UK/EU Investment Management Update (December 2025)

In this Sidley Update we cover, on the UK side, court decisions clarifying the ability of the Financial Conduct Authority (FCA) to publicise investigations and firms’ client categorisation obligations, a series of criminal enforcement announcements, and FCA publications on Markets in Financial Instruments Regulation (MiFIR) transaction reporting, prudential reporting data quality, fund tokenisation and financial crime risk assessments. On the EU side, we cover the European Commission’s Sustainable Finance Disclosure Regulation (SFDR) 2.0 proposal and other related environmental, social, and governance (ESG) reporting developments; work by the European Securities and Markets Authority (ESMA) on fund cost transparency, European Central Bank input on securitisation, and the European Parliament’s report on use of AI in the financial sector.

1. UK — FCA Updates 

2. UK — Enforcement 

3. UK — Non-Financial Misconduct 

4. UK — Government

5. UK — EMIR

6. UK — AI

7. UK — Cryptoassets

8. UK — ESG

9. UK — International Cooperation

10. EU — ESG

11. EU — AIFMD and UCITS

12. EU — Securitisation

13. EU — AI

14. EU — AML

15. International

 

1. UK — FCA Updates

FCA opens consultation on reforms to MiFIR transaction reporting

On 21 November 2025, the FCA published its consultation paper (CP25/32) containing proposals to improve the UK transaction reporting regime with the aim of reducing regulatory burdens for firms and supporting economic growth. The FCA is proposing to change the UK Regulatory Technical Standards (RTS) 22, 23 and 24, replacing them with new rules in the Market Conduct sourcebook of the FCA Handbook.

Key proposals and decisions include the following:

• No buy-side exemption. While the industry has called for the removal of buy-side firm reporting, the FCA has decided not to implement this, citing that such an exemption would remove oversight for 56% of buy-side transactions and that this data is crucial for market abuse detection and supervisory analysis.
• Altering the scope of reportable instruments. Proposals include limiting reportable instruments to those tradeable on UK trading venues; moving foreign exchange derivatives out of scope; reducing back-reporting period to three years; and affirming the FCA Financial Instruments Reference Data System as a “golden source” for assessing the reportability of financial instruments.
• Extension of single-sided reporting. The FCA intends to allow the existing “single-sided reporting” mechanism found in Article 4 of RTS 22, which allows a receiving firm to submit its transaction report including details provided by a firm carrying out reception and transmission (but not other activities such as portfolio management or execution of orders on behalf of others), to be extended to cover all trading capacities, called “conditional single-sided reporting.” The FCA also proposes simplifications to data reporting, including but not limited to fewer mandatory reporting data points; removal of requirements to transmit known data to the receiving firm; and removal of the requirement to provide decision-maker details within the transmitting firm.

The consultation closes on 20 February 2026, and the FCA expects to publish a Policy Statement in the second half of 2026.

FCA publishes data quality review into prudential regulatory reporting by MiFIDPRU firms

On 26 November 2025, the FCA published its findings on the data quality of prudential regulatory reporting by MIFIDPRU investment firms. The scope of the review covers approximately 3,800 firms for the reporting period January 2024 to March 2025.

The FCA noted areas of improvement including the following:

• Inconsistency across data sources. The FCA noted material differences between values in firms’ MIF007 returns and their internal capital and risk assessment (ICARA) documents. The figures are expected to align unless the firm’s business model has changed significantly.
• Incorrect application of reporting guidance. The FCA identified a common issue in firms’ calculations in MIF001 of the Own Funds Threshold Requirement compared to the Own Funds Requirement and recommended that firms review their practices in accordance with MIFIDPRU 9.
• Incorrect reporting of type of investment firm. The FCA identified that non–small and non-interconnected (Non-SNI) firms left key fields in MIF001 blank, including fields for the K-factor requirement, which affects accurate calculation of a firm’s Own Funds Requirement.
• Wrong units and data-entry errors. The FCA found “extreme and implausible” shifts in values among different reporting periods, which they considered most likely indicates data issues. Similarly, identical data across periods or inconsistent annual and quarterly submissions raise doubts on the accuracy of data by firms.

