March – April 2025 Regulatory Round-Up

1. Proposals for the Revision of UK’s AIFMD Rules

His Majesty’s Treasury issued consultation paper—and the Financial Conduct Authority's (FCA) Call for Input—in April, setting out proposals for a revised regime under the Alternative Investment Fund Managers (AIFM) regulations, described below in summary. 

• Removal of the distinction between “full-scope” and “sub-threshold” AIFMs and provide for the application of different rules to AIFMs depending on their size, investment activities, investor base and their risk profile. The application and content of the rules would largely be left to the FCA’s discretion.
• The new rules would subject only the largest firms to rules largely consistent with the existing regime, with some of the existing rules removed. Medium-sized AIFMs would be subject to regulatory rules with much of the prescriptive detail removed, and small AIFMs would only be subject to core baseline standards. The thresholds would be:
  • Large AIFMs - >£5 billion NAV
  • Mid-sized AIFMs - £100 million - £5 billion NAV
  • Small AIFMs - <£100 million NAV.
• Removal of the “small registered AIFM” category, so that all AIFMs must become authorised by the FCA unless they are managers of social enterprise funds (SEFs) and registered venture capital funds (RVECAs).
• Simplifying regulation of managers of investment trusts and REITs currently regulated under the AIFM regulations such that the rules appropriately account for other rules with which managers of investments trusts and REITs are required to comply.

2. Final Rules regarding the Derivatives Trading Obligation under the UK MiFID rules

The FCA issued its Policy Statement 25/2 in April, setting out its final rules regarding instruments subject to the UK derivatives trading obligation (DTO) and post-trade risk reduction services (PTRRS), which are exempt from the DTO and the best execution obligation. The FCA’s rules largely adopt the proposals set out in its consultation from July 2024, subject to minor amendments. The most notable change is a slight reduction of the in-scope OIS (overnight index swaps on the US risk-free rate SOFR) with a 12-year tenor, now included within the scope of the DTO. The final rules will include only the 12-year SOFR product products that are spot starting swaps and IMM swaps with a par fixed rate, and not for IMM swaps with a standard coupon fixed rate. The final rules will take effect from 30 June 2025.

3. The PRA Fines a NED for Breach of SMCR Conduct Rules

The PRA fined George Hambro £72,000 for breaching the Senior Managers and Certification Regime (SMCR) Individual Conduct Rule 2 (requirement to act with due skill, care and diligence) over his conduct 2017 – 2020. Mr Hambro was a former Notified Non-Executive Director (NED) of Wyelands Bank Plc and an executive of entities within the larger group Wylends was part of. The PRA held that Mr Hambro’s conduct fell below the standards expected of a person in his position and demonstrated a serious lack of due skill, care and diligence. The enforcement action follows the 2023 enforcement action against the CEO and public censure of the Wyelands Bank, following the wind-down of Wyelands Bank. 

The conduct the PRA identified as breaching the applicable standards consisted of failure by Mr Hambro to make the enquiries he ought to have made as to the appropriateness of the funding mechanism in relation to a £10 million capital injection into Wyelands. The capital injection was indirectly funded from the proceeds of a loan Wyelands had made to a third party, and Mr Hambro’s failure was partly responsible for Wyelands Bank’s reporting to the PRA, wrongly identifying that capital as Common Equity Tier 1 capital. In addition, the PRA held that Mr Hambro did not sufficiently question the date of resignation of an executive in a group undertaking. Mr Hambro understood the resignation date was relevant to Wyelands’ and the PRA’s assessments as to whether Wyelands was in breach of the large exposures limit applicable to it. Further, the PRA considered that Mr Hambro failed to take adequate steps to ensure that the Wyelands’ Engagement Policy was complied with when he was involved in proposing transactions, or potential transactions, between related parties.

4. EU Sustainability Reporting

In April, the EU adopted a “Stop-the-Clock” Directive to postpone reporting and due diligence obligations under the Corporate Sustainability Reporting Directive (CSRD), the Taxonomy Regulation, and the Corporate Sustainability Due Diligence Directive (CS3D). EU Member States are required to implement the directive into national law by the end of 2025. The Directive will introduce a two-year delay to sustainability reporting obligations for “large” non-listed undertakings and groups (originally required to report in 2026 on data relating to the FY 2025) and SME public interest entities (originally required to report in 2027). No delay is provided for large public interest entities with 500+ employees (these entities already report under NFRD) whose current reporting obligations are unchanged; or to the reporting timeline for non-EU groups (reporting in 2029).  

It is intended that, during the delay, substantive proposals will be agreed in order to simplify reporting and due diligence requirements under CSRD, the Taxonomy Regulation and CS3D. The proposals will need to be agreed in the EU’s tripartite legislative process, likely in 2026.

