November 2025 – December 2025: Regulatory Round-Up

Executive Summary

November and December 2025 witnessed an active period in the UK and European regulatory landscape, marked by significant regulatory developments in and affecting financial services. This alert highlights certain regulatory developments relevant to asset managers.

Key Highlights:

• New Short Selling rules (UK)
• FCA reaffirms principles-based approach to AI regulation, no AI-specific rules (UK)
• Transaction reporting regime reforms proposed (CP25/32) (UK)
• Motor finance compensation scheme consultation extended (UK)
• FCA Enforcement Cases
• SFDR 2.0 overhaul proposed, introducing simplified categorisation regime (EU)
• Omnibus I package substantially reduces CSRD and CSDDD scope (EU)
• Market Integration Package launched to enhance capital markets (EU)
• Council conclusions call for ambitious regulatory simplification (EU)
• Russia added to AML high-risk list (EU)

United Kingdom Regulatory Developments

1. New UK Short Selling Regime

The consultation period for the FCA's proposed short selling regulations closed on 16 December 2025, with implementation expected during 2026.¹ Until the new framework becomes effective, market participants must continue to comply with current short selling regulations for those provisions that remain in force.

• Net Short Position Reporting. Under the UK Short Selling Regulation, market participants must continue reporting to the FCA when their net short positions in eligible shares meet or surpass the 0.2% threshold of a company's issued share capital, with additional notifications required at each subsequent 0.1% interval.¹ A key change involves the FCA publishing aggregated net short position data organised by issuer rather than disclosing individual position holder identities.¹ The reporting deadline will shift from the current requirement of 3:30 PM on the business day after the position trigger (T+1) to 11:59 PM on the same trading day.¹ 
• Reportable Shares List. The FCA will maintain and publish a designated list of shares subject to net short position reporting obligations under the UK SSR.¹ The regulator proposes to broaden the exemption criteria that determine which shares may be excluded from this list.¹ Market participants engaged in market making activities and stabilisation operations will retain access to certain exemptions, though specific conditions may be modified.¹ 
• Covered Short Selling. Firms must maintain documentation demonstrating compliance with covering requirements such as share borrowing agreements, legally enforceable claim contracts, and transaction evidence confirming short sales for a minimum retention period of five years.¹ 

The FCA has announced a phased implementation approach, with initial focus on launching the aggregated net short position publication system and the updated Reportable Shares List.¹ The regulator plans to release a Policy Statement alongside the final legal instruments at least two months prior to the rules becoming operational.¹ While an exact effective date has not been confirmed, market participants should anticipate implementation during the first half of 2026.¹ 

2. UK Artificial Intelligence Regulation

During early December 2025, Nikhil Rathi, Chief Executive of the FCA, reinforced the regulator's strategic decision to maintain its existing principles-based regulatory framework for artificial intelligence applications, confirming that the authority will not develop AI-specific regulatory requirements.² The FCA's position reflects recognition that AI technology evolves rapidly, with significant developments occurring "every three to six months", making adaptive regulatory oversight more effective than prescriptive rules.² This regulatory philosophy prioritises collaborative engagement with industry while maintaining the authority's readiness to intervene in cases of "egregious failures that are not dealt with."² 

In parliamentary testimony sessions held in October, members of Parliament questioned regulators about the adequacy of existing frameworks to address emerging AI-related risks, including potential algorithmic bias, concentration of risk among technology providers, and dependencies on third-party AI systems.² The FCA characterised these concerns as "live issues" requiring ongoing attention and signaled its intention to publish guidance addressing audit trail requirements and human oversight protocols during 2026.² 

Key Implications:

• Organisations developing AI-based applications should prioritise establishing comprehensive governance frameworks rather than waiting for specific regulatory requirements.
• Maintaining detailed documentation of AI-driven decision-making processes and establishing robust audit capabilities will become increasingly important.
• Firms should integrate human oversight mechanisms into their AI implementation strategies.