Firms in scope of MIFIDPRU should review their data practices against the requirements in the FCA Handbook to ensure data quality is robust.

FCA publishes Policy Statement on the SI regime for bonds and derivatives

On 28 October 2025, the FCA published its policy statement (PS25/17) on the systematic internaliser (SI) regime for bonds and derivatives, which also included a discussion paper on equity markets. The key rule changes on bonds and derivatives include the following:

• Removal of the SI regime. The FCA will proceed to remove the SI regime for bonds, derivatives, structured finance products, and emission allowances. A new glossary definition of “equity SI” has also been incorporated for clarity.
• Removal of prohibition on SI operating an organised trading facility (OTF). Firms may now operate both an SI and an OTF within the same legal entity.
• Removal of prohibition of matched principal trading. Multilateral trading facilities can now engage in matched principal trading.

The removal of the SI regime entered into force on 1 December 2025.

Regarding the Discussion Paper on equity markets, the FCA noted that it is still considering responses from its previous publication of this Discussion Paper (as found in CP25/20, published in July 2025) and plans to publish a full consultation on the SI regime for equity markets in the first half of 2026.

FCA publishes consultation paper on UK equity consolidated tape

On 19 November 2025, the FCA published a consultation paper (CP25/31) on proposals to introduce a UK equity consolidated tape. The FCA noted that it believes greater use of equity trade data would enable market participants to make more informed decisions and make use of the best available platforms for their trades. Because the FCA believes the current level of liquidity in UK markets is underestimated, this proposal could present a more accurate picture and improve market confidence.

After considering four possible design scenarios, the FCA is recommending Scenario 2 from its paper — a tape that includes both post-trade data and the attributed pretrade bid offer from lit UK venues, which the FCA believes strikes the right balance considering market benefits, certainty of delivery, and level of risk.

Moreover, market participants have expressed a strong preference for a single equity consolidated provider (CTP), as opposed to multiple equity CTPs, to be authorised. The FCA will offer an initial five-year contract to a single provider to be appointed via a procurement process.

The consultation remains open until 30 January 2026, and the FCA is inviting expressions of interest to be the equity CTP. A Policy Statement is due to be released in the first half of 2026. The equity CTP is planned to start operation in 2027.

FCA publishes findings on review into firm risk assessment processes and controls

On 11 November 2025, the FCA published findings of its multi-firm review focusing on assessing how firms have implemented their business-wide risk assessment (BWRA) and customer risk assessment processes. Some of the FCA’s key findings relate to how firms identify, understand, and assess risk; appropriately mitigate risk; and effectively manage risk including the following:

• Identify, understand, and assess. While most firms had BWRAs in place, few had sufficiently tailored their BWRAs to their specific businesses. The FCA noted that it saw larger firms integrating risk assessment activities into their business activities but was concerned that some firms were not able to sufficiently explain how they were managing and mitigating identified risks. Good practice highlighted by the FCA includes having tailored assessments in place that are annually reviewed, which are quantitative and qualitative and consider a range of internal and external factors.
• Mitigate. The FCA found that the risk of financial crime is often considered in business strategy, but it discovered limited evidence on how risk assessments and decision-making and monitoring activities are joined up in firms. It noted that very few firms had documented actions resulting from their risk assessments. Good practice highlighted by the FCA includes considering the capacity of the firm’s compliance and financial crime functions to support the firm’s growth strategy and how it feeds into the firm’s wider operations.
• Manage. While the FCA noted that many firms recognised the importance of appropriate governance and oversight functions, it also noted that senior management appeared to better understand fraud risk than other types of financial crime risks. The FCA found that most firms have considered how to document their risk assessments, and some firms are integrating dynamic risk assessments into their financial crime frameworks. Good practice highlighted by the FCA includes sharing assessment information with senior management and keeping risk assessments under regular review.

In a speech delivered on 4 November 2025 at the launch of the Chief Risk Officer Network, the FCA deputy chief executive, Sarah Pritchard, called for more active risk management within firms, noting its importance in driving growth, fighting financial crime, and protecting consumers.

