UK/EU Investment Management Update (July 2026)

In this Sidley Update, we cover, on the UK side, developments relating to the cryptoasset regime, Financial Conduct Authority initiatives and enforcement developments, including its Emerging Technology Horizon Scan, proposed changes to its penalties framework, sanctions-related guidance, a commodity traders competition investigation, updated appointed representatives data, UK tax updates relating to recent Supreme Court decisions and the launch of the UK bond consolidated tape.

On the EU and international side, we cover markets in cryptoassets–related consultations, Markets in Financial Instruments Regulation derivatives trading obligation relief, European Securities and Markets Authority priorities for the asset management industry and its recommendations to simplify EU transaction reporting, and the Financial Stability Board’s consultation on responsible AI adoption in financial services.

 

1. UK – Cryptoassets Regime

2. UK – Enforcement

3. UK – Sanctions

4. UK – ESG

5. UK – Financial Services Reform

6. UK – FCA General Updates

7. UK – AI

8. UK – Tax

9. EU – MiFID

10. EU – ESMA

11. EU – ESG

12. EU – Cryptoassets

13. International – AI in Financial Services

 

1. UK — Cryptoassets Regime

FCA publishes finalised rules and guidance for cryptoassets regime 

On 30 June 2026, the Financial Conduct Authority (FCA) published a number of policy statements that introduce the FCA’s final rules and guidance for the UK’s regulatory regime for cryptoassets. The policy statements mark another milestone for the regime, following the publication of the UK’s Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025 (Cryptoasset Regulations), and the FCA’s consultations on the regime through various discussion papers and consultation papers.

For further information, please see our Sidley Update UK Cryptoasset Regulation — Action Points for 2026–27, in which we discuss the Cryptoasset Regulations, which cryptoassets and activities are regulated under the new regime, and the FCA’s consultations. See also our Updates (to be published) on the final rules and guidance.

For all firms carrying out any regulated cryptoasset activities, the following policy statements are relevant:

• Policy Statement (PS26/12) on the prudential regime for cryptoasset firms under COREPRU and CRYPTOPRU. The FCA is also consulting on non-Handbook guidance to help firms complete risk assessments under such prudential frameworks.
• Policy Statement (PS26/13) on the application of the FCA’s existing Handbook rules to firms conducting regulated cryptoasset activities. This policy statement is accompanied by finalised guidance.

In addition, the FCA has also published activity-specific requirements. 

• Policy Statement (PS26/11) on final rules and guidance for firms conducting regulated cryptoasset activities.

For firms issuing, admitting, or trading cryptoassets, the following policy statements are relevant:

• Policy Statement (PS26/9) on the regimes for cryptoasset admissions and disclosures, and market abuse. The FCA notes in particular that the nature of cryptoasset markets means that market abuse risk is likely higher than in other markets. This reinforces the need for ongoing monitoring and iterative refinement of the regime as the market evolves.
• Policy Statement (PS26/10) on final rules and guidance for UK authorised stablecoin issuers. This policy statement covers issuance, backing assets, redemption, cryptoasset safeguarding, and disclosures. PS26/10 is supplemented by a publication with the Bank of England on how systemic stablecoins will be jointly regulated.

The FCA advises firms that carry out, or intend to carry out, regulated cryptoasset activities to familiarise themselves with the policy statements, rules, and guidance relevant to their business models and assess whether their firm will need authorisation or a variation of permission under the new regime.

The FCA notes that there are outstanding components to the cryptoasset regime that will need to be addressed through policy development and further consultation. These include managing cryptoasset firm failure and providing clarity on financial crime requirements. 

The cryptoasset regime will come into force on 25 October 2027. Once the regime has been in force for two years, the FCA intends to undertake a formal review to assess whether it is delivering its intended outcomes.

FCA publishes pre-application support guidance for cryptoassets gateway

On 18 June 2026, the FCA updated its guidance webpage on the operation of the cryptoasset gateway to include further details on its Pre-Application Support Service. 

Firms considering applying for authorisation under the new cryptoasset regime can request a pre-application meeting with the FCA via the Connect portal. These meetings are optional and free of charge. They are intended to provide firms with an opportunity to understand the FCA’s expectations and ask questions, with the aim of improving application quality and shortening decision timelines. Firms may request meetings now, although meetings will begin in July 2026.

