General regulatory update – FCA finalised guidance for PEPs, Ancillary Activities Exemption and Assessments of Value

Insight

21.07.2025

Financial Institutions 360: Regulatory update

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

FCA finalised PEP guidance

On 7 July, the FCA published its finalised updated guidance on the treatment of politically exposed persons for anti-money laundering purposes. The FCA had reviewed its 2017 guidance in 2024, and found that it was mostly still appropriate but needed some small amendments. Following a consultation, it has now finalised these, including:

Clarifying that non-executive board members of civil service departments in the UK are not roles that a firm should be treating as a PEP.
Making changes to senior management approval for signing off business relationships with PEPs, family members or known close associates.
Clarifying that a firm’s MLRO need not be involved if a suitably senior person signs off the opening of the business relationship and the MLRO retains oversight of the overall process for complying with the regulations and FCA guidance.
Reflecting changes to the regulations that firms should treat domestic PEPs as lower risk unless there are other risk factors apparent that are unrelated to their PEP status.

Systematic internaliser regime

On 4 July, the FCA published Consultation Paper CP 25/20 on the systematic internaliser regime for bonds and derivatives. The CP also includes feedback on the FCA’s 2024 discussion (as part of PS24/14) on the future of the systematic internaliser regime. PS24/14 set out new rules relating to bond and derivatives transparency requirements which come into force on 1 December 2025.

Ancillary Activities Exemption

On 3 July, the Treasury published a policy note and near final SI amending the RAO on the Ancillary Activities Exemption, which allows firms to trade in commodity derivatives and emissions allowances, without having to be authorised by the FCA. Firms currently need to undertake an ancillary activities test, under rules set out in the RAO.

As part of the Wholesale Markets Review, the Treasury is proposing to provide the FCA with the relevant rule-making powers, which will be set out in the FCA Handbook, and on which the FCA is also consulting concurrently.

Private markets

The Financial Services Regulation Committee of House of Lords has launched an inquiry into the growth of private markets in the UK following the post-2008 reforms. It is seeking views on the following:

Whether the regulatory capital and liquidity reforms introduced after 2008 have reduced banks' ability or willingness to lend, pushing risk away from the banking sector and towards private markets.
How much visibility the Bank of England has on the size of these private markets, their interconnections with the banking sector, and any potential spillover risks.

Sustainability reporting standards

The Government published a consultation on 25 June on draft UK Sustainability Reporting Standards, which are based on IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related disclosures). Some amendments are suggested to adapt the standards for the UK context.

The Government also published consultations on the government’s transition plan manifesto commitment, and the oversight of sustainability assurance providers.

The FCA published an update further to the Government’s publication of the draft UK Sustainability Reporting Standards. The FCA intends to consult later this year on how listed companies will adopt these standards, which will also include their proposed approach to the disclosure of transition plans.

PISCES

On 10 June, the FCA published its policy statement PS25/6 and final rules for the PISCES sandbox. This sets out the FCA’s rules for platform operators intending to apply to participate in the PISCES sandbox, which are not materially different from the rules on which the FCA originally consulted. The FCA is offering pre-application support to prospective PISCES operators which are not yet authorised.

Speech by Nikhil Rathi, CEO of the FCA

The FCA published a speech given by Nikhil Rathi at the CityUK’s annual conference on 26 June 2025, entitled ‘What kind of market do we want to be?’. He made the following points of note:

The Government recently published its 10 year Industrial Strategy, which aims for the UK to become the world’s most innovative full-service financial centre.
Financial services exports are up more than 50% since 2019.
The FCA would like the UK to lead on tokenisation, but Mr Rathi notes that this will require investment from firms.
Mr Rathi reiterated his calls for a debate on risk appetite, and metrics for tolerable failures.
The FCA is open to clearer client classifications applicable to investment firms.
The FCA is considering retiring the Mortgage Charter.

FCA speech on the new ‘supercharged sandbox’

On 10 June, the FCA published a speech by Jessica Rusu, Chief Data, Information and Intelligence officer at the FCA, delivered at London Tech Week. Among other things, she announced that the FCA was launching a ‘supercharged’ digital sandbox, in partnership with Nvidia, which would enable fintech firms which do not have their own AI infrastructure to experiment with cutting-edge AI models.

The FCA has also published an AI Spotlight digital depositary, an interactive platform in which users can browse a range of innovators and explore AI solutions in FS.

FCA QCP – assessment of value and crypto

On 6 June the FCA published Quarterly Consultation Paper QCP 25/16, setting out various proposed changes to the FCA handbook. Of particular interest:

Chapter 4 sets out proposals to revoke the ban on the retail sale, marketing and distribution of cryptoasset exchange traded notes (cETNs), where admitted to a UK recognised investment exchange. They will be categorised as restricted mass market investments (RMMIs).

Chapter 7 sets out proposals to reduce the assessment of value (AoV) reporting for authorised fund managers (AFMs). AFMs are currently required under detailed rules in COLL to undertake an AoV exercise for each scheme it manages at least once a year, considering aspects including quality of service, performance, and comparable market rates.

The FCA is now proposing to remove many of these detailed requirements, replacing them with a high-level requirement that AFMs must include an AoV summary in their annual report, along with the conclusion of their assessment as to whether the scheme’s charges are justified in the context of the scheme’s overall value. If not, they will need to set out what action they are taking to remedy the poor value.

This is in line with the FCA’s general aim to make the FCA’s rules more outcomes-focused and less prescriptive, especially in circumstances where the Consumer Duty applies.

New investment advice tool

The FCA has launched a new Investment Advice tool, which is designed to assist firms in assessing the suitability of their advice, based on the FCA’s methodology which they use when undertaking file reviews.

Retirement advice

The FCA has published a multi-firm review of retirement advice, setting out examples they have found of good practice and areas for improvement. The FCA looked in detail at the following three areas, which it considers essential for good outcomes for consumers: