-money laundering controls in private markets funds. While the FCA acknowledges that not all the issues raised in the letter will be relevant to all firms in the sector, it asks firms to discuss the letter with its Board, Executive Committee, and accountable Senior Managers to consider whether the risks of harm discussed here exist in their firm and implement strategies for managing them.