UK/EU Investment Management Update (August 2025)

1. UK — Government Financial Services Reform

2. UK — SMCR

3. UK FCA — Transaction Reporting

4. UK FCA — Other Matters

5. UK — Enforcement

6. UK — Bonds and Derivatives

7. UK — AI in Financial Services

8. EU — Solvency II / Securitisation

9. EU — ESG

10. EU — Cryptoassets

11. EU — DORA

12. EU — ESMA

13. International — NBFI

1. UK — Government Financial Services Reforms

UK government introduces the “Leeds Reforms” for the financial services sector

On 15 July 2025, the Chancellor of the Exchequer, Rachel Reeves, announced a wide-ranging set of reforms to the financial services sector, referred to as the “Leeds Reforms,” as part of her annual Mansion House speech.

The proposals seek to boost UK investment, enhance competitiveness, and position the UK as the top global financial services destination by 2035. The Leeds Reforms build upon earlier initiatives, including the so-called “Edinburgh Reforms,” reflecting the UK government’s broader strategy for financial sector growth and competitiveness. For further details on the Edinburgh Reforms, please refer to our January 2023 Update.

Some of the key goals relevant to investment managers include the following, and many of these have already been introduced through recently published consultations and announcements from HM Treasury and the FCA, as discussed below.

• Regulatory streamlining — accelerated timelines for regulatory approvals and authorisations, intended to cut red tape and enhance market responsiveness.
• SMCR — significantly streamlining the regime to reduce regulatory burden, including fewer required approvals and more proportionate rules. HM Treasury and the FCA have recently launched consultations in this area; please see below for further details.
• Unlocking retail investment — initiatives aimed at moving retail savers from low-interest accounts to higher-performing stocks and shares investments, supported by targeted advertising and simplified product information.
• Capital markets reforms — modernising listing rules, establishing the Private Intermittent Securities and Capital Exchange System (PISCES), and improving liquidity in UK markets. For further information on PISCES, please see our July 2025 Update.
• Innovation and fintech support — enhanced support structures, such as a new Scale-Up Unit, to help fintech firms grow rapidly, alongside regulatory sandboxes designed to encourage innovation.
• Promoting Sustainable Finance — plans to introduce UK Sustainability Reporting Standards aligned with global benchmarks, enhancing clarity and reducing greenwashing risks.
• Encouraging overseas investment — establishing a dedicated concierge service within the Office for Investment to assist international firms in navigating UK regulation; please see below for further details.

UK government publishes Modern Industrial Strategy

On 23 June 2025, the UK government published its Modern Industrial Strategy, a 10-year plan aimed at driving sustainable economic growth, boosting productivity, and positioning the UK as a global leader of innovation. Financial services have been identified as one of eight priority sectors (the IS-8), each of which will have a tailored Sector Plan (see further below for the Financial Services Sector Plan), co-developed with industry stakeholders.

The Modern Industrial Strategy intends to stimulate economic growth by increasing business investment, leveraging the IS-8 sectors as engines for high-quality job creation, productivity gains, and nationwide prosperity. Particular commitments in the Modern Industrial Strategy relevant to asset managers include these:

• Regulatory reform — streamlining and modernising regulation to foster innovation, as part of the wider “root-and-branch” reform agenda.
• Green finance — enhancing environmental, social, and governance (ESG) standards and transition frameworks to strengthen the UK’s leadership in sustainable finance.
• Investing in skill and talent development — boosting financial literacy, digital expertise, and leadership development, with a focus on artificial intelligence (AI)-related skills. The strategy also aims to leverage economic hubs throughout the UK beyond London.

Much of the substance echoes priorities set out in the FCA’s five year strategy; for further information, please see our April 2025 Update. Financial services regulators are expected to respond to the government’s plan in the upcoming weeks.

UK government publishes Financial Services Growth and Competitiveness Strategy

Following the publication of the Modern Industrial Strategy, on 15 July 2025, the UK government published the Financial Services Growth and Competitiveness Strategy (i.e., the Financial Services Sector Plan referred to above). This outlines the government’s vision to strengthen the UK’s position as a global destination of choice for firms to invest, innovate, and expand.

For investment managers, several aspects of the strategy are noteworthy. The UK government aims to streamline the UK Alternative Investment Fund Managers Regulations by early 2026 to make the UK a world leader for managing private markets assets; for further information on the UK government’s existing consultation in this area, please see our May 2025 Update.

The government also plans to support the innovation and development of tokenisation and AI in financial services and unlock retail investment, including by moving Long-Term Asset Funds into the Stocks & Shares ISA wrapper from April 2026 and implementing reforms to the financial advice landscape. This is intended to boost consumer engagement with investment products.

The FCA also published its own Competitiveness and Growth report in July 2025; please see below for further details.

Investment firms should expect further consultation papers and reforms to be issued by the UK government and the FCA in these areas in the coming months.

HM Treasury and FCA launch reforms to SMCR

See Item 2 UK — SMCR below.