3. Transaction Reporting Regime Reforms

The FCA issued Consultation Paper CP25/32 on 21 November 2025, outlining proposed reforms to the UK's transaction reporting framework aimed at streamlining regulatory compliance while supporting economic growth objectives.³ 

The consultation proposes consolidating UK Regulatory Technical Standards 22, 23, and 24 into new provisions within the Market Conduct sourcebook of the FCA Handbook.³ 

This consultation marks an important milestone in the UK's efforts to develop post-Brexit financial regulation, transitioning from retained EU legislation toward a tailored UK approach that seeks to maintain market transparency while reducing disproportionate compliance burdens.³ 

Key Proposals:

• Consolidation of reporting requirements into a single Market Conduct sourcebook framework.
• Streamlined compliance obligations balanced with continued market oversight.
• Alignment with UK market characteristics and operational structures.

4. Motor Finance Compensation Scheme

The FCA extended the consultation deadline for its proposed motor finance compensation framework to 12 December 2025, with final redress scheme rules still anticipated in early 2026.⁴ The proposed scheme responds to regulatory concerns about potential consumer harm arising from unfair commission structures in motor finance transactions. The FCA has also announced that for motor finance claims which relate to leasing agreements, the complaints handling moratorium ended on 5 December 2025, and for other complaints, the complaints handling moratorium will end on 31 May 2026 (rather than 31 July 2026 as had been originally proposed).⁵ For more details about the proposed redress scheme, please see our alert here.

5. Regulatory Initiatives Grid

The FCA published its ninth edition of the Regulatory Initiatives Grid on 9 December 2025, providing a forward-looking view of regulatory developments planned over the next two years.⁶ This publication serves to enhance transparency and enable industry planning, with contributions from Financial Services Regulatory Initiatives Forum members responding to the Prime Minister's call for proposals to strengthen UK financial services competitiveness and economic growth.

6. Scale-up Unit Launch

The UK Government announced the launch of the FCA and Prudential Regulation Authority's Scale-up Unit to support growing financial firms with tailored guidance, dedicated contacts, and regulatory support. This initiative helps firms test ideas and expand while driving innovation, competitiveness, and regional growth across the UK.

7. Margin Requirements for Non-Centrally Cleared Derivatives

On 27 November 2025, the FCA and Prudential Regulation Authority issued joint Policy Statement PS25/16 (subsequently rebased as PS23/25) implementing revisions to Binding Technical Standards 2016/2251 governing margin requirements for non-centrally cleared derivatives.⁷ These amendments became effective immediately, offering enhanced clarity on collateral obligations and supporting firms' management of counterparty credit exposures.

8. Stablecoin Regulation

On 10 November 2025, the Bank of England published a consultation paper setting out its proposed regulatory framework for systemic stablecoins.⁸ The framework includes requirements for the composition of backing assets held by systemic stablecoin issuers, with issuers permitted to hold up to 60% of their backing assets in short-term UK government debt. This initiative complements the FCA's regime for stablecoin issuers and custodians established in May 2025.

9. Provisional Authorisation Regime

On 5 December 2025, HM Treasury published a policy paper providing an update on creating a provisional licences authorisation regime, forming part of the government's March 2025 regulation action plan to support fintech innovation and market entry.⁹ 

10. FCA Enforcement Cases

Towards the end of calendar years, the FCA often announces enforcement actions and the imposition of significant fines. 2025 was no exception, with the FCA fining Nationwide Building Society £44 million regarding inadequate financial crime systems and controls: see here. The breaches related to customers using their personal current accounts for business purposes, which Nationwide was said to have known about, but had inadequate systems and controls in place to manage from a financial crime perspective.

In July 2025, the FCA obtained convictions against two individuals in relation to a crypto fraud worth £1.5 million. Further to this, in Q4 2025 the FCA announced that it had secured guilty pleas for Data Protection Act offences against two other individuals who had facilitated the fraud: see here and here. Whilst the fines in these latter cases were low, these prosecutions show the FCA’s interest in using all of the enforcement tools at its disposal.