FCA announces that RegData access is now available through My FCA

On 28 November 2025, the FCA announced that registered and authorized firms will be able to access RegData through My FCA, its new consolidated account portal. In subsequent months, Connect and the Online Invoicing System will also be integrated into the platform. No action is required from firms, and users would be automatically redirected. This is part of the FCA’s aim to become a smarter regulatory and providing firms with easy access to the regulatory reporting systems.

FCA publishes international report on fund tokenisation

On 12 November 2025, the FCA, together with the Monetary Authority of Singapore (MAS), the UK Investment Association, and the Investment Management Association of Singapore, published an international report on fund tokenisation.

The report discussed an “adoption gap” that has limited buy-side institutions from adopting tokenisation in digital markets. To address this issue, the report produces a practical checklist to guide stakeholders to design and launch digital products and services. In particular, it examines tokenisation from the perspective of buy-side investors and seeks to find ways to promote robust governance, strong risk management systems, investor protection, and fiduciary controls.

2. UK — Enforcement

Court of Appeal finds investment firm liable for erroneous client categorisation

On 29 October 2025, the Court of Appeal upheld its decision finding Linear Investments Ltd (Linear) liable for failing to meet FCA regulatory requirements in its client categorisation processes, despite the fact that the client misrepresented their expertise and credentials to be treated as an “elective” professional client, which allowed them to take part in Linear’s high-risk trading strategy.

The client in this case was a natural person (and thus ordinarily a retail client) who had signed a Managed Discretionary Advisory Agreement with Linear and invested £100,000 in Linear’s “Pembroke” strategy. The Pembroke strategy included dealing in contracts for differences and was expressly stated in the product factsheet to be targeted at “Professional and Institutional Investors.” Within a year, the client’s investment had almost halved in value. The client complained to the Financial Ombudsman Service (FOS), alleging mismanagement by Linear. The FOS found, amongst other things, that Linear should not have treated the client as an elective professional client.

At the Court of Appeal, Linear was unsuccessful in arguing that it should have been allowed to rely on the (limited) statements made by the client in Linear’s account opening form. The court held that classification of clients is not a mere formality and reasoned that the FCA requirements for the qualitative and quantitative tests are unlikely to be satisfied alone by a client’s box-ticking on an account opening form and, importantly, without any explanation or evidence to support their supposed experience or categorisation. The court indicated that a client’s treatment as a professional client requires a genuine, evidence-based assessment, and assessments by firms offering high-risk products should be particularly comprehensive.

This judgement is in line with the FCA’s high-level observations from its multi-firm review of client categorisation in corporate finance firms, as discussed in our November 2025 Update. In particular, the FCA commented on the superficial “tick-box” approach firms have adopted in carrying out client categorisation.

High Court upholds FCA’s decision to publicise a firm under investigation

On 23 October 2025, the High Court dismissed a judicial review from CIT (an anonymised firm) against the FCA to prevent the FCA’s publicly naming the firm at an early stage in its investigation. The issue centred around whether the FCA correctly interpreted its power under the “exceptional circumstances test” in its Enforcement Guide to name CIT.

As covered in our June 2025 Update, the FCA dropped its proposed “name and shame” framework for publicising the names of the firms that they investigate. The baseline position, therefore, is that the FCA will not normally make public the fact that it is or is not investigating a particular matter unless the exceptional circumstances test is satisfied.

The High Court judge clarified the three points of interpretation in the test:

• Exceptionality. This is measured relative to “investigated situations,” not to regulatory situations warranting investigation in general.
• Desirability. If the FCA determines that an announcement is required (i.e., a no-announcement vs announcement decision), the FCA should then specifically consider whether a named announcement, rather than an anonymized announcement, is justified.
• Relevance to FCA objectives. A named announcement may be justified if it meets the FCA’s key objective of ensuring consumer protection, in a way that an anonymized announcement (or no announcement) could not.

More generally, the High Court reiterated that questions of “application,” that is, whether circumstances are exceptional, or naming is desirable are primarily a matter for the FCA and not the courts.

Based on these points of consideration, in this case the judge ruled that naming was necessary for consumer protection and market confidence, outweighing the potential prejudice to the claimant.