UK sets out new plans to help foreign investors with financial services regulations

On 15 July 2025, during her Mansion House speech referred to above, the Chancellor of the Exchequer announced plans for a new “concierge service” designed to provide a tailored service to companies considering setting up and expanding in the UK by helping them navigate UK financial services regulations.

The Office for Investment: Financial Services aims to attract international firms that want to set up, grow, or invest in the UK and assist international firms to navigate the UK regulatory landscape.

Other delivery partners involved include the Prudential Regulation Authority (PRA) and City of London Corporation (the local government of the financial district). On 10 July 2025, the City of London Corporation published a report with its recommendations, which include establishing regulatory guidance to foreign investors and enabling visa facilitation and tax support.

2. UK — SMCR

HM Treasury and FCA launch reforms to SMCR

On 15 July 2025, HM Treasury, the FCA, and the PRA each published consultation papers on various proposals to reform the SMCR.

There are two phases to the proposals:

• Phase 1 includes amendments to the FCA and PRA rules that can be implemented quickly as they do not require legislative changes.
• Phase 2 includes reforms requiring amendments to primary legislation, with the goal of giving the FCA and PRA more flexibility to develop a more proportionate supervisory regime.

For further information on the FCA proposals, please see below.

HM Treasury’s consultation asks for views on proposals to remove the Certification Regime from legislation and transferring it to the FCA and PRA rulebooks and reforms to the approach to regulatory preapproval. All consultations invite feedback from stakeholders on other areas that could be improved to ease the regulatory burden on firms

All consultations are open for feedback until 7 October 2025.

FCA launches consultation on reforms to SMCR Regime

As noted above, on 15 July 2025, the FCA published Consultation Paper CP 25/21, alongside a summary, setting out a number of proposed changes to reduce regulatory burdens while streamlining and enhancing the efficiency of the SMCR. For further details on the FCA’s publication, please see our Sidley Update UK FCA Sharpens Focus on Culture: Expanding the Reach of Non-Financial Misconduct Regulation.

Key proposals include:

• Amendments to the “12-week rule.” The changes allow firms a “grace period” of 12 weeks to submit an application for permanent or interim Senior Manager replacements, rather than needing to secure approval within this period. Temporary appointees would be permitted to remain in place until the FCA determines the application and would be subject to the SMCR to maintain accountability in the interim.
• Removal of certification overlaps. The FCA proposes to reduce duplicative certification functions in the course of the application process and will provide clearer guidance on certification scope and recertification processes.
• Increasing the enhanced SMCR threshold. The assets under management threshold to be categorised as an “enhanced” SMCR firm (and therefore become subject to increased SMCR obligations) is to be raised by approximately 30% to account for inflation, easing regulatory burdens on smaller firms.
• Validity of criminal record checks (CRCs). The FCA plans to extend the validity for CRCs from three to six months and remove the requirement for new CRCs when existing Senior Managers apply for another Senior Management Function (SMF) role within the same firm or group.
• Updates to Statements of Responsibilities (SoRs). Currently rules require SoRs to be updated and reported to the FCA immediately following every relevant change, but the FCA plans to allow periodic (six-monthly) submissions of updated SoRs to reduce administrative burdens.
• Clearer guidance on SMFs and Prescribed Responsibilities (PRs). The revised rules aim to clarify the roles of SMFs, the appropriate allocation of PRs (including guidance on splitting PRs), and related reporting obligations for Conduct Rule breaches, ensuring consistency across firms.
• Changes to the FCA Handbook. The FCA plans to align the relevant provisions of the FCA Handbook with corresponding PRA Rulebook to ensure regulatory consistency.

As noted above, HM Treasury is separately proposing significant primary legislative changes, including potentially removing the Certification Regime from legislation and instead placing the regime directly in the FCA and PRA rulebooks, allowing certain Senior Managers to be appointed without prior regulatory approval, and reducing the overall regulatory burden relating to SoRs and Conduct Rules.

The FCA consultation applies to both solo-regulated and dual-regulated firms (although such dual-firms are also subject to rule changes through the PRA consultation), including third-country branches, and is open for comments until 7 October 2025. The FCA expects to publish a final Policy Statement by mid-2026.

Investment management firms should note that these consultations also follow the FCA’s publication of a policy statement and further consultation paper on new rules and draft guidance on nonfinancial misconduct in financial services, highlighting the FCA’s focus on revising conduct rules across the sector. For further details, please see the Sidley Update linked above and our July 2025 Update.

3. UK FCA — Transaction Reporting

FCA reports on observations from supervising the MiFID transaction reporting regime

On 23 July 2025, the FCA published Market Watch 82, containing recent observations on the UK MiFID transaction reporting regime relating to reporting errors and issues. The FCA noted the following key areas:

• Remedial timelines. The FCA notes that remedial exercises are extending beyond reasonable timelines due to a range of factors, including excessive time to present a remedial plan; missing deadlines set by internal governance bodies or the FCA; requesting unjustifiable extensions; an absence of measurable progress between FCA check-ins; and repeatedly revising root causes or impacted volumes of transaction reports.
  