In October 2025, the FCA banned Neil Dwane, an adviser for ITM Power Plc, from working in the financial services sector and fined him £100,281 following an investigation into market abuse: see here. The FCA found that Mr. Dwane had used his knowledge about an announcement to be made by ITM, and sold his and his family member’s shares based on that inside information.

Sustainable Finance Framework Reforms

1. SFDR 2.0 - Comprehensive Overhaul

The European Commission published its proposed revision to the Sustainable Finance Disclosure Regulation on 20 November 2025, responding to extensive market feedback indicating that the existing framework has become overly burdensome and has been inappropriately applied as a product labelling mechanism rather than serving its intended disclosure purpose.¹⁰ 

Key Changes in SFDR 2.0:

• Simplified Categorisation: The revised framework propos es replacing the existing Article 8 and Article 9 classification system with a new product categorisation approach designed to provide investors with clearer differentiation between various sustainability-oriented investment strategies.¹⁰ 
• Deletion of "Sustainable Investment" Definition: The Commission proposes eliminating the contentious definition of "sustainable investment" found in article 2(17), along with related requirements for demonstrating contributions to environmental and social objectives, the Do No Significant Harm principle, and good governance assessments of portfolio companies.¹⁰ These elements will be reintegrated in simplified form within the criteria for the new product categories.
• Reduced Disclosure Requirements: The proposal includes simplified disclosure templates and condensed documentation designed to improve accessibility for retail investors while decreasing administrative costs for asset managers and financial advisers.¹⁰ 
• Better Alignment: The revised regulation aims to improve coordination between the EU Taxonomy Regulation, Corporate Sustainability Reporting Directive requirements, and other sustainability initiatives to eliminate duplicative requirements and enhance overall coherence.¹⁰ 

Expected Timeline:¹⁰ 

• Legislative proposal published: 20 November 2025
• Anticipated entry into force: Mid-2027
• Expected application date: End of 2028

The proposed revisions demonstrate increased alignment with the UK's Sustainability Disclosure Requirements approach, which may support enhanced regulatory consistency across jurisdictions. UK authorities are monitoring these EU developments as they consider potential refinements to their own sustainability disclosure framework.

2. Corporate Sustainability Reporting Directive (CSRD) Simplification

Political negotiators representing the European Parliament, Council of the European Union, and European Commission achieved a provisional agreement on 9 December 2025 regarding the "Omnibus I" legislative package, which proposes significant amendments to both the Corporate Sustainability Reporting Directive and Corporate Sustainability Due Diligence Directive.¹¹ 

Major Changes to CSRD:

• Substantially Raised Thresholds: The agreed amendments maintain the employee threshold of 1,000 but introduce an additional revenue criterion of €450 million annually, with the combined effect of removing approximately 90% of previously in-scope companies from mandatory sustainability reporting obligations.¹¹ 
• Reduced Reporting Burden: The agreement includes provisions to simplify European Sustainability Reporting Standards compliance requirements for companies that initiated reporting for the 2024 financial year.¹¹ 
• Review Clause: The amendments include a commitment to future review that may consider expanding the scope of both directives.¹¹ 
• Non-EU Company Thresholds: The package raises EU revenue thresholds applicable to non-European Union companies subject to the reporting requirements.¹¹ 
• The European Parliament proceeded to formal adoption during its plenary session held between 15-18 December 2025, with final confirmation on 16 December 2025.¹¹ 

Key Changes to CSDDD:

• Climate Transition Plans: The requirement under Article 22 mandating companies to establish and implement climate transition plans has been removed entirely from the directive.¹¹ While companies will continue to report on their climate plans under CSRD, they will no longer face a legal obligation to implement them.
• Liability Regime: The EU-wide civil liability framework has been eliminated from the directive.¹¹ 
• Reduced Penalties: Financial penalties for non-compliance have been capped at a maximum of 3% of global annual revenues, representing a reduction from previously proposed penalty levels.¹¹ 