Of relevance to regulated firms, the clarifications in this case provide a clearer roadmap for the FCA to use named announcements, especially when firms offer services to consumers.

FCA publishes details of investigations into suspected criminal offences in the financial sector

In November 2025, the FCA published four press releases notifying the public of arrests and charges in relation to suspected offences in the financial sector:

• three individuals arrested for allegedly targeting vulnerable people facing repossession proceedings
• an individual arrested on suspicion of market manipulation, fraud by false representation, and forgery
• an investment bank employee and business associate charged with improper disclosure of insider information and dealing in price-affected securities in relation to inside information respectively
• an individual charged with fraud by abuse of position as the sole director of an FCA-authorised financial advisory firm for using more than £2.3 million of funds for her personal purposes; she also allegedly provided false documents to the FCA to conceal her criminal behaviour

The announcement of these investigations at their early stages illustrates the FCA’s desire to publicise inquiries into suspected unauthorised activities that may cause investor harm, even before a finding is made.

3. UK — Non-Financial Misconduct

FCA publishes update on House of Commons inquiry into non-financial misconduct in financial services

On 28 October 2025, the House of Commons Treasury Committee published a letter from the FCA providing an update to the Committee’s “Sexism in the City” report, which was published in March 2024.

In the letter, the FCA reiterated that non-financial misconduct is a regulatory issue that concerns a firm’s decision-making and risk management processes. Since the report, the FCA has extended its non-financial misconduct rules to non-banks; for further information, please see our Sidley Update UK FCA Sharpens Focus on Culture: Expanding the Reach of Non-Financial Misconduct Regulation. The FCA has yet to confirm whether they will issue additional guidance for firms before the end of the year.

In the letter, the FCA also addressed key questions relating to the following:

• Bankers’ bonus cap. The FCA will be carrying out a review on the impact of the removal of the bankers’ bonus cap next year.
• The use of non-disclosure agreements. The FCA published the full findings of its data survey so firms can benchmark their reporting against peer analysis and adjust their processes accordingly.
• Culture and non-financial misconduct survey. The FCA has followed up with firms that it considered to be outliers in their approaches to non-financial misconduct and have been engaging with industry associations to identify best practices. The FCA is progressing further supervisory work with wholesale brokers to examine whether such firms have effective and preventative controls.

4. UK — Government

Overseas Recognition Regime enters into force

On 30 October 2025, the Financial Services (Overseas Recognition Regime) Regulations 2025 were published, along with an explanatory memorandum. The statutory instrument sets out the Overseas Recognition Regime whereby HM Treasury (HMT) may recognise a regulatory framework outside the UK, enabling overseas forms to provide services directly into the UK without being required to comply with duplicative requirements.

In addition, the instrument makes changes to the established Overseas Recognition Regimes to ensure clarity and uniformity across the regimes.

The instrument entered into force on 28 November 2025.

House of Lords calls for evidence on regulators’ approach to growth

On 12 November 2025, the Industry and Regulators Committee of the House of Lords issued a call for evidence on the role of UK regulators in promoting economic growth. This is in line with the UK government’s action plan that seeks to ensure regulators and regulations support growth.

The call for evidence contains a list of questions covering, for example, how prioritising growth might affect regulators’ duties and how regulators are responding to the UK government’s action plan. It closes on 9 January 2026.

UK government announces three-year exemption from duty on new London-listed shares

On 26 November 2025, the UK government announced an exemption from the 0.5% Stamp Duty Reserve Tax on companies listed on the London Stock Exchange for three years after their initial listing, which took effect on 27 November 2025. This is part of Chancellor Rachel Reeve’s latest budget announcement and also reflects the UK government’s action plan on stimulating economic growth and generating interest in the UK capital market, as described above.

5. UK — EMIR

HMT and FCA propose updates to the temporary intragroup exemption regime for OTC derivatives

On 5 November 2025, HMT and the FCA each published proposals to introduce a permanent intragroup exemption regime for over-the-counter (OTC) derivatives under the UK European Market Infrastructure Regulation (UK EMIR), to replace the current temporary intragroup exemption regime (TIGER), which is set to expire on 31 December 2026.