 

2. UK — Enforcement

FCA takes action against Neil Woodford and W4.0 for operating without authorisation

On 8 June 2026, the FCA announced that it had started civil proceedings against Neil Woodford and W4.0, a subscription-based investment strategy and research platform launched by Woodford. The FCA alleged that Woodford and W4.0 are providing regulated investment advice and making financial promotions without authorisation. Accordingly, the FCA considers that their activities breach Sections 19 and 21 of the Financial Services and Markets Act 2000 (FSMA) and is seeking an injunction against Woodford and W4.0 to stop them carrying on the potentially unlawful activities. Notably, W4.0 is the trading name of W Four Point Zero FZE LLC and is registered in the United Arab Emirates. 

These proceedings follow the FCA’s August 2025 decision to fine Woodford and his now-defunct investment management firm, Woodford Investment Management Limited, a combined £45 million for failures in managing the Woodford Equity Income Fund. He was banned from holding senior manager roles in financial services and managing funds for retail investors, as covered in our August 2025 Update.

FCA consults on commitments offered by commodity traders following competition law investigation

On 24 June 2026, the FCA published a Notice of Intention to Accept Commitments in its Competition Act 1998 investigation into 11 individual commodity futures traders. The FCA’s investigation concerns suspected exchanges of potentially competitively sensitive information and potential coordination of trading strategies in commodity futures markets, particularly in energy futures contracts, between 1 November 2019 and 30 May 2020. 

The FCA’s concerns focus on information allegedly shared among individual day traders, including information relating to trading intentions, current positions, and recent orders. The FCA considers that this type of information exchange may have reduced uncertainty among competing traders and affected their independent decision-making, such as giving the traders reassurance when setting strategies or encouraging alignment in trading conduct. Accordingly, the FCA is concerned that the traders may have infringed Chapter I of the Competition Act 1998, which prohibits agreements between undertakings (which can be natural persons) that may affect trade within the UK and that have as their object or effect the prevention, restriction, or distortion of competition within the UK. 

The case is notable as an example of the FCA applying competition law principles to individual traders. The FCA notes that for commodity futures markets to operate competitively, trading intentions and actions should be made independently based on the relevant market. The FCA has not made any finding that competition law has been breached, and the offer of commitments does not amount to an admission of infringement by the traders.

The traders have offered legally binding commitments to address the FCA’s concerns. These include restrictions on sharing or receiving certain nonpublic information about commodity futures contracts tradable in or from the UK, annual competition law training for relevant trading activity, and compliance reporting obligations. Additionally, the traders have offered an ex gratia payment of £1 million in aggregate to the UK government, to be given to the Crisis and Resilience Fund, which supports those in financial hardship.

The FCA is consulting on whether to accept the proposed commitments. If accepted, the FCA would close the investigation, and the commitments would remain in force for five years, although the FCA would retain the ability to reopen the investigation in certain circumstances, including where there has been a material change of circumstances or suspected noncompliance with the commitments. The consultation closes on 14 July 2026.

FCA consults on increasing market abuse penalties

On 15 June 2026, the FCA published Consultation Paper CP26/19, outlining proposed changes to its Decision Procedure and Penalties Manual (DEPP) in the FCA Handbook. The DEPP was last subject to substantive updates in 2010, and the FCA notes that the amendments are intended to ensure that its penalty and decision-making policies remain up to date, transparent, and sufficiently deterrent. The proposals reflect, among other things, inflation since 2010, recent Upper Tribunal decisions, and the FCA’s new powers in relation to cryptoassets.

A key focus of the proposals is the deterrent effect of financial penalties imposed on individuals. On market abuse, the FCA is proposing to raise the minimum penalty for the most serious market abuse cases involving individuals from £100,000 to £150,000. The FCA states that this increase is intended to account for inflation and to ensure that the figure remains up to date and continues to serve as a suitable deterrent. The minimum penalty would also be subject to future automatic inflationary adjustments. 

The FCA is also proposing to clarify that when calculating penalties for individuals, it may increase penalties for deterrent effect, having regard to an individual’s income and net assets. This is intended to ensure that penalties remain effective, including for wealthier individuals. Additionally, the FCA is proposing to update how it factors in bonuses, pay, and shares when calculating individual penalties.