3. European Sustainability Reporting Standards (ESRS) Revisions

The European Financial Reporting Advisory Group released revised drafts of the European Sustainability Reporting Standards on 3 December 2025, incorporating stakeholder feedback from initial implementation experiences and seeking to reduce complexity while preserving robust disclosure standards.¹² 

Capital Markets and Investment Services

1. Market Integration Package

The European Commission launched a comprehensive legislative package on 4 December 2025 aimed at eliminating regulatory and operational barriers that fragment EU financial markets and constrain the single market's potential.¹³ 
This initiative represents a cornerstone of the Commission's Savings and Investments Union strategy, which seeks to enhance market integration, improve operational efficiency, and strengthen competitiveness across EU financial services.¹³ 

Key Components:

• Harmonised Infrastructure: The package includes proposals to standardise regulatory requirements and operational practices for central securities depositories and post-trade infrastructure across EU member states.¹³ 
• Enhanced Market Access: The Commission proposes measures designed to reduce barriers to cross-border provision of investment services and diminish market fragmentation affecting capital markets participants.¹³ 
• Technology and Innovation Support: The package establishes frameworks to support adoption of technological innovations in trading platforms and settlement infrastructure.¹³ 
• Competitiveness Focus: The proposals aim to strengthen the European Union's standing as a global inancial centre and enhance its attractiveness for international investment.¹³ 
• This legislative initiative addresses longstanding requests from the European Council and European Parliament to enhance the EU's economic resilience and global competitiveness.¹³ Market participants should expect political negotiations to continue through early 2027, with implementation of resulting legislation anticipated later that year.¹³ 

2. Securitisation Framework Review

Within the Market Integration Package, the Commission has proposed revisions to Regulation (EU) 2017/2402 governing securitisation frameworks and Regulation (EU) 575/2013 addressing capital requirements for securitisation exposures.¹³ The proposals seek to streamline due diligence and transparency obligations while addressing ongoing policy debates regarding appropriate capital standards for banks and insurance companies holding securitisation positions.

The European Central Bank has provided input on these proposals, expressing support for simplification measures while emphasising the importance of maintaining risk-sensitive capital requirements.

3. Cyber Resilience Act Implementation

On 1 December 2025, the European Commission published Implementing Regulation (EU) 2025/2392 in the Official Journal of the European Union, providing the technical description of categories of "important" and "critical" products with digital elements pursuant to the Cyber Resilience Act (CRA).¹⁴ 

This regulation establishes clear categorisation for digital products based on their criticality to infrastructure and potential security impact, with differentiated requirements applying to each category. Financial institutions using digital products and services will need to assess whether their technology providers fall within the defined categories and ensure compliance with applicable security standards.

4. Russia Added to EU's AML High-Risk List

The European Commission designated Russia as a high-risk jurisdiction under EU anti-money laundering regulations on 3 December 2025, following the country's suspension from the Financial Action Task Force.¹⁵ This designation imposes enhanced due diligence obligations on financial institutions for transactions and commercial relationships involving Russian counterparties.

Implications for Financial Institutions:

• Financial institutions must implement enhanced customer due diligence procedures for transactions involving Russian entities or individuals.
• Firms must strengthen their transaction monitoring systems to address elevated risks associated with Russian-linked activities.
• Financial institutions may face constraints on establishing or maintaining correspondent banking arrangements with Russian counterparties.
• Regulators will intensify their examination of firms' anti-money laundering control frameworks.

5. AI Act Implementation Delay

On 19 November 2025, the European Commission proposed delaying full implementation of the EU AI Act until December 2027 as part of the Digital Omnibus package.¹⁶ This delay, extending the original August 2026 implementation date by 16 months, aims to simplify compliance and give businesses more time to prepare for the comprehensive AI regulatory framework.

The delay reflects recognition of the complexity of the AI Act's requirements and the need for adequate preparation time, particularly for high-risk AI systems used in financial services including credit scoring, insurance underwriting, and automated trading systems.