HMT publishes draft legislation for a permanent UK EMIR intragroup exemption

To reflect necessary changes to the UK EMIR intragroup regime in statutory legislation, HMT published a draft statutory instrument, the Over the Counter Derivatives (Intragroup Exemptions) Regulations 2026.

Key features:

• expanding the availability of the exemption for group members located in jurisdictions that are not considered equivalent under Article 13 of UK EMIR
• creating a more efficient framework for applying for the exemption, so that firms will only need to notify the FCA and the FCA not to object within 30 days to allow firms to rely on the exemption
• allowing firms currently relying on TIGER exemptions to continue relying on the exemptions without having to reapply

The draft is published alongside a policy paper. Technical comments on the draft statutory instrument, which is set to be laid before Parliament in the first half of 2026 to allow for implementation at the end of 2026, are requested by 16 January 2026.

FCA consults on UK EMIR intragroup regime

Also on 5 November 2025, the FCA published a consultation with a view to making the TIGER clearer for counterparties seeking intragroup exemptions from clearing and margin requirements. In line with industry feedback, the FCA’s aim is to create a permanent, more proportionate regime for UK firms.

The consultation is also open for feedback until 16 January 2026.

FCA publishes Policy Statement on margin requirements for non–centrally cleared derivatives

On 27 November 2025, the FCA published its joint policy statement (PS25/16) with the Prudential Regulation Authority (PRA) detailing amendments to the Binding Technical Standards 2016/2251 related to margin requirements for non–centrally cleared derivatives, effective immediately.

The amendments include an indefinite exemption for single-stock equity options and index options from the UK bilateral margining requirements and removal of the requirement to exchange Initial Margin (IM) for legacy contracts once a counterparty falls out of scope of the margin requirements.

6. UK — AI

HMT commissions report into AI in financial services

On 5 November 2025, HMT published a letter commissioning the Financial Services Skills Commission to produce a report on disruptive technologies and skills needs in the UK financial sector. The research is to include assessments of

• technologies expected to have a significant impact on the financial services sector’s business practices, workforce, and skills needed over the next five to 10 years;
• the impact of those technologies on the sector’s growth potential, productivity, and customers;
• skills the sector will need for successful adoption in addition to a plan on how to build these skills; and
• a cost-benefit analysis of the proposed measures.

The results are to be delivered to HMT in the form of a final report in mid-2027.

Director of market oversight makes speech on AI opportunities in financial markets

On 14 November 2025, Dominic Holland, FCA director of Market Oversight, made a speech on AI innovation and potential opportunities in financial markets. In his speech, Holland made clear that the FCA is pro-innovation and encourages firms to take advantage of the opportunities that technologies could bring while striving to maintain the appropriate risk-management and monitoring measures.

Of relevance to investment firms, Holland highlighted how the Market Abuse Surveillance Techsprint that the FCA hosted in 2024 explored how AI tools could help detect evolving, complex market abuse patterns.

FCA enters into strategic partnership on AI with MAS

On 12 November 2025, the FCA announced that it had partnered with MAS to drive growth and AI innovation. The strategic partnership is to strengthen the FCA’s international footprint in AI. The FCA also commented that it aims to establish a permanent presence in Singapore, which is part of the FCA’s wider plan to establish presence in key markets in 2026.

Through the partnership, the FCA is looking to support the safe and responsible adoption of AI innovation across the UK and Singapore markets, for example, by joint testing of AI solutions, exchange of regulatory insights and collaborative events.

7. UK — Cryptoassets

Bank of England publishes consultation on regulating systemic stablecoins

On 10 November 2025, the Bank of England (the Bank) published a consultation paper on its proposed regulatory regime for sterling-denominated systemic stablecoins. This follows the Bank’s discussion paper and FCA’s consultation paper that were published in October 2023. For further details, see our Sidley Update UK Confirms Regulatory Regime for Cryptoassets.