  There are also common themes in the root causes for delayed remedial work, including poor internal processes (e.g., siloed teams, lengthy approval chains); insufficient resourcing; focusing on symptoms rather than the root cause (causing repeat issues); reactive compliance cultures; and weak governance.

• Back reporting. The FCA provided four case studies as an overview of common causes for delayed back reporting (the process by which firms correct inaccurate and incomplete transaction reports), with key themes being crystallised compliance risk (where a firm is able to identify and fix one issue but fails to identify and correct all affected historical reports), weak internal governance, data access and infrastructure limitations, and the impact of remediation on BAU.
• Breach notifications. The FCA noted it received 241 breach notifications in Q1 2025 and provided a summary of its supervisory observations and best practices following a review of these notifications. The FCA recommends that firms focus on providing the following in their breach reporting: (a) adequate issue and root cause descriptions, (b) information on impacted transactions and the relevant period, (c) insight on back reporting planning, (d) details relating to identified weaknesses in systems and controls and details of plans to address such issues, and (e) details of the committee, forum, or individual to which the issue has been escalated.

FCA fines Sigma Broking £1m for transaction reporting failures

Please see below under Item 5 (UK — Enforcement).

4. UK FCA — Other Matters

FCA to announces plans to modernise client categorisation rules

On 10 July 2025, the FCA announced that it would look to review its client categorisation rules, aiming to balance appropriate protections for retail clients with proportionate expectations for high-net-worth or highly experienced investors.

These reforms are intended to enhance firms’ confidence and encourage investment within capital markets, consistent with the FCA’s broader strategic growth initiatives. As you may recall, the FCA has already been considering amendments to the elective professional client test with the view to adopting a more pragmatic approach, and it intends to publish a consultation paper on this later in 2025.

At EU-level, similar developments have been underway. In line with the EU Retail Investment Strategy announced in May 2023, the EU proposes to adjust the client categorisation rules by lowering the thresholds at which a client can “opt up” from retail client to professional client status, and introducing a new test. However, legislative negotiations on these EU proposals have been paused until later in H2 2025, resulting in uncertainty over the future and timeline of these regulatory changes. For further details on the original proposal, please see our June 2023 Update.

FCA looks to shorten statutory deadlines following HM Treasury consultation

On 15 July 2025, the FCA announced plans to speed up its processes for firms and individuals seeking authorisation. Some reduced timelines will be reflected in statutory deadlines (via a HM Treasury consultation and subsequent legislative changes), while others will be voluntary targets promised to the Chancellor of the Exchequer by Nikhil Rathi, Chief Executive of the FCA.

The proposed package of targets includes the following:

• New firm authorisations and variations of permission applications to be completed in four months (rather than six) for complete applications and 10 months (rather than 12) for incomplete applications. This will be a statutory target.
• For variation of permission applications where the new permissions align closely to the existing business model, the target will be three months for complete applications and six months for incomplete applications. This will be a voluntary target.
• For senior manager regime applications, at least half will be completed within 35 days as a voluntary target, with a proposed statutory deadline of two months (rather than three) for all applications.

The FCA will measure its performance against the proposed new targets — both statutory and voluntary — from January 2026.

FCA launches new and improved Handbook website

On 4 July 2025, the FCA launched a new website for its Handbook, which is currently available as a beta version.

The new website aims to make it easier to navigate and find the information firms need, understand the connections between the FCA’s rules and guidance, and compare different versions of Handbook text to see what has been added or deleted over time.

This is part of the FCA’s five-year strategy to enhance regulatory efficiency. The FCA is inviting feedback on the beta version, with the intention of rolling out the final version in late 2025.

FCA publishes second annual International Competitiveness and Growth Objective report

On 10 July 2025, the FCA published its second annual International Competitiveness and Growth Objective report, setting out how the FCA is meeting its statutory “secondary objective,” which was introduced through the Financial Services and Markets Act 2023.

The report states that the FCA has embedded the secondary objective into its processes, policy making, and culture and has proposed 50 initiatives in alignment with this objective, through three key routes:

• Enabling the UK’s financial services to spur growth in the wider economy — reflected through wholesale market changes to the prospectus regime, the creation of PISCES, and improving transparency in financial markets.
• Supporting improvements in productivity and reducing administrative burden — the FCA is continuing to remove unnecessary data reporting for firms and increasing support of creative approaches to innovation such as the regulatory and digital sandboxes.
• Strengthening the international competitiveness of UK financial services — as part of this route, the FCA notes its establishment of offices in the U.S. and Asia Pacific and its work with the UK government and other partners to attract international firms to set up, expand, and invest in the UK as well as the introduction of the Overseas Fund Regime and increased payment optionality for investment research.

FCA releases final rules on UK public offer platforms and admission to trading regime

On 15 July 2025, the FCA published Policy Statement PS25/9, which sets out the final rules to implement the Public Offers and Admission to Trading Regulations 2024 (POATRs), which replaces the UK Prospectus Regulation (UKPR).