In relation to cryptoassets, the FCA is proposing to extend its existing penalty framework to cover cryptoasset market abuse. At present, market abuse is largely defined in DEPP by reference to the Market Abuse Regulation. The proposed amendments would make clear that the penalty framework in DEPP 6 applies equally to cryptoasset market abuse. The FCA also proposes to clarify that references to using “inside information” include using “inside information” as prohibited by the Cryptoasset Regulations. Accordingly, the FCA is proposing minor amendments to the definitions of “inside information”, “market abuse”, and “public censure” in the FCA Handbook Glossary.

The FCA is inviting feedback on these proposals until 10 August 2026.

FCA publishes final notices for two former directors following fraud convictions

On 15 June 2026, the FCA published Final Notices prohibiting two individuals (Peter Currie and Andrew Currie) from performing any function in relation to any regulated activity carried on by an authorised person, exempt person, or exempt professional firm.

The Final Notices follow their criminal convictions relating to Collateral (UK) Limited, a peer-to-peer lending business marked as FCA-authorised despite not holding the relevant permissions. The FCA found that the convictions demonstrated a serious lack of honesty and integrity, such that neither individual was “fit and proper” to perform any function in relation to any regulated activity carried on by an authorised or exempt person or exempt professional firm.

Peter Currie was convicted of fraud by false representation, fraud by abuse of position, and converting criminal property and was disqualified from acting as a director for 10 years. The FCA decision mentions the amendment of an FCA register entry to make it appear as though Collateral (UK) Limited held an interim position, and his involvement in transfers out of Collateral (UK) Limited after regulatory concerns had been raised. Further, the FCA noted that it considered the severity of the risk posed to consumers and confidence in the UK financial system in making the prohibition order. 

Andrew Currie was convicted of fraud by abuse of position and converting criminal property and was disqualified from acting as a director for 10 years. The FCA decision noted in particular his role as a director of Collateral (UK) Limited and the removal of funds before it entered administration (despite undertakings not to dissipate its assets), which was to the detriment of investors.

The FCA considered that the nature and seriousness of the offences, in particular the dishonesty and resulting risk to consumers and confidence in the UK financial system, justified the full prohibition orders against both individuals. The FCA noted that the action was appropriate to uphold the integrity of the UK financial system. 

 

3. UK — Sanctions

OFSI and OFAC publish comparative overview of UK and US sanctions regimes

On 23 June 2026, the UK Office of Financial Sanctions Implementation (OFSI) and the U.S. Office of Foreign Assets Control (OFAC) jointly published a comparative overview of the key aspects of the UK and U.S. economic sanctions regimes as part of the OFSI-OFAC Enhanced Partnership. This is a user-friendly economic sanctions comparison guide that may be useful for investment managers navigating the two regimes.

The overview intends to help firms understand their obligations under both regimes, including in relation to sanctions terminology, ownership and control, licensing, reporting, and enforcement. It highlights numerous differences, including types of sanctions that may be used for each regime, the terminology used for sanctioned persons, and how the 50% ownership threshold is applied.

Firms subject to both regimes should ensure that their sanctions monitoring systems and controls account for these differences, including reporting deadlines, penalty mitigation for voluntary disclosure, and limitation periods.

 

4. UK — ESG

FCA consults on simplifying climate reporting requirements for investment products

On 5 June 2026, the FCA published Consultation Paper CP26/17, which sets out a range of amendments to the FCA Handbook. While the proposals are generally minor in nature, the FCA is also consulting on more substantive changes to simplify its climate-related disclosure requirements, which are based on the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations. 

The proposals follow the FCA’s 2025 review of its climate disclosure rules (introduced in 2022), as covered in our January 2022 Update. The FCA’s review found that current product-level TCFD reports are often complex and not widely used. Institutional investors indicated that while they require certain data for their own climate reporting, they typically obtain it directly from firms themselves.

Consequently, the FCA is proposing to remove TCFD product reporting requirements and replace them with fewer, more targeted and outcomes-based rules while maintaining the overall scope. This aims to ensure that investors receive information that better suits their needs while reducing unnecessary burdens on in-scope firms.

 

5. UK — Financial Services Reform

FCA sets out next steps on reforms to UK Money Market Funds regime

On 8 June 2026, the Financial Conduct Authority (FCA) published a statement setting out next steps on issuing new rules and guidance on Money Market Funds (MMFs), following the UK government’s plans to replace the current UK Money Market Fund Regulation. The statement follows the FCA’s original consultation in December 2023 (CP23/28, Updating the Regime for Money Market Funds), in which it proposed measures to strengthen the resilience of UK-domiciled MMFs. 