The Bank’s 2025 consultation paper sets out how stablecoin issuers could be subject to different stablecoin regulatory regimes according to their use types. The categories include (1) systemic stablecoins for everyday payment, (2) stablecoins used as a settlement asset, (3) non-systemic stablecoin for payments, and (4) other uses.

The consultation paper provides an overview of the Bank’s proposed approach compared with its 2023 discussion paper, highlighting where policies have been revised, clarified or unchanged or are new and notable. Key policies that have been revised:

• Backing assets. Systemic stablecoin issuers would be allowed to hold up to 60% of their backing assets in short-term sterling-denominated UK government securities and at least 40% as unremunerated deposits at the Bank. The paper also contemplates includes a temporary regime giving flexibility to issuers off newly launched stablecoins to hold up to 95% of the backing assets in short-term government debt to support viability during the early stages.
• Capital and reserve requirements. In response to the proposed change to backing assets discussed above, the Bank proposes to restrict holdings of UK government debt to short-term maturities, which is consistent with other international regimes. Furthermore, the Bank would no longer require that issuers to hold an operational risk buffer on trust as part of a shortfall reserve, stating that risks could be mitigated through capital held for general business risk purposes.
• Temporary holding limits. Before real-world financing risks from stablecoins are fully understood or mitigated, the Bank proposes to introduce temporary holding limits of GBP 20,000 per coin for individuals and GBP 10 million for businesses, with an exemption regime for large corporates requiring higher holdings.

Finally, the Bank noted that it proposes to consider relevant cross-border issues involving non-UK-based issuers of stablecoins and relevant cross-border issues in due course.

The deadline for comments to the consultation paper is 10 February 2026.

FCA joins with RegTech platform to improve transparency of UK crypto markets

On 26 November 2025, the FCA announced that it has accepted RegTech platform Eunice into its Regulatory Sandbox to develop standardised, industry-led disclosure templates for cryptoassets. This experiment aims to improve transparency of the UK crypto market by affording consumers more information on the risks of their purchase.

This collaboration is part of the response to the FCA Discussion Paper published last year on regulating cryptoassets in which report the FCA identified “inadequate information” as one of the primary risks in the cryptoasset market. Making sure that consumers have adequate information will lead to better, more informed investment decisions. The FCA also prepares to publish its final rules in 2026, as a final step to its Crypto Roadmap before the regime goes live.

8. UK — ESG

Transition Finance Council publishes new Guidelines and draft Implementation Handbook

On 3 November 2025, the Transition Finance Council published a new iteration of its Transition Finance Guidelines (the Guidelines) and an accompanying draft Implementation Handbook on how to apply the Guidelines.

The updated Guidelines follow the Council’s consultation paper from August 2025 and are designed to support capital providers in identifying credible transition finance opportunities.

The objectives of the Guidelines:

• facilitate the creation of consistent minimum expectations for transition financing;
• facilitate practical assessments of credible transitions; and
• be used with existing frameworks.

Key updates relative to the previous version include simplified criteria to increase accessibility and clearer alignment with existing international frameworks (such as those developed by the Loan Market Association (LMA) and the International Capital Market Association (ICMA)) and the proposed introduction of the Implementation Handbook (Handbook).

The November 2025 publication also includes a draft Implementation Handbook to assist users in applying the Guidelines in practice.

The consultation on the Guidelines and the Handbook closes on 30 January 2026.

FCA speech on sustainable finance

On 5 November 2025, Alicia Kedzierski, the FCA’s head of sustainable finance, delivered a speech at the LMA Sustainable Finance Conference highlighting the fundamental role of the loan market in facilitating the green transition. Kedzierski also noted that the draft Transition Loan Principles published by the LMA in October 2025 provide clearer product categories in transition finance that can help deepen trust in the market.

Kedzierski nevertheless highlighted that the meaning of “transition finance” is still open to interpretation — noting that if it is characterised as investment in decarbonising existing assets, market expectations are very different than if it is characterised as investment in new green solutions.

9. UK — International Cooperation

FCA and PRA publish joint guidelines for BFSA

On 3 November 2025, the FCA, jointly with the PRA, published guidelines to assist firms considering providing services under the Berne Financial Services Agreement (BFSA).
The BFSA is intended to make it easier for UK and Swiss firms to take part in cross-border trade from 2026 onwards, using outcomes-based mutual recognition. For details on the BFSA, please see our January 2024 Update.