The new POATRs framework is intended to make it easier for companies to raise capital in the UK. The rules adopt a more proportionate approach and are designed to improve the relative competitiveness of UK regulation compared with other jurisdictions.

In the new Prospectus Rules: Admission to Trading on a Regulated Market (PRM) sourcebook of the FCA Handbook, the FCA will retain the bulk of the existing prospectus requirements for the admission of securities to trading on a regulated market at initial public offering (IPO) stage that currently apply in the UKPR. However, the new PRM rules include the following changes to the current requirements: (a) raising the threshold for when a prospectus is required; (b) reducing the number of days for which a prospectus needs to be publicly available for IPOs; (c) reducing contents requirements in the prospectus summary; and (d) introducing a new climate-related disclosure rule for certain equity issuers and optional disclosures to improve transparency of sustainability-labelled debt instruments.

5. UK — Enforcement

FCA fines Neil Woodford and Woodford Investment Management £45m for fund management failures

On 5 August 2025, the FCA fined Neil Woodford and his defunct investment management firm, Woodford Investment Management Limited (WIM), a combined £45 million for failures in managing the Woodford Equity Income Fund (WEIF).

Woodford received a fine of £5,888,800 and has been banned from holding senior manager roles in financial services and managing funds for retail investors. WIM was fined £40 million.

In its Decision Notices, the FCA concluded that between July 2018 and June 2019 Woodford and WIM made unreasonable and inappropriate investment decisions, resulting in a lack of liquidity. Furthermore, they did not react appropriately as the fund’s value declined significantly, which ultimately led to WEIF’s suspension, and disadvantaged investors (including retail customers) that remained in the fund as they could no longer access their money.

The FCA stated that Woodford “held a defective and unreasonably narrow understanding of his responsibilities… despite his senior role, he did not accept that he had a responsibility to oversee the management of the fund’s liquidity, including in interviews conducted by the FCA.”

Both Woodford and WIM intend to challenge the decision in the Upper Tribunal.

FCA fines Sigma Broking £1m for transaction reporting failures

On 29 July 2025, the FCA fined Sigma Broking Limited (Sigma) £1,087,300 for failing to submit complete and accurate transaction reports required under the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (UK MiFIR) for five years. The FCA’s Final Notice states that these failures were caused by an incorrect system setup and persisted uncorrected due to weaknesses in Sigma’s reporting processes.

The Final Notice also notes that the FCA fined Sigma £531,600 in October 2022 for failing to accurately report 56,000 client allocations and identify 97 suspicious trades connected to other areas of its business during the period 1 December 2014 to 12 August 2016, which ought to have prompted Sigma to ensure that it was complying with its other transaction reporting requirements, including those under UK MiFIR. For further details on this previous fine, please see our November 2022 Update.

In the current enforcement action, the FCA’s monitoring systems identified issues with transaction reports submitted by Sigma and these were raised to the firm in May 2023. In February 2025, Sigma confirmed that the total number of incorrect reports was 924,584, which was close to 100% of the transactions handled by the firm between 1 December 2018 and 1 December 2023.

Sigma’s fine was reduced by 30% from £1,553,300 to £1,087,300 due to Sigma’s cooperation with the process. Its fine is the second enforcement action against a firm for a breach of UK MiFIR transaction reporting requirements, the first having been published against Infinox Capital Limited six months ago (see our February 2025 Update).

FCA fines Barclays £42m for poor handling of financial crime risks

On 16 July 2025, the FCA fined Barclays Bank PLC and Barclays UK Bank PLC a combined £42 million for significant deficiencies in financial crime controls. The penalties stem from separate failures involving inadequate due diligence and anti-money-laundering (AML) oversight.

Barclays Bank PLC received a fine of £39.3 million for failing to manage money laundering risks associated with banking services provided to Stunt & Co. Limited (Stunt & Co), a firm connected to the Fowler Oldfield Limited (Fowler Oldfield) money-laundering scandal. Despite being made aware of criminal investigations into Fowler Oldfield, Barclays inadequately monitored transactions, facilitating the transfer of approximately £46.8 million from Fowler Oldfield to Stunt & Co.

Barclays Bank UK PLC was fined £3.1 million for opening a client money account for WealthTek LLP (WealthTek) without appropriate customer due diligence, failing to verify whether WealthTek was authorised to hold client money, increasing risks of misappropriation and money laundering. Barclays agreed to make a voluntary payment of £6.3 million to affected WealthTek clients following the firm’s collapse amid fraud allegations against its principal partner.

FCA fines Monzo £21m for failings in financial crime controls

On 8 July 2025, the FCA issued a Final Notice imposing a £21.1 million fine on Monzo Bank Ltd (Monzo) for financial crime control failings.

Between October 2018 and August 2020, Monzo experienced a near tenfold growth in customer numbers but failed to maintain sufficient financial crime systems and controls. In August 2020, the FCA mandated an independent review of Monzo’s financial crime framework and issued a voluntary requirement (VREQ) restricting the onboarding of “high-risk” customers (however, Monzo did not initially adhere to this VREQ).

