1. UK — MiFIR
2. UK — Short Selling Regulation
3. UK — Change in Control
4. UK — Financial Crime Prevention and AML
5. UK — FCA Updates
6. UK — Tax
7. UK — Public Offer Platform Regime
8. UK — Cryptoassets
9. UK — AI
10. EU — AI
11. EU — AIFMD
12. EU — Simplification Agenda
13. EU — ESG
14. EU — Cryptoassets
1. UK — MiFIR
FCA issues first fine for transaction reporting failures under UK MiFIR
On 27 January 2025, the Financial Conduct Authority (FCA) issued a Final Notice against Infinox Capital Limited (Infinox), a contracts for difference (CFD) provider. The FCA fined Infinox £99,200 for failing to submit transaction reports under the UK Markets in Financial Instruments Regulation (UK MiFIR). During the period from October 2022 to March 2023, Infinox failed to report approximately 46,053 transactions executed through its corporate brokerage account (roughly 60% of its single-stock CFD business).
The FCA considered Infinox’s failure to be particularly serious given the critical role transaction reports play in detecting, investigating, and preventing market abuse and financial crime.
The FCA also criticised Infinox for its weak systems and controls relating to its UK MiFIR transaction reporting and for its failure to promptly notify the FCA of the breach, having already been made aware of such following a third-party review. In this case, the failure was confirmed only after the FCA independently identified a discrepancy in transaction data submitted by Infinox.
This is the first enforcement action that the FCA has taken against a firm for a breach of transaction reporting requirements under UK MiFIR and reinforces the FCA’s increasing focus on accurate and timely transaction reporting, as highlighted in our December 2024 Update, where we covered Market Watch 81, which focused on similar transaction reporting failures. As such, firms are advised to review their transaction reporting arrangements and controls and to promptly notify the FCA of any breaches.
2. UK — Short Selling Regulation
UK government unveils a new regulatory framework for short selling
On 13 January 2025, the UK government published the Short Selling Regulations 2025 (2025 Regulations). The 2025 Regulations replace the EU-inherited UK Short Selling Regulation (UK SSR) and form part of HM Treasury’s broader plan to modernise financial services regulation post-Brexit.
The 2025 Regulations maintain many of the key regulatory provisions of the UK SSR, including the requirement for firms to notify the FCA of net short positions in shares reaching or exceeding 0.2% of issued share capital. However, the 2025 Regulations also make certain substantive changes, in particular to address the FCA’s lack of rulemaking powers in relation to short selling.
Key changes in the 2025 Regulations include:
- Designated Activities. The 2025 Regulations specify short selling of shares and related instruments as designated activities, thereby empowering the FCA to regulate these activities by shifting most firm-facing requirements to rules in the FCA Handbook.
- No Restrictions on Sovereign Debt and Credit Default Swaps. The 2025 Regulations do not impose specific restrictions on uncovered short selling of UK sovereign debt or sovereign credit default swaps, or reporting requirements on UK sovereign debt, thus aligning with the UK government’s 2023 proposals on these aspects.
- Publication of Aggregate Net Short Positions. Rather than requiring individual public disclosures as is currently the case, the FCA will publish anonymised, aggregated net short position data on each working day.
- Rule-making Powers. The FCA is granted broad powers to set and adjust requirements, for example, to enforce borrowing or locate arrangements and to impose restrictions as necessary.
- Exempted Shares. The current “negative” list of exempt shares will be replaced by a “positive” list, with the FCA able to grant exemptions for selected shares.
Most firm-facing short selling requirements currently specified under the UK SSR and related retained EU law will be repealed and replaced by FCA rules, operating within the framework set out in the 2025 Regulations, at which point the UK SSR will be repealed in its entirety.
The FCA is expected to consult on key matters including the process for firms to report net short positions in shares to the FCA (including, e.g., reporting deadlines and the form/content of notifications), emergency intervention criteria, and the method for determining the list of reportable shares. The FCA has not announced a specific timeline for consulting on and finalising its rules, although we understand it has informally indicated that the consultation period will be sometime in 2025, with final rules expected to be published in 2026. Firms should monitor forthcoming FCA consultations and rulemaking proposals to prepare for the transition.