The BFSA guidelines seek to clarify expectations, set out operational considerations, and assist firms in ensuring compliance with the applicable regulatory standards applicable to cross-border business.

UK government asked to assess UK-EU financial services cooperation framework

On 12 November 2025, the House of Lords European Affairs Committee published a report on the status of the UK-EU relationship, which included a request for the UK government to assess whether it is content with the UK-EU framework for cooperation in financial services. The report comes after the sector did not feature in a summit to foster UK-EU cooperation earlier this year.

The UK government’s response to the request is expected by 12 January 2026.

10. EU — ESG

European Commission publishes proposal for revised SFDR

On 20 November 2025, the European Commission (the Commission) published its proposals to revise the SFDR. The new regime, known as SFDR 2.0, will present significant changes to asset managers subject to the current regime.

Five key takeaways for asset managers are set out below. For more details, please see our Sidley Update SFDR 2.0: Five Key Takeaways From the European Commission’s Proposal for Revising the EU Sustainable Finance Disclosure Regulation.

• Shift from disclosure regime to product categorisation regime. The previous disclosure regime centred on Articles 6, 8, and 9 is revamped to a product categorisation regime set out in Articles 7, 8, and 9.
• Mandatory disclosures. The current mandatory disclosure framework (pre-contractual, website, and periodic) applies to products that fall within the new product categories (new Articles 7, 8, and 9) as well as for non-categorised products (current Article 6).
• New marketing and naming requirements. Only financial products qualifying under the new Articles 7, 8, and 9 can make sustainability-related claims in their marketing communications and fund name.
• Removal of entity-level principal adverse impact (PAI) reporting. Asset managers would no longer be required to publish entity-level PAI statements nor comply-or-explain statements in relation to PAI under the current Article 4.
• No grandfathering or transition relief. Financial products subject to the current regime would need to comply with SFDR 2.0 once it is in force, unless an exemption applies (there is no transition relief).

The text of the proposed legislation will be reviewed and subject to input from the co-legislators, the European Parliament and Council. SFDR 2.0 is expected to come into effect 18 months after final adoption of the legislative text, with a “start-up period” running from 2027 to 2028 and the full regime to take effect in late 2028.

ESAs publish updated Q&As on SFDR

On 4 November 2025, the European Supervisory Authorities (ESAs) published an updated version of their consolidated Q&As on the SFDR and the SFDR Delegated Regulation.

The updated Q&A provides clarifications on scoping, the definition of “sustainable investments,” disclosures relating to PAIs and taxonomy-aligned investments and the obligations of execution-only firms.

In particular, in response to a new question on the requirements concerning PAI disclosures set out in Article 6 of the SFDR Delegated Regulation, the ESAs clarified that “all investments” should be understood to mean both direct and indirect investments funding investee companies or sovereigns through funds, funds of funds, bonds, equity instruments, derivative instruments, loans, deposits and cash or any other securities or financial contracts, and in the case of asset managers, “all investments” means assets under management resulting from both collective and individual portfolio management activities.

“Quick Fix” to CSRD ESRS published in the Official Journal of the EU

On 11 November 2025, “quick fix” amendments to the first set of European Sustainability Reporting Standards (ESRS) were adopted by the Commission were published in the Official Journal of the EU. The amendments entered into force on 13 November 2025.

The measure was adopted as part of a broader package to simplify the ESG regulatory framework, including the Corporate Sustainability Reporting Directive (CSRD), to reduce the administrative burden on companies. For more details, please see our Sidley Update EU Omnibus Package: Key Changes Proposed by the Commission on ESG Reporting and Due Diligence.

The amendment reduces the regulatory burden for “wave one” companies that were required to begin reporting using ESRS for financial year 2024 and that were not captured by the “stop-the-clock” CSRD directive that delayed sustainability reporting requirements for “wave two” companies by two years.