The fine was reduced by 30% from £30.1 million to £21.1 million after Monzo accepted the Final Notice and engaged in settlement discussions. Monzo has since launched a comprehensive financial crime remediation programme, aiming to strengthen its AML framework in line with independent review recommendations.

H2O deputy CEO fined £1m and banned from financial services industry for deliberately misleading FCA

On 25 July 2025, the FCA issued a Final Notice stating that that Jean-Noel Alba, the former deputy CEO of asset management firm H2O AM LLP (H2O), has been fined £1 million and banned from the financial services industry. The enforcement actions follow an FCA investigation that found that Alba lacked integrity as he deliberately misled the regulator.

For further information on H2O’s failings between April 2015 and November 2019, please refer to our September 2024 Update.

During the FCA’s investigation and as the principal point of contact with the FCA, Alba produced false and misleading statements and documentation to the regulator. Alba asked junior colleagues to create minutes where no formal meetings had taken place. Furthermore, Alba provided due diligence materials (such as “investment research”) to the FCA that had been created years after investments had been made.

The investigation therefore found that Alba had breached Statement of Principle 1 (failing to act with integrity), Statement of Principle 4 (failing to deal with the FCA in an open and cooperative way), Individual Conduct Rule 1 (failing to act with integrity), and Individual Conduct Rule 3 (failing to deal with the FCA in an open and cooperative way).

Two individuals sentenced to combined 12 years for £1.5m crypto fraud

On 4 July 2025, the FCA announced the sentencing of two individuals for their roles in a cryptocurrency fraud between February 2017 and June 2019. The FCA brought the prosecution, and the individuals have been sentenced to a combined 12 years of imprisonment.

Raymondip Bedi and Patrick Mavanga cold-called victims and sold them bogus investments in cryptocurrency. At least 65 investors were defrauded and lost over £1.5 million. Bedi was sentenced to five years and four months, while Mavanga was sentenced to six years and six months.

The FCA continues with confiscation proceedings to recover the benefit from the crimes of both defendants.

Former traders see UK financial sector bans upheld

On 1 July 2025, the UK’s Upper Tribunal (the Tribunal) upheld the FCA’s enforcement actions against three former Mizuho International plc (Mizuho) bond traders for engaging in market manipulation. Using a deceptive trade strategy known as “spoofing,” Diego Urra, Jorge Lopez Gonzalez, and Poojan Sheth were found to have deliberately placed large and misleading orders for Italian government bond futures without the intention of execution, influencing market prices to benefit their genuine smaller orders.

The Tribunal upheld the FCA’s conclusions, describing the traders’ actions as deliberate, dishonest, and lacking integrity, confirming their permanent bans from working in financial services. Although the bans were upheld, the Tribunal reduced the financial penalties originally imposed by the FCA. Urra’s fine was decreased significantly from £395,000 to £223,400 and Sheth’s from £100,000 to £57,600, while Lopez Gonzalez’s penalty remained unchanged at £100,000. Mizuho, which fully cooperated with the FCA’s investigation, was cleared of any wrongdoing in 2019.

FCA publishes economic crime priorities for UK regulated sector

On 22 July 2025, the FCA, in conjunction with the National Crime Agency, published their joint economic crime priorities for the UK regulated sector. The nine priorities include combatting cash-based money laundering, the exploitation of money mules, and fraud associated with overseas jurisdictions.

Fighting financial crime remains a strategic priority for the FCA. A newly established System Prioritisation Governance Group will oversee governance of the joint priorities, and further guidance is expected in due course to support firms in aligning with these objectives.

Upper Tribunal rules on meaning of “knowingly concerned” in regulatory breaches

On 16 June 2025, the Tribunal issued its judgment regarding regulatory breaches connected to the reporting of inaccurate risk-weighted assets figures by Metro Bank, causing a significant drop in its share price. The Tribunal confirmed that the bank had breached Listing Rule 1.3.3R by publishing misleading information without due care.

FCA-authorised firms and senior managers at those firms should note that in its judgement, the Tribunal sought to clarify the meaning of “knowingly concerned,” confirming that senior managers could be “knowingly concerned,” and personally accountable for breaches, if they were aware of facts constituting the breach and were actively involved in the breach, regardless of intent, recklessness, or dishonesty. Following FCA v Forster (2023), the Tribunal stated that it is immaterial whether the senior manager had knowledge of the law, unless they had received and was relying on independent legal advice that the activity concerned was not in contravention of the law, and that advice was based on a correct and complete factual matrix.

For further details on the Forster case, please refer to our August 2023 Update.

6. UK — Bonds and Derivatives

New UK legislation governing derivatives as financial instruments laid

On 15 July 2025, the UK Financial Services and Markets Act 2000 (Markets in Financial Instruments) Amendment Regulations 2025 (the Regulations) were laid. The Regulations extend the FCA’s powers of direction to a new category of derivative called “applicable OTC commodity derivatives,” which encompasses commodity derivatives traded over the counter that would otherwise fall outside scope of the FCA’s powers because they are outside the definition of a financial instrument as specified in Part 1 of Schedule 2 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.