The FCA has summarised its updated proposals, which are targeted at increasing the level of resilience of UK MMFs. The proposals include introducing a new requirement for all UK MMFs to hold sufficient liquidity to meet certain weekly liquid asset thresholds, depending on the type of MMFs. In addition, the new rules will include measures on “delinking” (removing the regulatory link between liquidity levels and the requirements on managers to consider tools such as liquidity fees or redemption gates) and enhanced “know your customer” requirements. 

The FCA plans to make its new MMF rules in line with the UK government’s expected timetable for repeal of the UK MMF Regulation by the end of 2026 and will publish a policy statement with further detail and interim final guidance on UK MMF weekly liquid asset levels before then. 

 

FCA publishes updated Appointed Representatives data

On 5 June 2026, the FCA published data on the appointed representatives (AR) regime as of March 2026, as part of its commitment to being a data-led regulator.

The data includes insights on the principal and AR population as well as revenue generated from regulated and non-regulated activity collected by the FCA through forms submitted by principal firms and REP025 data submissions. 

The FCA notes in particular from the data that whilst the AR population has expanded considerably since its introduction in 1986, the most recent figures indicate a slight decline over the past year. By the end of March 2026, there were 2,431 principal firms and around 33,000 ARs, of which around 21,000 were full ARs. This represents a decrease of 5.3% and 0.7%, respectively from March 2025.

On 22 June 2026, the FCA announced the launch of the UK bond consolidated tape. The tape consolidates post-trade data for bond transactions, including prices and trading volumes, into a single, accessible source.

The bond consolidated tape covers trades executed on UK trading venues as well as transactions arranged over the counter (OTC). It is intended to provide a more comprehensive and consistent view of UK bond market activity and support greater transparency and efficiency in the UK’s bond markets. The UK is the first jurisdiction outside of North America to implement a bond consolidated tape.

The FCA has expressed its intention to focus on supervising the tape’s ongoing performance, including monitoring data quality and completeness as coverage develops. In addition, the FCA is considering the design of a consolidated tape for equities, covering shares and exchange-traded funds, which the FCA intends to launch in mid-2027.

FCA publishes policy statement on its 2026/27 fees and levies

On 2 July 2026, the FCA published a policy statement (PS26/14) setting out final regulated fees and levies for 2026/27. Firms can calculate their individual relevant fees for 2026/27 using the FCA’s online fee calculator. The FCA intends to invoice fee payers from July 2026 for the 2026/27 periodic fees and levies.

 

7. UK — AI 

FCA publishes its Emerging Technology Horizon Scan 

On 10 June 2026, the FCA published its Emerging Technology Horizon Scan 2026 (Horizon Scan), the first external publication of its kind. The purpose of the Horizon Scan is to highlight emerging technologies and early signals of new risks, although the FCA notes that the publication does not serve to provide predictions or regulatory guidance.

The Horizon Scan groups its findings around the FCA’s strategic priorities: (i) helping consumers to navigate their financial lives; (ii) fighting financial crime and supporting growth; and (iii) innovation in the UK. Further, the report highlights personalised intelligence, synthetic crime, and programmable finance as major trends. 

Of particular note is the publication’s focus on “synthetic (in)security” whereby simulated data becomes difficult to distinguish from real data, and its implications for firms. The FCA warns that synthetic data AI and agentic systems could materially change the nature of financial crime for firms. Specifically, the FCA notes that generative AI may enable synthetic identities, fake documents, automated scams, and autonomous criminal organisations, as malicious actors may be able to deploy AI agents at scale to create automated and coordinated attacks. 

For firms, the operational resilience implications are significant. The FCA indicates that the threat is moving beyond fake content towards systems that undermine trust, evidence, market integrity, and the ability of firms to distinguish authentic activity from synthetic criminal activity. In particular, common reliance on the same AI platforms could create concentration risk, whereby an AI-augmented attack could simultaneously hit numerous targets. Additionally, autonomous agent-driven markets may create new forms of market manipulation to enable the multi-agent systems to commit insider trading or collusion. 