3. UK — Change in Control
FCA rejects proposed change in control due to financial crime risk
On 10 January 2025, the FCA published its Final Notice objecting to the proposed acquisition of Olampicaran Limited (Olampicaran), a payments services company. In its decision, the FCA expressed substantial concerns regarding the proposed controller’s professional competence, his regulatory compliance, and the heightened risks of money laundering and terrorist financing.
The proposed controller had fallen afoul of FCA rules previously, having acquired and disposed of control in another UK-authorised firm without seeking approval from or notifying the FCA, in breach of the UK Financial Services and Markets Act 2000 (FSMA). Despite repeated requests, the proposed controller failed to clarify the business rationale for the Olampicaran transaction, raising serious doubts that the proposed change in control was driven by genuine commercial purposes.
Moreover, Olampicaran had not been registered with His Majesty's Revenue and Customs (HMRC) for anti-money-laundering (AML) purposes, a key requirement for payments service providers given their increased vulnerability to financial crime, and the proposed controller failed to respond to the FCA’s requests for further information regarding the same.
As such, the FCA could not be satisfied that the risk of money laundering or terrorist financing would not increase following the change in control. Based on these significant concerns, the FCA concluded that the proposed controller did not meet the necessary standards to acquire control of an authorised firm.
Although Olampicaran is not an investment management firm, investment management firms should nonetheless heed the lessons from this case when undergoing their own change in control applications.
4. UK — Financial Crime Prevention and AML
FCA publishes report on money laundering through the markets
On 23 January 2025, the FCA published its report on assessing and reducing the risk of money laundering through the markets (MLTM). MLTM refers to the use of capital markets to launder criminal funds by “layering” them through transactions that appear legitimate.
The FCA reviewed the financial crime systems and controls at a sample of wholesale brokers to understand how firms are approaching (among other things) know your customer (KYC) and customer due diligence (CDD) checks, governance and oversight, transaction monitoring, and investigations and suspicious activity reports.
While the FCA’s review found good practice and progress in several financial crime processes and controls across larger and smaller firms, it highlighted the following as areas that require further focus and improvement:
- Complexity and anonymity. The complexity of transaction chains and the anonymity of trades make it difficult to trace the origins of funds, and criminals will often involve multiple jurisdictions and counterparties to this end.
- Monitoring systems. The high volume, value, and speed of transactions pose a challenge to unsophisticated monitoring systems. Many systems face issues with false positives and oversight of red flags.
- Insufficient documentation and understanding by firms. Many firms did not adequately consider financial crime in key documents such as businesswide risk assessments or KYC processes. This indicates a potential lack of understanding of the risks involved.
- Inadequate training/resources. There is considerable variation in the quality of training and resources dedicated to financial crime prevention. The report notes that many firms do not tailor training programs to their specific business models and risk profiles.
To address these challenges, the FCA recommends that firms conduct risk assessments tailored to their specific circumstances, maintain comprehensive financial crime prevention systems spanning from initial due diligence to ongoing transaction monitoring, ensure robust internal governance and oversight, and provide targeted training to equip teams to submit accurate suspicious activity reports.
Although the MLTM report relates to brokers, investment managers should be aware of the FCA’s continued focus on money laundering/financial crime –– the FCA’s focus is not restricted to brokers.
FCA fines Arian Financial for AML failures relating to cum-ex trading
On 9 January 2025, the FCA published its Final Notice imposing a financial penalty of £288,962.53 on inter-dealer broker Arian Financial LLP (Arian) for breaching the FCA Principles for Business (Principles) in relation to AML failures.
The FCA found that Arian did not employ due skill, care and diligence between January and September 2015, and specifically failed to maintain adequate systems and controls to prevent financial crime. The FCA flagged suspicious transactions by 166 clients, introduced to Arian by the Solo Group (a network of authorised firms) and onboarded to Arian without proper review of KYC materials despite red flags.
The Solo Group engaged in complex transactions in Danish and Belgian stocks, worth over £50bn, with these clients. The transactions showed circular patterns of lending arrangements and forward derivatives, and later unwinding. The FCA identified this latter pattern as cum-ex trading, a strategy that allows a party to reclaim withholding tax in certain jurisdictions often without entitlement. Despite a lack of liquidity on the relevant markets, trades were filled near instantaneously, raising suspicions.
