General regulatory update – Consumer Duty update, Motor finance redress scheme, crypto regulation and new REM rules

Financial Institutions 360

Read other sections of this edition of the Financial Institutions 360:

• Asset management update

Consumer Duty

In September 2025, the FCA published three updates on the Consumer Duty.

1) Simplifying regulatory requirements

The FCA published a webpage providing an update on their review of Consumer Duty requirements. Streamlining the FCA rules and reducing complexity for businesses post-Consumer Duty implementation is a key action point for the FCA. The FCA reported back on certain key themes as follows:

• Clarifying how the Duty applies to firms in distribution chains.
• Providing clearer guidance on the scope of the rules, including the Duty.
• Ensuring the FCA coordinate effectively with the Financial Ombudsman Service.
• Improving consistency in rules and definitions.
• Updating legacy disclosure rules.

A number of these themes are evident in the letter from the FCA's CEO, referred to below.

Workstreams include finalising the new retail disclosure regime for Consumer Composite Investments, reviewing other core definitions such as retail customer to improve consistency and clarity, review the advertising consumer credit rules in CONC 3, and review the retail banking disclosure rules.

The FCA also reported that it had decided not to take forward broader reviews of their product governance, client asset and training and competence sourcebooks. The FCA will be delivering focused work on their requirements for managing conflicts of interest and reforms to .  

2) Application to wholesale activity

The FCA published a letter from the CEO of the FCA to the Chancellor of the Exchequer on  plans to address concerns about the application of the Consumer Duty to firms primarily engaged in wholesale activity.

The letter sets out a four-point action plan for the FCA as well as steps the Treasury might consider taking. For the FCA the steps in the remainder of 2025 include:

• Providing increased clarity on its supervisory approach where firms work together to manufacture products for retail customers. The FCA aims to reduce excessive compliance costs and duplication of effort between firms;
• Consulting on updating the client categorisation framework. The FCA recognises that there is a subset of investors who have the knowledge, experience, sophistication or resources that mean they do not need retail protections. The FCA plans to set clearer, updated standards for opting-up investors to professional client status. Interestingly the letter also notes that the FCA are considering complementing this with a new test at a high threshold of assets, to draw a brighter line for firms. This would give firms more confidence to identify these clients and, with their consent, take them out of the scope of the Duty and other retail protections. The FCA suggests Treasury may wish to consider amending the exemptions under the financial promotions regime to dovetail with the FCA's plans.

In 2026 the FCA will consult on:

• Changes to rules on the application and requirements of the Consumer Duty, including through distribution chains. The FCA will consider whether the existing exemptions are working, including whether there should be a clearer distinction for business-to-business activities and whether there is a case for further exemptions. The FCA will also make clear when and how firms can rely on each other when they work together in the distribution chains, such as when designing and selling products.
• Removing business with non-UK customers from the scope of the Consumer Duty. The FCA notes it will consider carefully the potential impact on consumers, including UK expats before making proposals.

3) Ongoing supervisory work and focus areas

The FCA is keen to emphasise that the Consumer Duty is still a strategic and supervisory priority, and published a webpage setting out its Consumer Duty focus areas for 2025-2026.

The FCA is undertaking four cross-cutting reviews:

• The products and services outcome;
• Firms' approaches to outcomes monitoring;
• Firms' customer journey design, in particular how firms apply friction during the customer journey; and
• The consumer understanding outcome, looking at firms' communications with their customers.

More specifically, the FCA is looking at how the Consumer Duty applies to areas including:

• Consumer understanding in the credit card market, looking at understanding of terms and conditions and the information firms provide regarding promotional offers;
• Retail investment in complex exchange traded products;
• Loan-based crowdfunders, in particular their outcomes statements; and
• Model portfolio services.

Crypto Regulation

On 25 September 2025, the FCA published CP25/25: Application of FCA Handbook for Regulated Cryptoasset Activities. This is part of a series of FCA consultations on cryptoassets, and follows the publication of the FCA's Crypto Roadmap and Treasury’s draft Statutory Instrument, which brings certain cryptoasset activities including issuing qualifying stablecoins, safeguarding and operating a qualifying cryptoasset platform within the regulatory perimeter.

The FCA is consulting on how its cross-cutting rules will apply to cryptoasset activities, including PRIN and SYSC. The consultation paper also includes a section inviting views on the application of other sourcebooks, including COBS and PROD, and the Consumer Duty, and will consult further on these areas in due course. The FCA will also consult separately on activity-specific rules later this year.

The FCA is keen to emphasise that firms engaging in cryptoasset activities will be expected to comply with similar standards to those expected of existing firms.

What does this mean for firms?

Firms will need to apply for FCA authorisation in order to carry out any of these activities once the new regulations are in force, and it is expected that they will no longer need to register under the Money Laundering Regulations (although this will require separate legislation).

Next Steps

The discussion sections of the paper closed on 15 October 2025, and the consultation closed on 12 November. The FCA is planning further consultations, which can be tracked on its Crypto Roadmap. Subject to parliamentary constraints, it is expected that the new regime will go live at some point in 2026, when the FCA will open a gateway for authorisations.

Motor finance redress scheme

On 7 October the FCA published a lengthy consultation paper and a series of accompanying documents relating to its proposed redress scheme for motor finance consumers who have been treated unfairly.

The FCA notes that over two million people use motor finance each year, with £39bn borrowed in 2024. Between April 2007 and October 2024, there were approximately 32.5m motor finance agreements sold, and the FCA estimates that over 14m of these were potentially unfair.

Consultation paper CP25/27 sets out the FCA's draft rules for the proposed redress scheme, alongside a series of annexes providing details of the analysis on which the proposals are based. The consultation was originally due to close after six weeks, but has since been extended to 12 December.

The FCA is proposing to base its redress scheme on a failure to disclose one or more of the following aspects of the motor finance:

• a discretionary commission arrangement (DCA); and/or
• a high commission arrangement (which the FCA considers means that the commission is equal to or greater than 35% of the total cost of credit and 10% of the loan); and/or
• tied arrangements that gave a lender exclusivity or a first right of refusal.

The scheme will apply to agreements entered into between April 2007, which is the date from which the FOS can consider complaints, and November 2024, the date of the Court of Appeal judgment in Johnson et al. After that date, the FCA believes firms improved their disclosure (and DCAs had been banned by the FCA in 2022).

The FCA estimates that the scheme will cost around £11bn, including administration costs, based on 85% take-up. The lender will be responsible for paying the redress.

Timings

The timeframe for affected firms is very tight and affected firms will need to start preparing before the scheme comes into effect, including by ensuring that their records are up to date and maintaining adequate financial resources. The FCA also published a 'Dear CEO' letter to all lenders and brokers, setting out the steps they should be taking.

Once the scheme starts, firms will need to start contacting consumers according to the following timetable:

• Within three months: firms will have to contact consumers who have already complained, but not yet had their complaint considered. They will be included in the redress scheme automatically unless they opt out.
• Within six months: firms will need to contact consumers who either have not yet complained, or had their complaints rejected by the firm (but not complained to the FOS). They will be asked to opt in to the redress scheme.
• Within three months of consumers joining the scheme, firms will need to assess whether they are liable, and send a final determination.
• Within one further month of the final determination, firms will need to pay redress if they decide it is due.

Consumers who have a live complaint at the FOS (approximately 80,000 consumers) will have their complaint considered by the FOS, according to the FCA's criteria. If firms reject consumers' complaints under the redress scheme, consumers can only complain to the FOS on the basis that the firm has not followed the scheme rules.

The amount of redress owed depends on the type of finance agreement the consumer had entered into, based on an average of a) an estimation of loss and b) the commission paid.

Further update

There has been considerable criticism of the proposed scheme from both lenders and also the All-Parliamentary Group on Fair Banking, and on 5 November 2025 the FCA published a statement, extending the period of the consultation and setting out the areas on which they have to date received feedback.

Authorisations and registrations: FCA expectations

On 11 September 2025, the FCA published some examples of good practice and areas for improvement in authorisation and registration applications. The FCA did not undertake a review of particular markets or firms, but has published these examples in order to support firms in understanding their expectations.

The examples are themed into three groups: firms having the staff with the appropriate skills, experience and capacity to provide the relevant financial service, firms having robust policies in place to document their processes and procedures, and firms having the financial resources in place that are appropriate for the nature and scale of their business.

Remuneration reform

On 15 October the FCA and PRA published a joint Policy Statement PS 21/25 on Remuneration Reform.

The new rules came into force on the following day, and go further than the proposals consulted on, including with regards to deferral periods for material risk takers (MRTs).

In particular, the regulators had originally proposed to reduce the seven-year minimum deferral period that applies to certain Senior Management Functions (SMFs) to five years, and from five to four years for other non-SMF MRTs. Following consultation all MRTs will be subject to the same four-year minimum deferral period.

The other changes are that:

• Firms have more flexibility over the proportion of bonuses that can be paid in cash up front.
• The bonus deferral requirements have been amended to be more proportionate.

The relevant sections of the FCA Handbook are reduced by 70%, and now SYSC 19D largely cross-refers to the PRA's Rem rules.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, November 2025