Despite these risks, the Horizon Scan notes that the UK could have a strategic opening because it has regulatory credibility that provides the foundations to maintain its position as a well-trusted hub for global value to flow through.

 

Supreme Court decision in HMRC v Bluecrest Capital Management (UK) LLP

On 1 July 2026, the Supreme Court handed down its eagerly anticipated judgment in HMRC v Bluecrest Capital Management (UK) LLP.  The Supreme Court confirmed the Court of Appeal’s narrow interpretation of the “significant influence” exclusion from the UK’s salaried member rules, holding that only influence deriving from enforceable legal sources could be taken into account when applying this test and confirming that strategic/managerial influence is the relevant kind of influence to consider. 

Our February 2025 update contains a summary of the prior Court of Appeal decision.

The UK’s salaried member rules determine whether a member of a UK LLP will be taxable as a self-employed partner or as an employee. They were introduced to tackle perceived abuse of the LLP business structure in order to ensure that only members who were partners in a true commercial sense could benefit from the advantages of being taxed as an LLP member.

The salaried member rules set out three conditions, each of which must be met in order to be treated as a salaried member (and therefore taxable as an employee). For an LLP member to escape salaried member status, they must fail at least one of the conditions. 

By way of recap, the conditions are as follows:

- Condition A: It is reasonable to expect that at least 80% of amounts payable to the member by the LLP will constitute “disguised salary”, being remuneration that is not variable by reference to the LLP’s overall profits and losses or not in practice affected by such profits and losses. 

- Condition B: The mutual rights and duties of the members and the LLP do not give the individual member “significant influence” over the affairs of the LLP.

- Condition C: The member’s capital contribution to the LLP is less than 25% of the amount of their “disguised salary”. 

The Supreme Court rejected Bluecrest’s appeal on both conditions, and we have set out a summary of its reasoning below.

Condition A — disguised salary

On Condition A, Bluecrest submitted that amounts should not constitute “disguised salary” if they would not have been paid at all had the LLP had insufficient profits (i.e., profits of the LLP for the year would act as a “cap” on the discretionary allocations made to its partners). Both the lower tier courts and the Court of Appeal had found against Bluecrest on this ground, and the Supreme Court agreed. For remuneration to not be disguised salary, it must be truly variable by reference to profits of the LLP, and it is not sufficient for overall profits of the LLP to act as a “cap” on pre-agreed allocations. 

Condition B — significant influence

The Supreme Court largely followed the interpretation of Condition B given by the Court of Appeal (which differed from the broader interpretation that had previously been taken by the lower tier courts). 

The Supreme Court held as follows:

• When considering what constitutes “significant influence”, forms of influence can only be taken into account to the extent that they derive from the mutually enforceable rights and duties of the members and the LLP. Therefore, for a member’s influence over the affairs of the LLP to have relevance in the application of this test, such influence must be traceable to an identifiable contractual, statutory, or other legal source.
• Although the influence needs to have an identifiable legal source, qualifying influence could also derive from rights and duties as a member of the LLP by virtue of delegated authority or by appointment to a specific role in the LLP where their authority can ultimately be traced back to the LLP agreement. 
• Influence must also be over the “affairs of the LLP”, which the Supreme Court considered is likely to lie in rights to participate in high level or strategic decision making about the LLP’s affairs or at least an ability to influence those decisions. Mere involvement in the day-to-day operations of the LLP is unlikely to meet this hurdle. 
• A member of an LLP should not be prevented from having “significant influence” over the affairs of that LLP by virtue of decision making in respect of certain matters being reserved for one member. 

The case has been referred to the First Tier Tribunal to reconsider the facts on this application of the law. 

Although the Supreme Court rejected the broader interpretation of Condition B adopted by the lower courts, it is helpful to have clarity going forwards on the considerations to take into account when applying Condition B. Asset managers operating through UK LLPs should closely consider the terms of their LLP agreements and appointments on member committees in order to assess the application of Condition B in light of this decision. 

Supreme Court decision in HMRC v HFFX LLP: Miscellaneous Income

In a busy few weeks for Supreme Court decisions on LLP taxation, the Supreme Court also handed down judgment in HMRC v HFFX LLP on 17 June 2026 in which it dismissed the taxpayer appeals. This decision concludes a series of recent cases in which HMRC have been successful in challenging similar LLP deferred remuneration arrangements.