The term “applicable OTC commodity derivative” will replace the existing term “over the counter contract” in Regulation 27 of UK MiFIR, which is being removed pursuant to changes entering into force through the Financial Services and Markets Act 2023 (FSMA 2023). Accordingly, the Regulations will enter into force immediately after the UK MiFIR/FSMA 2023 changes are in force.

FCA consults on SI regime for bonds and derivatives and the transparency regime for equities

On 4 July 2025, the FCA published Consultation Paper CP25/20, which proposes rules making significant changes to the SI regime for bonds, derivatives, structured finance products, and emission allowances, and requests further input on the structure and transparency regime of the UK equity market.

Regarding the SI regime, the FCA proposes three main changes:

• The removing the SI regime for bonds, derivatives, structured finance products, and emission allowances, reflecting the decreased relevance of the existing regime following the pending removal of pretrade transparency requirements (which was introduced in the UK implementation of MiFID and will be removed, effective 1 December 2025, following changes made by the FCA following changes made by the FCA as part of the Wholesale Market Reviews’ post-Brexit Reforms).
• Lifting the prohibition on matched principal trading by firms operating multilateral trading facilities (MTFs); this change aims to reduce operational complexity and costs for MTF operators by allowing them to directly execute matched principal trades, provided appropriate conflict-of-interest controls remain in place.
• Adjusting the rules around the reference price waiver, enabling trading venues to use reference prices from a broader set of markets rather than limiting them to the primary market; this reform aims to enhance market resilience and competitive equality by providing greater flexibility in determining reliable reference prices.

The SI regime changes are intended to simplify the regulatory framework, enhance market resilience, and foster competition among execution venues.

Regarding the UK equity market, the FCA has requested feedback on how the market is operating and whether any reforms may be warranted, noting that it recognises a shift in structure and transparency characteristics, marked by declining activity of central limit order books and a notable rise in bilateral and off-exchange trading. The FCA is keen to explore whether this shift affects effective price formation and transparency of addressable liquidity and whether regulatory changes might be needed to address these evolving market dynamics.

The SI consultation will close on 10 September 2025, and, based on the responses received, the FCA plans to finalise the proposed changes for the SI regime in a policy statement in Q4 2025. The FCA aims to consult on new or amended rules regarding the UK equity market in 2026.

FCA seeks views on rules for nonfinancial firms trading commodities derivatives

On 3 July 2025, the FCA published Consultation Paper CP25/19 on changes to the ancillary activities test (AAT), designed to simplify and reduce costs for firms seeking the benefit from the ancillary activities exemption (AAE).

The AAE exempts commercial users or producers of commodities from requiring authorisation as an investment firm if they trade in any of commodity derivatives, emission allowances, or derivatives of emission allowances as an ancillary activity. To benefit from the AAE, a firm must carry out the AAT. The FCA has stated that the AAT (which was introduced under MiFID II) is complex and relies on calculations requiring market data that needs to be sourced every year at a cost to firms.

Under CP25/19, the FCA is proposing to establish three separate and independent tests to assess whether a firm can benefit from the AAE, including a new annual threshold test that will exempt firms that trade in commodity derivatives on a relatively small scale. The other two tests will be modified versions of the existing trading and capital employed tests, which are currently part of the AAT’s main business test. Under the proposal, a firm will need to satisfy only one of the three tests within the AAT to benefit from the AAE.

The FCA invites feedback by 28 August 2025.

7. UK — AI in Financial Services

FCA opens applications to AI Live Testing Service

On 9 July 2025, the FCA announced that it has opened applications for its proposed AI Live Testing Service, following responses from stakeholders to its April 2025 AI Engagement Paper.

The AI Live Testing Service allows eligible firms to test ready to deploy AI models in real-world conditions while also receiving regulatory support. The FCA wishes to engage with firms in this area to support the safe and responsible deployment of AI by firms and achieve positive outcomes for UK consumers and financial markets.
Applications to the Live Testing Service are open until 20 August 2025. The FCA plans to publish a Feedback Statement in respect to the AI Engagement Paper in September 2025.

8. EU — Solvency II / Securitisation

European Commission launches consultation on Solvency II

On 17 July 2025, the Commission launched a consultation on a draft Delegated Act as part of the review of Solvency II, which includes aspects relevant to securitisation.
As part of the Delegated Act, the Commission proposes to reduce the risk factors for securitisation investments (i) for non–simple, transparent, and standardised (STS) securitisations, new risk factors are to be introduced for senior tranches, while risk factors are to be reduced for non-senior tranches — to ensure a senior-to-non-senior capital requirement ratio that better aligns with banking rules, and (ii) for STS securitisations, the prudential treatment of senior tranches is to be aligned with that of covered bonds and the treatment of non-senior tranches is to be adjusted by the same extent as for senior tranches.