Although the FCA did not find evidence that Arian acted on both sides of these transactions, the FCA found that Arian had breached:
- Principle 2, by failing to conduct its business with due skill, care, and diligence, and failing to conduct adequate CDD, risk assessment, or transaction monitoring in relation to the clients and their transactions; and
- Principle 3, by failing to organise and control its affairs responsibly and effectively with adequate risk management systems. Arian lacked policies and procedures to sufficiently address client categorisation and transaction monitoring, and relied on due diligence completed by external parties.
These breaches created an ongoing risk that Arian’s services would be used to facilitate financial crime, leading to the FCA’s enforcement action.
5. UK — FCA Updates
FCA updates Prime Minister on secondary objective
On 16 January 2025, the FCA published its response to a letter received in December 2024 from the UK Prime Minister and Chancellor of the Exchequer. The letter set out the UK government’s call for regulators to play a more active role in supporting economic growth.
In its response letter, the FCA sets out planned reforms to support the government’s growth agenda, primarily by reducing perceived regulatory burdens. Key measures include:
- making the Senior Managers and Certification Regime more flexible;
- reviewing the proportionality of reporting requirements and removing redundant returns, which is expected to benefit approximately 16,000 firms;
- removing the need for firms to have a Consumer Duty Board Champion, now that the Consumer Duty is in effect; and
- ensuring that future consultations regarding consumer protection focus on whether the Consumer Duty is sufficient, rather than introducing new rules.
The FCA also indicated that further measures, which would require government support, are under consideration, including reducing the costs of AML measures and easing KYC requirements on small transactions.
Finally, the FCA has reaffirmed its commitment to initiatives aimed at unlocking capital investment and liquidity, accelerating digital innovation, and enhancing productivity. Such initiatives include implementing a new prospectus regime, streamlining regulatory requirements for asset managers, and working with the Payment Systems Regulator to advance electronic securities settlement and introduce variable recurring payments as a new open banking payment method.
FCA will not issue encrypted messaging app rules to regulated firms
The FCA has decided against introducing blanket rules to prevent employees of regulated firms from using encrypted messaging apps for unauthorised business communications.
Nikhil Rathi, chief executive of the FCA, confirmed this decision during his appearance on the “Following the Rules” podcast, as reported by the Financial Times and Financial News.
Rathi explained that the FCA’s decision is part of a broader shift away from detailed rulemaking that attempts to address every possible scenario. Instead, the FCA aims to monitor such activities on a case-by-case basis, aligning with its focus on prioritising growth as part of its secondary objective.
The FCA’s approach contrasts sharply with that of the U.S., where banks and other financial groups have been fined over US$2.5 billion by regulators for employees’ use of encrypted messaging apps.
6. UK — Tax
Court of Appeal decision in HMRC v BlueCrest Capital Management (UK) LLP: salaried member rules
The latest decision in the BlueCrest Capital Management (UK) LLP (BlueCrest) case sees the Court of Appeal overturning the hallmark decisions of the First Tier Tribunal and Upper Tribunal on the scope of the “significant influence” exclusion for the purposes of the UK’s salaried member rules.
As a reminder, the salaried member rules will treat an individual member of a UK limited liability partnership (LLP) as an employee for UK tax purposes (including for pay-as-you-earn and national insurance contributions purposes) if all of the following three conditions are met:
- Condition A –– it is reasonable to expect that at least 80% of the amounts payable by the LLP to the member year-on-year will constitute “disguised salary” — that is, remuneration that is not variable by reference to or (in practice) affected by the LLP’s overall profits and losses.
- Condition B –– the mutual rights and duties of the members and the LLP do not give the individual member “significant influence” over the affairs of the LLP.
- Condition C –– the member’s capital contribution is less than 25% of the amount of their “disguised salary.”
The BlueCrest case is focused on the application of Conditions A and B, with the LLP taxpayer contending that relevant individual members “failed” either or both of Condition A and/or Condition B and were therefore not “salaried members” for UK tax purposes.
Please see our December 2023 Update for our summary of the previous Upper Tribunal decision, which crucially held that
(i) “significant influence” was not limited to formal managerial or governance influence and could also extend to financial or other forms of de facto influence; and
(ii) the test of “significant influence” did not necessarily require the individual LLP member to have significant influence over the entirety of the affairs of the LLP, such that the exclusion might be available where the member instead has significant influence over one or more material areas of the LLP’s business.