The Court of Appeal decision in this case was covered in our August 2024 Update.

The HFFX case involved arrangements whereby individuals became members of a UK LLP that had a corporate member. Deferred remuneration arrangements were put in place whereby profits were allocated to the corporate member and then nominally reserved for future reallocation to individual members, based on their performance. The UK corporate member paid corporation tax on the profits allocated to it, invested the after-tax profits, and then ultimately re-contributed the proceeds of those investments back into the LLP as “special capital”. The corporate member exercised discretion to re-allocate the special capital to the individual members, who then withdrew these amounts.  

The position of the taxpayers was that these withdrawals were not taxable, on the basis that they constituted a withdrawal of capital from the partnership and not an allocation of income. 

HMRC’s position was that these amounts should be subject to income tax in the hands of the individual members, under one of the following three grounds:

• that profits allocated to the corporate partner should in the first instance have been treated as allocations to the individuals and therefore subject to income tax in the hands of the individuals at that time;
• that amounts should have been subject to tax under the miscellaneous income rules upon allocation of special capital to individual members; or alternatively
• that amounts should have been subject to tax under the sale of occupational income rules. 

The Supreme Court rejected the first of these arguments (as had the Court of Appeal and lower courts), on the basis that the profit-sharing arrangements in the LLP agreement had a valid commercial purpose and so could not be ignored. This aligned with the reasoning given by the Court of Appeal in the BlueCrest case (a separate Bluecrest case to the one mentioned above, which concerned similar deferred remuneration arrangements for members). 

On the second of these arguments, the Supreme Court agreed with HMRC. The charge to tax on miscellaneous income is contained at Section 687 ITTOIA 2005, and Section 687(1) provides that “income tax is charged … on income from any source that is not charged to income tax under or as a result of any other provision of this Act or any other Act”. The focus in this case was on whether or not the payments to the LLP members had a “source”, and the Supreme Court held that the discretion of the corporate member to make reallocations of special capital to the individual members amounted to a source from which the receipt of the special capital payments derived. The Supreme Court therefore held that the payments to members were taxable under Section 687 as miscellaneous income.

The Supreme Court therefore did not consider the arguments around application of the “sale of occupational income” rules.

The LLP remuneration arrangements considered in HFFX have generally been ineffective since the introduction of the mixed member partnership rules in 2014. As a result, few asset managers are likely to have remuneration structures to which the facts of this decision apply directly.

However, this decision is the latest in a series of successful HMRC challenges concerning miscellaneous income receipts of LLP members. It therefore reinforces HMRC’s continued focus on LLP member remuneration arrangements, and we expect this to remain an area of scrutiny.

 

9. EU — MiFID

Commission Implementing Regulation on standalone suspension of derivatives trading obligation under MiFIR published in Official Journal

On 15 June 2026, Commission Implementing Regulation (EU) 2026/1288 was published in the Official Journal of the European Union, providing for a standalone suspension of the derivatives trading obligation (DTO) under the Markets in Financial Instruments Regulation (MiFIR). The Implementing Regulation follows requests from the Autorité des Marchés Financiers and Germany’s Federal Financial Supervisory Authority to suspend the DTO for certain EU financial counterparties that regularly act as market makers (the DTO requires certain counterparties to trade certain derivative contracts only on specified trading venues rather than OTC).

The suspension permits BNP Paribas SA, Crédit Agricole CIB, Deutsche Bank AG, and Société Générale SA to trade derivatives that would otherwise be subject to the DTO on UK trading venues. The Regulation entered into force on 18 June 2026. The European Commission (Commission) will review every five years whether the grounds for the suspension continue to apply, with national competent authorities required to notify the Commission without undue delay if they consider that the relevant conditions cease to be satisfied.

10. EU — ESMA

ESMA Chair outlines priorities for European asset management

On 16 June 2026, the European Securities and Markets Authority (ESMA) published a speech delivered on 12 June 2026 by Verena Ross, ESMA Chair, on priorities for the European asset management industry. The speech framed ESMA’s current agenda around simplification, innovation, resilience, and trust, with a particular focus on reducing reporting burdens, supporting digital innovation in fund structures, and improving retail investor participation.