These changes follow the Commission’s review of the securitisation framework; for further information, please refer to our Sidley Update Proposed Reform of EU Securitization Regulation — Implications for U.S. Securitizations, which concluded (in relation to Solvency II) that the risk-sensitivity of non-STS securitisations should be improved by introducing specific senior tranche risk factors. This is intended to address undue prudential disincentives that discourage insurers from investing more in securitisations.

The consultation is open for feedback until 5 September 2025.

9. EU — ESG

Commission adopts “quick fix” delegated act for reporting under CSRD

On 11 July 2025, the Commission adopted targeted “quick fix” amendments to the ESRS under the CSRD for “wave one” companies already conducting CSRD reporting for financial year 2024.

This follows the EU’s adoption of a “Stop-the-Clock” Directive in April 2025, which postponed CSRD reporting requirements for certain “wave two” and “wave three” companies. For details, please see our Sidley Update EU Omnibus Package: EU Adopts “Stop-the-Clock” Directive and Begins ESRS Simplification Process.

The “quick fix” delays by two years the need for “wave one” companies to report additional information required by the current CSRD rules for financial years 2025 and 2026, which may become obsolete in light of the wider EU Omnibus proposals and ESRS simplification described above.

Once the Commission has adopted a delegated act, the Council of the European Union and the European Parliament generally have two months to raise any objections.

The Delegated Act will undergo a two-month scrutiny period (extendable to four months) by the European Parliament and European Council before publication in the Official Journal of the EU, after which it will apply to financial years beginning on or after 1 January 2025.

European Commission adopts delegated regulation amending the EU Taxonomy Delegated Acts

On 4 July 2025, the Commission adopted its final Delegated Regulation amending the EU Taxonomy Delegated Acts, which includes revisions to the Disclosures Delegated Act and the Climate and Environmental Delegated Act. The Commission also published a press release and accompanying FAQs. This follows a consultation period initiated on 26 February 2025 as part of the Commission’s broader omnibus simplification package. For further information, see our Sidley Update EU Omnibus Package: Key Changes Proposed by the Commission on ESG Reporting and Due Diligence.

These amendments introduce significant simplifications aimed at reducing administrative burdens and enhancing the competitiveness of EU businesses. They include (a) an exemption for financial and nonfinancial firms from assessing Taxonomy eligibility and alignment for economic activities not considered materially significant to the company; (b) streamlined reporting templates, reducing required data points by 64% for nonfinancial firms and 89% for financial firms; (c) amendments to the “do no significant harm” criteria; and (d) clarifications and adjustments on the scope of reporting key performance indicators for financial undertakings, specifically excluding certain asset categories such as derivatives, cash equivalents, goodwill, and commodities from mandatory assessment.

The Delegated Regulation will now undergo a four-month scrutiny period (extendable by an additional two months) by the European Parliament and the European Council. Absent objections, the regulation will be published in the Official Journal of the EU, entering into force 20 days thereafter, and will be applicable from 1 January 2026, with an option for firms to apply the existing framework for the 2025 financial year if preferred.

Commission extends deadline for EFRAG’s revised ESRS technical guidance

On 1 July 2025, the Commission extended the deadline for the European Financial Reporting Advisory Group (EFRAG) to deliver its technical advice on the revision and simplification of the European Sustainability Reporting Standards (ESRS) for reporting under the CSRD from 31 October to 30 November 2025. Consequently, EFRAG will hold a longer public consultation period on the forthcoming draft ESRS updates, which is now expected to run from the end of July to the end of September 2025.

On 10 July 2025, EFRAG published its current ESRS Exposure Drafts on its website for stakeholders’ feedback. These do not yet represent a formal EFRAG position, but they outline six key simplification “levers” intended to streamline the reporting requirements, targeting a significant reduction in the number of mandatory reporting datapoints and simplifying the double materiality assessment.

ESMA publishes updated Q&A for SFDR

On 4 August 2025, the European Supervisory Authorities (ESAs) published an updated set of Consolidated Q&A relating to the Sustainable Finance Disclosure Regulation and related regulatory technical standards (RTS). The new Q&A relate to, amongst other things, guidance on Article 8 disclosures relating to commitments to investing in sustainable investments, and disclosures relating to certain principal adverse impact (PAI) indicators.

10. EU — Cryptoassets

ESMA publishes guidelines on market abuse under MiCA

On 9 July 2025, ESMA published new guidelines to establish consistent, efficient, and effective supervisory practices amongst competent authorities (CAs) to prevent and detect insider dealing, unlawful disclosure of inside information, and market manipulation under the Markets in Crypto Assets Regulation (MiCA). They aim to ensure uniform and consistent application of Articles 86-92 MiCA.

There are 12 guidelines, which address various aspects of how CAs should approach tackling market abuse, including in relation to proportionality in supervision, continued stakeholder engagement, data-driven market monitoring and surveillance, and coordination with ESMA in respect of cross-border investigations.

The guidelines apply from October 2025.