The latest decision in the Court of Appeal has significantly changed this position, with the court taking a different approach to the interpretation of the underlying salaried members legislation, reversing material aspects of the prior Upper Tribunal decision, and referring the case back down to the First Tier Tribunal based on what the Court of Appeal now views as the correct application of the law.
Condition A: Disguised Salary
The Court of Appeal rejected BlueCrest’s cross-appeal on the application of Condition A, instead upholding the decision of the lower tribunals that failing Condition A (such that the member falls outside the salaried member rules) requires more than being able to demonstrate that the amount paid to a member (which is not calculated by reference to the profits of the LLP) would need to be repaid in some circumstances. This aspect of the Court of Appeal decision does not materially change the broader application of the salaried member rules.
Condition B: Significant Influence
The Court of Appeal held that:
- In determining whether an individual member has “significant influence” over the affairs of an LLP for the purposes of Condition B, it is only relevant to consider influence which derives from, and has its source in, the legally enforceable rights and duties of that member conferred by applicable statute and/or the LLP agreement or other contractual agreement(s) governing the operations of the LLP. De facto influence which arises from other sources (not being statutory or contractual) and which is not legally enforceable cannot be considered, even where that influence does enable the individual member to exert “significant influence” over the affairs of the LLP in practical terms.
- This position entirely reverses the reliance on “financial influence” which was established in the decisions of the lower tribunals, in which the taxpayer was successful in arguing that certain senior portfolio managers could exert a degree of significant influence over the business of the LLP based on the financial risks and responsibilities they bore for the business’ performance. This position of the Court of Appeal is also a departure from HMRC’s published guidance and the general market view that “significant influence” relating to governance may be derived not only from statute or the LLP agreement (or other contractual documents), but also from how the LLP operates in practice. This decision may be interpreted as meaning (for example) that individual members will not be able to avoid the salaried member rules by having significant influence which arises by virtue of being appointed to a subcommittee which, although established in accordance with the LLP agreement, does not have any legally enforceable rights under the terms of the LLP agreement. It is now apparent that individual members will need to be able to identify legally enforceable rights to exercise the requisite degree of influence over the affairs of the LLP in order to rely on Condition B.
- Although de facto influence of a member cannot be considered when determining whether that member themselves does have “significant influence” for Condition B purposes, it will be relevant in considering whether the influence of other members is “significant” in the context of the governance of the LLP’s affairs as a whole. The de facto influence of one person (including persons who are not themselves members of the LLP, such as the CEO of the global group for example) can therefore dilute the influence held by individual members of the LLP (even where that influence is legally enforceable and arises from applicable statute and/or the LLP agreement) and therefore prevent those individual members from relying on Condition B to fall outside the salaried member rules. It is therefore not sufficient to give relevant individual members of the LLP “enough” legally enforceable rights to exercise their influence; it is also important to consider whether (in practice) any de facto influence of other persons might cut across those legally enforceable rights. This makes it important that any legally enforceable rights written into the LLP agreement actually result in the individual members exercising significant influence in practice.
- “Significant influence” for Condition B purposes is limited to strategic influence (rather than, e.g., financial or operational influence) and must be exerted over the affairs of the LLP generally, viewed as a whole and in the context of the broader group (where applicable). Although this represents a departure from the decisions of the lower Tribunals, this aspect of the decision may come as less of a surprise to taxpayers because it aligns with HMRC’s published guidance as well as the view which was generally held in the market prior to the first BlueCrest decision. The relative balance of rights and duties written into the LLP agreement as between individual members and (for example) a “head office” corporate member will remain important.
The Court of Appeal has referred the case back to the First Tier Tribunal to reconsider the facts of Bluecrest on the basis of their new application of the law. It is yet to be seen whether BlueCrest will seek leave to appeal the decision to the Supreme Court, which would be a more interesting substantive development on the key points of law. In the meantime, asset managers with UK LLP structures should review their LLP agreements to ensure that, where they have previously taken the view that one or more of their members has “significant influence” for the purposes of the salaried member rules, that influence is sufficiently rooted in the legally enforceable terms of the LLP agreement and that the overall assessment of their significant influence is otherwise consistent with the (arguably) more stringent interpretation of the law now formulated in the latest Court of Appeal decision.