The Commission is also working with the European Financial Reporting Advisory Group on a broader revision of the ESRS to reduce a number of data requirements, clarifying provisions deemed unclear and improving consistency with other legislation. The review is expected to be completed by financial year 2027.

11. EU — Alternative Investment Fund Managers Directive and UCITS

ESMA publishes report on total cost of investing in funds

On 6 November 2025, ESMA published a report on the total costs of investing in Undertakings for Collective Investment in Transferable Securities (UCITS) and alternative investment funds (AIFs). This is ESMA’s first comprehensive assessment of total costs charged to investors purchasing European Economic Area (EEA) investment funds and seeks to present the overall trends and disparities between UCITS and AIFs.

Key findings in the report:

• Distribution concentration. Credit institutions and investment firms remain the dominant UCITS distributors, while AIF distribution is more balanced between direct and indirect distribution.
• Overall cost levels. UCITS exhibit overall lower total cost levels (0.5% to 2%) compared with AIFs (1.4% to 2.8%).
• Distribution expenses. Distribution costs constitute nearly half of total costs for UCITS and 27% for AIFs and vary across the distributor type, provider, asset class, and fund category.
• Inducements. Such arrangements remain widespread, accounting for 45% of ongoing product costs for UCITS and 34% for AIFs.
• Information fragmentation. ESMA concluded that the lack of harmonised frameworks and terminology makes cost information inconsistent across products and negatively affects investor decision-making.

The report stated that ESMA plans to take these findings into consideration when considering retail investor participation in the EU market and that it will publish the report annually.

12. EU — Securitisation

ECB publishes opinion on proposed amendments to EU Securitisation Regulation

On 11 November 2025, the European Central Bank (ECB) published an opinion on the proposals to amend the EU Securitisation Regulation and related legislation.

While the ECB welcomed the proposals overall, it noted that the provisions on loosening prudential requirements appear “excessive and complex.” In addition, it suggested adjusting the approach to balancing prudential and due diligence requirements as follows:

• Simple, transparent, and standardised prudential requirements — The ECB noted that measures to lower regulatory requirements should be targeted to securitisation structures with a very high structural or credit quality. As such, it does not support the introduction of risk-sensitive risk weight floors, arguing this could lead to very low risk weights for certain positions.
• Transparency requirements — The ECB suggested clarifying the concepts of proportionality and simplification for lower-risk transactions, also noting that in its view, the proposed sanction regime for due diligence breaches is so harsh as to potentially deter new investors from entering the market.

13. EU — AI

European Parliament adopts final report on the impact of AI in the financial sector

On 11 November 2025, the European Parliament Committee on Economic and Monetary Affairs (the Committee) published its final report on the impact of AI on the financial sector. The report examines the current use of AI in the financial services sector, reviews the existing regulatory landscape, and makes recommendations that promote AI deployment while safeguarding regulatory objectives.

The Committee’s recommendations include the following:

• The Commission should consider how AI-driven tools can be applied in financial markets, such as to enhance financial education for retail consumers.
• The Committee recommended a technology-neutral regulatory framework in financial services.
• The Commission and EU member states should aim to fully implement current legislation applicable to AI deployment instead of gold-plating EU-level legislation in domestic law, which has the potential to create unnecessary barriers.
• European and national supervisory authorities should apply consistent interpretations and proportionate application of current regulatory framework applicable to AI.

14. EU — AML

European Commission adds Russia to list of high-risk countries for money laundering

On 3 December 2025, the European Commission added Russia to its list of countries identified as “high risk” under the EU anti-money-laundering directive (the EU AML List) following Russia’s suspension from the Financial Action Task Force. The EU AML list contains countries that the Commission considers have strategic deficiencies in their national AML regimes.

EU entities covered by the EU AML framework are required to apply enhanced diligence in transactions involving or customers from these jurisdictions.

15. International

IOSCO publishes consultation on secondary markets disclosures

On 3 November 2025, the International Organisation of Securities Commissions (IOSCO) published its Consultation Report on Recommendations for Secondary Markets Disclosures. IOSCO seeks comments on disclosure frameworks for periodic and event-driven disclosures by listed entities in the secondary markets.

The consultation closes on 3 February 2026.