ESMA publishes statement regarding unregulated crypto products

On 11 July 2025, ESMA published a statement warning cryptoasset service providers (CASPs) of their obligations when offering both regulated and unregulated products under MiCA. ESMA emphasised that CASPs must avoid misleading clients about the protections applicable under MiCA, cautioning against the “halo effect” where a regulated status might inadvertently reassure investors about unregulated products.

To mitigate risks, ESMA provided practical guidance, setting out encouraged and discouraged practices to mitigate the risk to investors, including the following:

• Encouraged practices. CASPs should clearly and explicitly communicate the regulatory status of each product or service at the time of entering an agreement, ensuring visible differentiation between regulated and unregulated offerings and the related risks.
• Discouraged practices. CASPs should not use regulated status under MiCA as a promotional tool when engaging in unregulated activities or imply that regulatory protection exists for unregulated products solely through documentation such as terms and conditions or by combining regulated and unregulated offerings on the same communication channels.

At the same time, ESMA published a Final Report providing guidance for assessing the knowledge and competence of CASPs under MiCA, providing examples of relevant qualifications and experience. The guidelines will be published on the ESMA website and will apply six months after publication.

11. EU — DORA

DORA RTS on subcontracting ICT services published

On 2 July 2025, Commission Delegated Regulation 2025/532 was published in the Official Journal of the EU. These RTS supplement the Digital Operational Resilience Act (DORA) in specifying the elements that a financial entity has to determine and assess when subcontracting information and communication technology (ICT) services supporting critical or important functions.

The RTS are intended to assist with the enhancement of the digital operational resilience of the financial services sector by improving in-scope entities’ ICT risk management, specifically with respect to the issue of ICT subcontracting.

12. EU — ESMA

ESMA publishes updated Q&A for UCITS

On 15 July 2025, ESMA published an updated Q&A related to the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. The updated answer provides guidance as to whether the manager of a feeder fund within the meaning of Article 58 of the UCITS Directive can charge a performance fee.

ESMA selects consolidated tape provider for bonds in the EU

On 3 July 2025, ESMA announced that it has selected Ediphy (fairCT) as the first consolidated tape provider for bonds in the EU. ESMA assessed applications received over the last six months against criteria listed in UK MiFIR. Ediphy (fairCT) met all necessary selection criteria and achieved the highest overall score on the award criteria.

13. International — NBFI

FSB publishes report on leverage in nonbank financial intermediation

On 9 July 2025, the FSB published its report on Leverage in Nonbank Financial Intermediation (NBFI), issuing policy recommendations to address financial stability risks from NBFI leverage.

These recommendations are addressed to FSB member authorities and focus on markets, entities (such as hedge funds, other leveraged investment funds, and pension funds), and activities where NBFI leverage may create financial stability risks.

The FSB recommends that authorities consider setting entity-based leverage limits, either directly (e.g., maximum debt-to-asset ratios) or indirectly (e.g., risk-based constraints like yield buffer requirements), to pre-emptively restrict excessive leverage in nonbanks that pose systemic risks.

The report builds upon an FSB report published in 2023 that examined the financial stability implications of leverage in NBFI and found that such NBFI leverage played a significant role in stress episodes including the March 2020 “dash for cash,” the default of Archegos Capital Management in March 2021, the commodities market turmoil in 2022, and the liability-driven investment crisis that increased stress in the UK Gilt market in September 2022.

The 2025 report aims to address the residual financial stability risks created by NBFI leverage, including those that remain and those possible in future, specifically relating to those risks that arise in financial markets that are a key part of the financial system and risks that arise through interlinkages between leveraged nonbanks and systemically important financial institutions that provide such leverage.

The recommendations include these:

• Risk identification and monitoring. Authorities should have a domestic framework to identify and monitor in an effective, frequent, timely, and proportionate manner financial stability risks posed by NBFI leverage. This includes authorities needing to assess and address data challenges in their current frameworks, collaborating where appropriate to reduce challenges associated with cross-border risk identification and monitoring. Finally, authorities should review the granularity, frequency, and timeliness of existing public disclosures and to assess whether changes are necessary.
• NBFI leverage in core financial markets. Authorities should address risks created by NBFI leverage in their core financial markets; when selecting policy measures to mitigate these, authorities should consider the most appropriate measures that may be activity-, entity-, or concentration-based.
• Counterparty credit risk management. Authorities should ensure the timely and thorough implementation of the Basel Committee on Banking Supervision guidelines on counterparty credit risk for bank leverage providers. Further, authorities should review the adequacy of existing counterparty disclosure practices between leveraged nonbanks and leverage providers — with the view to developing standards or guidelines on such disclosures if deemed necessary.
• Patchwork regulatory treatment. Authorities should identify instances where NBFI leverage provisions are subject to “incongruent regulatory treatments” that open up the possibility of regulatory arbitrage and therefore increasing financial stability risks.
• Cross-border cooperation. Authorities should engage proactively with their cross-border peers to facilitate and coordinate policy responses (or responses to crises) to the extent legally and operationally feasible.

The FSB will begin supervisory discussions amongst authorities and later in 2025 will invite members to consider whether to initiate follow-up work on certain of the above recommendations.