On reporting, ESMA confirmed that following its May 2026 final report on the integrated collection of funds’ data, it is proceeding with preparing technical standards for fund reporting under the revised Alternative Investment Fund Managers Directive (AIFMD) and Undertakings for Collective Investment in Transferable Securities (UCITS) Directive framework. ESMA expects to consult on draft technical standards by the end of 2026 and to finalise its proposals in the first half of 2027.

On digitalisation, ESMA described fund tokenisation as a potential change to the operational infrastructure around funds rather than, at this stage, a complete break with the existing fund model. ESMA is engaging with national competent authorities to build supervisory knowledge, including on whether regulatory barriers exist under the UCITS and AIFMD regimes. The speech emphasised the regulator’s concerns around investor protection, including the need for investors to understand the rights attached to their holdings and protection from technology-related risks such as cyber risk and operational dependencies.

On retail participation, ESMA linked its priorities to the Savings and Investments Union and its Retail Investment Strategy, stating that ESMA is ready to work on mandates once they are finalised and issued. In relation to the proposed amendments to the Packaged Retail Investment and Insurance Products Regulation, ESMA indicated that it will focus on making disclosures simpler and better adapted to digital channels.

ESMA sets out recommendations to simplify EU transaction reporting

On 2 July 2026, ESMA published its final report on a comprehensive approach to simplifying financial transaction reporting across MiFIR, Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (EMIR), Regulation (EU) 2015/2365 of the European Parliament and of the Council of 25 November 2015 on transparency of securities financing transactions and of reuse, and amending Regulation (EU) No 648/2012 (SFTR) and related sectoral reporting regimes.

The report sets out ESMA’s recommendations for reducing complexity and duplication in transaction reporting, supported by analysis and a cost-benefit assessment involving market participants. The proposals are intended to lower reporting costs for firms while improving the quality, consistency, and usability of data available to supervisors.

ESMA recommends a phased approach, comprising the following:

• Longer-term structural reform. ESMA proposes moving towards a single integrated transaction reporting framework across MiFIR, EMIR, and SFTR based on a “report once” principle. This would require targeted amendments to EU legislation to rationalise reporting channels, remove overlapping obligations, and establish a clearer division of responsibilities between national competent authorities and EU-level supervisors. ESMA envisages that the integrated framework would be implemented in stages.
• Short- and medium-term measures. ESMA also recommends a package of measures designed to deliver earlier burden reduction and support the transition to a more integrated model. These include
  • expanding the use of delegated reporting under EMIR and SFTR,
  • simplifying the EMIR intragroup exemption process,
  • reducing the look-back period for historical corrections under MiFIR,
  • introducing targeted MiFIR reporting exemptions for transactions that do not provide meaningful market abuse indicators,
  • streamlining the EMIR errors and omissions notification process, and
  • amending the SFTR reporting treatment of failed settlement trades.

The report notes that the next steps will depend on ESMA’s recommendations being translated into concrete legislative changes through the ongoing legislative negotiations on the relevant MiFIR, EMIR, and SFTR provisions. In an optimistic scenario, where those negotiations conclude swiftly and all necessary Level 1 changes are made by mid-2028, ESMA expects the new integrated reporting model to become operational within five years.

 

Commission consults on CSDDD implementation guidelines

On 12 June 2026, the Commission launched a public consultation on the development of guidelines to support the implementation of the Corporate Sustainability Due Diligence Directive (CSDDD). The consultation is aimed at a broad range of stakeholders, including companies within scope of the CSDDD and financial sector entities, including asset owners and asset managers that may have an interest in sustainability due diligence.

The CSDDD implementation guidelines are intended to provide practical guidance on how in-scope companies should fulfil their due diligence obligations, how member state authorities should implement and enforce the directive, and how stakeholders may engage with the process. They are expected to cover, among other things, due diligence processes, sector-specific guidance, the assessment of risk factors including conflict-affected and high-risk areas, the use of data and digital tools, information sharing for compliance with national law, and stakeholder engagement.

The consultation closes on 24 July 2026. The guidelines are expected to be adopted in stages, with the first tranche due by 26 July 2027 and the second by 26 July 2028.

 

12. EU — Cryptoassets

ESMA clarifies expectations for unauthorised cryptoasset service providers

On 24 June 2026, ESMA published a statement clarifying how unauthorised cryptoasset service providers should wind down EU activities following the end of the transitional period under markets in cryptoassets (MiCA).