Connected to the efforts to simplify the reporting requirements, EFRAG, a private association which provides technical advice to the European Commission with respect to the European Sustainability Reporting Standards (ESRS), launched a consultation the process to simplify the ESRS under CSRD, seeking stakeholder input. The consultation closes on 6 May 2025.

5. The FCA Rows Back Proposals on D&I and Investigations

The FCA confirmed in its letter to the Chair of the Treasury Select Committee in March that it will not proceed with its proposed rules on publicising enforcement investigations, which was widely criticised by stakeholders and the Financial Services Committee of the House of Lords. Although the FCA will adopt some additional measures, such as confirmation of investigations already in the public domain and provision of more detailed accounts of issues under investigation on an anonymous basis, the current rules will largely stand. The FCA also confirmed in the letter that it will not implement its previously proposed diversity and inclusion (D&I) rules, which required larger FCA authorised firms to incorporate D&I into their governance, develop a D&I strategy, set targets to implement their strategy and report and make public disclosures annually on relevant D&I data items. By contrast, it is expected that the non-financial misconduct rules which formed part of the original consultation will go ahead. Possibly subject to some changes. The draft rules (set out in 2023) clarify the circumstances in which non-financial misconduct breaches the FCA’s Conduct Rules and where it affects fit and proper assessments and regulatory references. The FCA is expected to provide an update on the non-financial misconduct rules by the end of Q2 2025.

6. The FCA’s Five-Year Strategy

The FCA’s Strategy for 2025-2030 confirms its prioritisation of development of its digital and data processing capabilities, with a view to digitising many authorisation and approval processes to improve efficiency. 

Be a smarter regulator. The FCA intends to adopt a more flexible approach to supervision, with a light-touch regime for firms that are “demonstrably seeking to do the right thing”. The FCA also plans to implement direct contact points with more regulated firms, streamline how it sets its supervisory priorities—publishing just a few market reports once a year—and share more insights from its supervisory work. The FCA seeks also to streamline its portfolio of enforcement cases in order to reach the same number of outcomes but faster. In addition, the FCA will tailor its data requests to make them more proportionate. “My FCA”, a new one-stop portal, will allow firms to manage all their regulatory tasks in one place. More frequent supervisory contact and scrutiny, and more frequent sharing of good and poor practices may be expected. The FCA is likely to be interested in how firms use technology, particularly AI, as well as how firms ensure customers receive good outcomes in line with the Consumer Duty. In addition to its strategy, the FCA has outlined its next steps on streamlining its rules, reducing burdens on businesses and improving outcomes for consumers following the introduction of the Consumer Duty.

Support sustained economic growth. The FCA is committed to enabling investment, innovation and ensuring the competitiveness of the UK as a world-leading centre of financial services. The strategic commitment reflects the changes to the FCA’s statutory objectives since the last strategy document. Specifically, the FCA will bring payment systems regulation within its regulatory supervision and deliver the ‘National Payments Vision’. The FCA will also see to encourage more seamless data sharing to unlock product innovation, reform rules in parts of the financial services sector (including for commercial insurance and asset management) to rationalise and simplify regulation and review the redress system.

Fight financial crime. The FCA continues its long-standing focus on fighting financial crime, including enforcement action against firms that fail to put in place adequate measures to prevent the proceeds of crime entering the financial system. Cooperation and information sharing with other regulators, agencies and law enforcers home and abroad looks set to continue, but the FCA acknowledges that international cooperation may change to reflect current geopolitical instability and global competition and protectionist trends. The FCA indicates that it may choose to make progress on some issues with a more select group regulators in jurisdictions that have a similar normative point of view, which may point to a focus on bilateral relationships. The FCA also suggests that it will establish a permanent presence in the US and Asia-Pacific.

Help consumers navigate their financial lives. The FCA will work with industry to enhance product innovation, create trust in the sector, and ensure appropriate information and support to consumers in respect of financial decisions. For example, the FCA will review mortgage affordability requirements.

7. FCA’s Private Markets Review

The FCA has published its report, which sets out its findings and feedback from its Private Market Valuation Review (PMVR). Firms are expected to consider the report and assess their own valuation policies and processes against the FCA’s findings (including examples of good and poor practice) and feedback. Relevant areas for assessment include the governance of valuation processes, how a firm identifies and deals with potential conflicts in its valuation process, functional independence of the valuation committee, and incorporating defined processes and oversight for ad hoc valuations.

The report principally considers valuation practices of private equity, venture capital, private debt and infrastructure assets but the principles which underpin the FCA’s views on the same will be relevant to also other, less liquid asset types where continuous market pricing is not available and some measure of judgment must be applied to valuations. 

The key focus areas for the FCA are the following: ensuring appropriate processes for valuation are in place, including for ad hoc valuations: governance of the valuation process, identifying, documenting and mitigating potential conflicts of interest in connection with the valuation process and ensuring functional independence for valuation. A few additional items were also highlighted as relevant for firms to consider in their own practices, click here to read our alert on the FCA’s report on private asset valuations.