7. UK — Public Offer Platform Regime
FCA publishes consultation on further proposals for the public offer platform regime
On 31 January 2025, the FCA published a Consultation, setting out further proposals to support the implementation and operation of the new UK public offer platform (POP) regime. The POP, introduced under the Public Offers and Admissions to Trading Regulations 2024 (POATRs), which replaced the UK Prospectus Regulation, aims to facilitate public offers of securities for capital raises exceeding £5m outside conventional public markets.
Key proposals in the consultation include:
- Authorisation and Transitional Arrangements. The FCA seeks views on its proposed approach for granting firms permission to operate a POP. In particular, it is exploring a transitional regime whereby existing authorised firms would be allowed to operate a POP while their Variation of Permission applications (to carry on the new regulated activity of operating a POP) are under review.
- Supervisory Reporting and Enforcement. In addition, the FCA is considering specific enforcement measures, including extending the compulsory jurisdiction of the Financial Ombudsman Service to POP operators and adjusting fee and levy structures, to ensure consistent supervision of this new regulated activity.
- Handbook and Guidance Amendments. The consultation details consequential amendments to the FCA Handbook, notably to the Perimeter Guidance Manual, to clarify how rules on financial promotions and related approvals apply to POP operators. This includes new guidance on determining when a firm must seek approver permission for financial promotions linked to public offers.
The consultation is open for comments until 14 March 2025. Final rules for the POP regime are expected to be published in summer 2025, with the new framework anticipated to come into effect in January 2026, alongside the broader POATR framework.
8. UK — Cryptoassets
Collective Investment Schemes rules do not apply to Cryptoassets Staking
On 31 January 2025, the FSMA 2000 (Collective Investment Schemes) (Amendment) Order 2025 (CIS Amendment Order) came into force, confirming that cryptoassets staking (Staking) is out of scope of the FSMA 2000 (Collective Investment Schemes) Order 2001 (CIS Order).
Staking is a process that involves validating transactions on a blockchain network, where participants “lock” a specified amount of their cryptoassets to operate a validator node. In essence, these nodes help maintain the blockchain’s integrity, with participants receiving rewards (in the form of new cryptoassets or transaction fees) for their role. Staking is widely regarded as an alternative to cryptoasset “mining.”
Firms offering Staking services typically pool the cryptoassets of multiple participants to meet the minimum required threshold and may provide additional services such as operating the validator node.
Some features of Staking, such as the pooling of investor funds, bear similarities to a collective scheme CIS. Until the CIS Amendment Order provided clarification, it was unclear whether Staking could be considered a CIS. As such, the explicit exclusion of Staking from the scope of the CIS Order is a welcome clarification for firms offering these services.
9. UK — AI
UK government publishes its response to report on the governance of artificial intelligence (AI)
On 10 January 2025, the UK government published its response to the AI Governance Report published by the House of Commons Science, Innovation and Technology Committee (SITC) in May 2024 (AI Governance Report).
The AI Governance Report identified 12 key challenges in AI governance, ranging from model bias to existential risk, and set out recommendations for a regulatory framework that balances comprehensiveness with flexibility.
Key points in the government’s response include:
- The government reaffirmed its commitment to introduce AI-specific legislation, with a forthcoming consultation to establish binding rules for companies developing the most powerful AI systems.
- The government emphasises its commitment to the AI Safety Institute, which was established in 2023 to conduct independent safety review of frontier AI systems. The government intends to confer statutory powers on the AI Safety Institute to ensure it can effectively perform its functions.
While the government’s response largely aligns with the SITC’s recommendations, it diverges by continuing to support a sectoral approach to regulation –– a stance maintained since its initial Policy Paper on AI regulation in August 2023. Notably, the government’s approach suggests that future legislation will primarily target the most powerful AI models, though it remains unclear to what extent this will affect smaller market players or how a sectoral framework will integrate with national regulatory measures.
10. EU — AI
EU AI Act — literacy obligations for non-EU investment managers
The AI literacy obligations under the EU AI Act apply from 2 February 2025. As explained further in a Sidley blog post from last year, these obligations require organisations to ensure that relevant personnel have the necessary skills, knowledge, and understanding to enable the informed and responsible use of AI systems.
Importantly, the obligations apply regardless of the risk level of the AI system use, provided the organization falls within the broad scope of the AI Act. For example, a U.S.-based investment management firm (with no EU offices) could fall within scope of the AI Act obligations if the output of its AI system (e.g., investor marketing materials or investor letters) is being used in the EU. At present, detailed guidance on how to comply with these obligations is limited (although, we understand, forthcoming). In terms of enforcement, the AI Act’s provisions on penalties (i.e., enforcement by regulators for non-compliance) will not apply under 2 August 2025.