ESMA set out its expectations for unauthorised cryptoasset service providers to stop onboarding new clients and cease market activities. Services should be limited to actions necessary to sell or transfer cryptoassets, reallocate assets, or close client positions with custody continuing only for the period required to complete an exit.

Additionally, ESMA emphasised the need for clear and repeated client communications, including on timelines for transferring or closing positions and any deadline for automatic closure of residual positions. Unauthorised cryptoasset service providers should also maintain effective anti-money-laundering and counter-terrorism controls during the wind-down, including customer due diligence and sanctions screening.

Further, ESMA expressed that non-EU unauthorised cryptoasset providers may not provide MiCA services to, or solicit, EU clients unless services are provided at the client’s own initiative.

European Banking Authority consults on methodology for setting MiCA fines

On 26 June 2026, the European Banking Authority (EBA) published a consultation paper on its proposed methodology for setting fines under MiCA. The proposal reflects the EBA’s supervisory role in relation to issuers of significant asset-referenced tokens and significant e-money tokens issued by electronic money institutions. The methodology would apply where the EBA finds that a significant token-issuer, or a member of its management body, has negligently or intentionally breached MiCA. The aim is to promote a more consistent, proportionate and transparent approach to enforcement while preserving the EBA’s ability to assess each case on its facts.

Under the proposed methodology, the EBA would first determine a basic fine amount by reference to the issuer’s annual turnover and the seriousness of the infringement before applying any aggravating or mitigating factors. Relevant factors may include whether the conduct was intentional or repeated, the duration of the breach, prompt notification to the EBA, and voluntary remediation. The final fine would remain subject to maximum amounts for fines set out in MiCA. The EBA invites feedback to its consultation, which closes in September 2026.

Commission extends deadline for MiCA review consultations

On 28 June 2026, the Commission announced that it has extended the deadline for responding to its MiCA review consultations to 30 September 2026. The targeted consultation (for industry stakeholders and national authorities) and public consultation were launched on 20 May 2026. The consultations seek views to help the Commission assess whether MiCA remains fit for purpose in light of developments in cryptoasset markets and the global policy and regulatory landscape since MiCA came into force in 2024 and compare the regime with cryptoasset frameworks in other jurisdictions. For more information, please see our June 2026 Update. 

 

13. International — AI in Financial Services 

Financial Stability Board publishes its consultation report on Sound Practices for Responsible Artificial Intelligence Adoption in Financial Services

On 10 June 2026, the Financial Stability Board (FSB) published its consultation report on Sound Practices for Responsible Adoption of Artificial Intelligence (the Report). 

The FSB sets out 12 sound practices for responsible AI adoption that are relevant for financial institutions and financial stability, which are intended as a flexible, proportionate list of practices rather than a prescriptive standard. The FSB notes that the adoption of AI should be risk-based and proportionate and that larger financial institutions may require more robust practices.

The sound practices are summarised as follows:

1. Strategic direction and oversight. Senior management should align AI adoption with the firm’s business model and strategy.
2. Governance and accountability. Firms should clearly define AI roles and governance arrangements.
3. Risk management framework. AI risks should be built into risk frameworks, including identification, documentation, materiality, and risk assessment.
4. Organisational adaptability. Firms should continue to update their capabilities, oversight, and controls as AI evolves.
5. Materiality and risk assessment. AI use cases should be assessed throughout their lifecycle.
6. Selection. Firms should choose AI models or systems based on business objectives, operational needs, technical requirements, and risk.
7. Data governance. Data used for AI should be complete, reliable, and secure.
8. Explainability and transparency. Firms should understand the AI explainability limits, apply compensating controls where needed, and provide stakeholder-appropriate transparency.
9. Performance management. AI performance should be tested and monitored in proportion to the materiality and risk of the use case.
10. Human oversight. Human oversight should reflect the AI system’s risk, autonomy, and complexity.
11. Cyber and Information and Communication technology (ICT) risk management. Firms should manage AI-related cyber and ICT risks, including through testing and information sharing.
12. Third-party risk management. Firms should manage third-party AI risks, including supply chain, data quality, and transparency.

The Report groups the practices around two broad areas: organisation-wide AI governance, which focuses on senior management oversight and accountability, and AI lifecycle management, which focuses on performance management and materiality assessment. 

The Report invites feedback on its work and the sound practices by 22 July 2026, and the FSB intends to publish a final report in October 2026.