6. Council Conclusions on Regulatory Simplification

On 12 December 2025, the Council of the EU published conclusions calling on the European Commission to put forward ambitious simplification packages for EU financial services regulation.¹⁷ The conclusions emphasise the need for:

• Clear priorities and timelines for regulatory reforms.
• Improvements to European Supervisory Authorities (ESAs) mandates.
• Better reporting and greater accountability toward co-legislators.
• Enhanced proportionality and reduction of administrative burdens.

This high-level commitment to simplification signals a potential shift in the EU's regulatory philosophy, balancing robust oversight with recognition of compliance costs and competitive considerations. In title case, capitalize nouns, verbs, adjectives, adverbs, pronouns (including relative pronouns, e.g., which, that, who) and prepositions of five letters or longer.

This client alert is intended for general information purposes only and should not be construed as legal advice.

Information in this client alert has been compiled from official regulatory announcements, consultation papers, policy statements, and legislative documents published by the UK Financial Conduct Authority, Bank of England, HM Treasury, European Commission, Council of the European Union, European Parliament, and European Financial Reporting Advisory Group. All sources were accessed in December 2025.

1 Financial Conduct Authority, Consultation Paper CP25/29: Changes to the UK Short Selling Regime (28 October 2025), Available at: https://www.fca.org.uk/publications/consultation-papers/cp25-29-changes-uk-short-selling-regime

2 Financial Conduct Authority, Speech by Nikhil Rathi, "Our emerging regulatory approach to Big Tech and Artificial Intelligence," delivered at The Economist, London (12 July 2023, updated 5 December 2025), Available at: https://www.fca.org.uk/news/speeches/our-emerging-regulatory-approach-big-tech-and-artificial-intelligence

3 Financial Conduct Authority, Consultation Paper CP25/32: Transaction Reporting Regime Reforms (21 November 2025)

4 Financial Conduct Authority, Motor Finance Compensation Scheme Consultation (Extended deadline: 12 December 2025)

5 https://www.fca.org.uk/publications/policy-statements/ps25-18-changes-handling-rules-motor-finance-complaints

6 Financial Conduct Authority, Regulatory Initiatives Grid - 9th Edition (9 December 2025), Available at: https://www.fca.org.uk/publications/corporate-documents/regulatory-initiatives-grid

7 Bank of England Prudential Regulation Authority and Financial Conduct Authority, Joint Policy Statement PS25/16 (rebased as PS23/25): Margin Requirements for Non-Centrally Cleared Derivatives (27 November 2025)

8 Bank of England, Consultation Paper: Regulatory Framework for Systemic Stablecoins (10 November 2025)

9 HM Treasury, Policy Paper: Provisional Authorisation Regime (5 December 2025)

10 European Commission, Proposal for a Regulation of the European Parliament and of the Council on sustainability-related disclosures in the financial services sector, COM(2025) 841 final (20 November 2025), Available at: https://finance.ec.europa.eu/publications/commission-simplifies-transparency-rules-sustainable-financial-products_en

11 European Commission, Proposal for a Directive amending Directive 2013/34/EU and Directive (EU) 2024/1760 ("Omnibus I Package"), COM(2025) 81 final (9 December 2025); Council of the European Union and European Parliament, Provisional Agreement on CSRD and CSDDD Amendments (adopted 16 December 2025)

12 European Financial Reporting Advisory Group (EFRAG), Revised European Sustainability Reporting Standards (3 December 2025)

13 European Commission, Communication on Further Development of Capital Market Integration and Supervision within the Union, COM(2025) 940 final (4 December 2025), Available at: https://finance.ec.europa.eu/publications/market-integration-package_en

14 European Commission, Implementing Regulation (EU) 2025/2392 pursuant to the Cyber Resilience Act, Official Journal of the European Union (1 December 2025)

15 European Commission, Delegated Regulation adding Russia to the list of high-risk third countries under Directive (EU) 2015/849 (3 December 2025)

16 European Commission, Digital Omnibus Package: Proposal to delay AI Act Implementation (19 November 2025)

17 Council of the European Union, Council Conclusions on Simplification of EU Financial Services Regulation (12 December 2025)