What are the AI literacy obligations? The AI Act requires both “providers” and “deployers” of AI systems to ensure that their staff (and other individuals) involved in the use of these systems have a sufficient level of AI literacy. The level of AI literacy required should be tailored to the individual’s “technical knowledge, experience, education and training” as well as the specific context in which the AI systems will be used. AI literacy itself is defined as the combination of “skills, knowledge and understanding that allow providers, deployers and affected persons […] to make an informed deployment of AI systems.” It also involves being aware of the opportunities and risks associated with AI, including the potential harm it can cause.
Who must comply? Any organisation falling within scope of the AI Act as either a provider or deployer of an AI system must comply with the AI literacy obligations. This could include:
- Any EU office using AI systems in a professional capacity (i.e., as a deployer). For example, a Luxembourg office using an internal chatbot to communicate with colleagues.
- Any non-EU office using AI systems in a professional capacity (i.e., as a deployer) where the output of the AI system is being used in the EU. For example, a U.S. office using an AI system to generate investor marketing materials for distribution in the EU.
- Any non-EU office developing (or having developed) an AI system and then placing it on the market / putting it into service in the EU (i.e., as a provider). Note that whilst there is currently no guidance under the AI Act as to whether “putting into service” would also include the development of an AI system only for use internally within the business, there exists other EU law/guidance which use the same terminology and does include such internal use within scope.
How to comply? The AI literacy obligations are context-specific (i.e., they are dependent on what AI is being used and how). In practice, if the AI use is limited to the deployer examples provided above, the steps taken to meet this obligation should be relatively straightforward and self-contained. For example, as a starting point, organizations should consider developing policies on the authorized use of AI for professional activities and ensuring personnel are adequately trained (and tested) on these policies.
11. EU — AIFMD
ESMA publishes updated Q&As under AIFMD
On 10 January 2025, the European Securities and Markets Authority (ESMA) published updated Q&As relating to the Alternative Investment Fund Managers Directive (AIFMD). The new Q&As contain responses from the EC on two key issues: (i) delegation of portfolio and risk management, and (ii) safekeeping of client money.
(i) The first Q&A confirms that alternative investment fund managers (AIFMs) are not permitted to delegate portfolio or risk management functions to non-supervised undertakings established outside the EU. The EC confirmed that per Article 20(1)(d) of the AIFMD, any such delegation must be subject to cooperation between the national competent authorities (NCAs) of the AIFM’s home Member State and the supervisory authority of the third country undertaking, as further specified by Article 78(3) of Commission Delegated Regulation (EU) No 231/2013.
(ii) The second Q&A clarifies that AIFMs are not allowed to hold client money. Although the AIFMD may allow an AIFM to be authorised to provide safekeeping services in relation to, e.g. shares, this does not permit AIFMs to safekeep clients’ money. The EC confirmed that this restriction remains unchanged even following the extension of the scope of ancillary services under the AIFMD II.
12. EU — Simplification Agenda
French government proposes measures to simplify EU laws and boost competitiveness
With European competitiveness identified as a policy priority of President Von der Leyen’s European Commission (EC), the French government has sent a letter to the EC outlining recommendations to simplify and improve EU law.
The letter, dated 20 January 2025, calls for a new and ambitious “simplification agenda,” following the recommendations of the Draghi report on the future of European competitiveness, which estimated that regulatory complexity and fragmentation are limiting the EU’s GDP potential by up to 10%.
The French authorities are recommending a regulatory pause, meaning a re-examination of legislation currently under negotiation or recently adopted, to ensure new and existing EU laws align with the EU’s strategic priorities and the current context of intensified international competition.
Among the proposals put forward by the French government, some of the most significant are:
- Mid-cap category. The creation of a “mid-cap” category for companies (i.e., companies with between 250 and 1,500 employees and sales not exceeding €1.5 billion or balance sheet total not exceeding €2 billion). Currently, small and medium size enterprises benefit from a range of exemptions and simplifications across EU laws and regulations, a regime the French authorities argue should also apply to this new mid cap segment. In particular, cumbersome reporting requirements and certain aspects of corporate sustainability reporting and due diligence (under the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CS3D)) should be removed for mid caps.
