Regulatory Updates February 2025

 

Our regulatory newsletter aims to provide insight into the previous month’s changes and updates which may consequently have an impact on your firm’s business. At Objectivus, we are positioned to provide context and support for firms working to understand such changes.

 

In this issue we cover:

• Dear CEO letter to Asset Managers
• FCA Speech: Contagious Culture
• FCA Speech: Managing Systemic Risk – Non-bank financial intermediation (NBFI)
• Transition to T+1 Settlement Cycle
• FCA Speech: Gordian Knot of Growth

 

Dear CEO letter to Asset Managers

The FCA issued a “Dear CEO” outlining its supervisory priorities and expectations for asset managers. This letter underscores the need for stringent management of valuation practices, conflict of interests, and market integrity, as well as the importance of robust systems against financial crime and compliance with evolving sustainable finance regulations. This letter serves as a directive to ensure that firms maintain high standards in risk management and regulatory adherence, reflecting the FCA’s commitment to safeguarding market stability and protecting consumer outcomes.

The FCA is set to enhance oversight in private markets, focusing on valuation practices and conflict management. A forthcoming multi-firm review aims to improve valuation and audit processes. Additionally, the FCA will address conflicts of interest in firms with complex business structures and review the adaptation of private market products for retail investors, reflecting the growing trend towards ‘retailisation’.

The regulator emphasises resilience amid market volatility, focusing on enhancing firms’ risk management according to the system-wide exploratory scenario report, particularly around liquidity and operational resilience, while also stressing the importance of strong AML controls and robust market abuse systems to comply with regulatory requirements and mitigate financial crime risks. In response to new sustainability disclosure regulations, the FCA will ensure firms adhere to labelling and marketing standards, promoting the use of best practice guidelines.

 

FCA Speech: Contagious Culture

In a speech delivered by the FCA’s COO, Emily Shepperd at the Annual Culture and Conduct in Financial Services Summit she addressed the FCA’s stance on culture. The FCA continues to emphasise the critical role of culture in influencing conduct and decision-making within firms, which directly impacts consumer outcomes, market integrity, and economic health.

The FCA is actively collaborating with stakeholders to enhance culture and conduct standards across the financial sector. Recognising that like a contagion, both positive and negative cultural traits can spread quickly within an organisation, the FCA highlights the contagious nature of culture—whether constructive or toxic—and its significant effects on organisational health and regulatory compliance. This focus is part of a broader effort to ensure that the risk-taking necessary for economic growth is based on a foundation of strong and healthy firm cultures, fostering environments where diverse perspectives aid robust decision-making and where psychological safety is paramount to team success.

 

FCA Speech: Managing Systemic Risk – Non-bank financial intermediation (NBFI)

The FCA’s Sarah Pritchard addressed the significant role and growth of the UK’s non-bank financial institutions (NBFI), managing approximately £14.3 trillion in assets. She highlighted the dual nature of leverage in financial markets as both a crucial tool for enhancing efficiency and returns, and a potential source of systemic risk when poorly managed, there is a lack of transparency, or it is concentrated.

The speech emphasised the need for improved public and private disclosure, (in the form of aggregated, anonymous data on positioning and liquidity, which allows participants to better understand market dynamics and spot emerging risks) to mitigate risks associated with NBFI leverage. Pritchard detailed the FCA’s proactive role in co-chairing a working group under the Financial Stability Board, focusing on global strategies to monitor and address these risks effectively. The ongoing FSB consultation and AIFMD review were also discussed as critical elements in refining regulatory approaches and enhancing financial stability.

 

Transition to T+1 Settlement Cycle

The UK market intends to transition to a T+1 settlement cycle for securities trades on 11 October 2027, thereby enhancing market efficiency. The FCA provided background on the motivation for such changes on their webpage. This change, from the current T+2 cycle under the UK Central Securities Depositories Regulation, was confirmed by the government following recommendations from the Accelerated Settlement Taskforce (AST). Firms are advised to engage with AST’s guidelines to prepare for this shift, which involves operational system changes, budgeting, and counterparty arrangements. The AST UK Implementation Plan provides guidance on recommended actions. The move aligns with similar transitions in the United States, Canada, Mexico, Argentina, with updates from both the EU and Switzerland to be delivered in due course.

 

FCA Speech: Gordian Knot of Growth

Nikhil Rathi, Chief Executive of the FCA, spoke at the Association of British Insurers roundtable on 27 February 2025. In his speech he outlined the FCA’s commitment to bold regulatory actions to support economic growth, including significant changes to listing rules and prospectuses. Nikhil Rathi highlighted the FCA’s immediate action to remove the expectation for a Consumer Duty Board champion, allowing boards to make independent decisions as to whether it was still appropriate for their firm to have one. In revealing the pace at which the FCA will move on 50 plus growth proposals, Nikhil provided reassurance that the regulator remains focused on consumer protection and maintaining market integrity. The FCA is also addressing concerns about the pace of regulatory change and aims for fewer large-scale changes in its upcoming five-year strategy. There continues to be a debate on the pace of change. The speech brought about a sense of openness in highlighting a willingness by the FCA to be creative and open to ideas on flexibility.

 

Please reach out to info@objectivus.com if you have any questions or require further clarity on any of the points raised.