- CS3D. The indefinite postponement of the entry into force of the CS3D, which the French authorities considered would level the currently uneven playing field, where non-European competitors are subject to lighter obligations. The CS3D imposes broad due diligence obligations on sustainability, and the French government suggests that the CS3D be revised with a view to making these obligations more proportionate.
- CSRD. Similarly, the letter calls for urgent simplification of the CSRD, which requires companies to disclose information on their sustainability performance, against a wide framework of metrics. The French authorities propose to cut the number of indicators and remove indicators not linked to climate change (e.g., relating to diversity in the workforce), and to avoid duplication of reports within corporate groups. They also suggest postponing the entry into force by two years.
- Securitisation Regulation. The letter notes that several simplification measures could be implemented in relation to the framework governing securitisation transactions under the EU Securitisation Regulation to reduce the burden of the current regime (described as overly onerous, prescriptive, and detailed). The French authorities call for a principle-based approach that relaxes the requirements for all institutional investors and for adapting investor due diligence requirements to the characteristics of underlying transactions, in particular for simple, transparent and standardised transactions.
EC introduces omnibus simplification package
As part of its simplification agenda and efforts to boost European competitiveness, the EC is introducing an omnibus simplification package (the Omnibus), as detailed in our December 2024 Update. On 29 January 2025, the EC published a communication confirming that the Omnibus will be published on 26 February 2025 and will be the first of several such far-reaching simplification packages.
The Omnibus is intended to simplify reporting measures, due diligence, and taxonomy relating to sustainability under the CSRD, CS3D, and EU Taxonomy. The EC’s aim is to reduce the regulatory burden and ensure regulatory requirements align more closely with investors’ needs, while ensuring that smaller companies are not subjected to excessive reporting requests.
The EC’s intention is for the Omnibus to assist with its simplification agenda, in particular the EC’s broader aim to reduce reporting burdens by 25% for all companies and by at least 35% for small and medium-size enterprises.
13. EU — ESG
EU Platform on Sustainable Finance publishes report on transition plans
On 23 January 2025, the EU Platform on Sustainable Finance (PSF), an advisory group to the EC, published a report assessing corporate transition plans for climate change mitigation in the EU. The report aims to support the development and evaluation of robust transition plans that align with the EU’s environmental and social objectives and facilitate the provision of and access to transition finance.
The report identifies four core elements for assessing transition plans: (i) science-based and time-bound targets, (ii) key levers and actions to achieve these targets, (iii) financial planning, and (iv) governance and oversight. The report stresses that assessments of transition plans should consider all material impacts, not solely climate change mitigation. It highlights the importance of integrating climate adaptation and broader environmental objectives into corporate planning.
In addition, the report offers several non-binding recommendations to the EC aimed at enhancing the EU policy framework for transition plans. Key recommendations include:
- developing sectoral transition pathways for high-emitting sectors;
- providing guidance for selecting scenarios and targets;
- creating a public monitoring framework or registry of emission reduction data; and
- developing a common transition plan template for non-financial undertakings
The report also provides recommendations to financial market participants (FMPs) on how to use existing EU tools such as the EU Taxonomy and the European Sustainability Reporting Standards to evaluate the credibility, feasibility, and usability of their transition plans. FMPs are expected to use such plans to inform their investment and lending decisions, thereby supporting companies in strengthening their strategies in line with the EU framework and the Paris Agreement.
For context, transition plans will become mandatory for companies in scope of the CS3D (as further detailed in our previous Sidley Update on CS3D). As set out above, the EC’s ongoing publication of the Omnibus may also impact its response to the PSF’s report.
14. EU — Cryptoassets
ESMA and European Banking Authority issue joint report on developments in cryptoasset services
On 13 January 2025, the European Banking Authority (EBA) and ESMA published a Joint Report on recent developments in cryptoassets. The Markets in Cryptoassets Regulation (MiCA), which entered into force in December 2023, is the first comprehensive EU regulatory framework for cryptoassets and cryptoasset service providers (CASPs).
MiCA mandates the EC to assess the development and appropriate regulatory treatment of Decentralised Finance (DeFi) and cryptoassets. This Joint Report represents the EBA and ESMA’s contribution to this assessment and will form part of the report that the EC presents to the European Parliament and the Council in accordance with the requirements of Article 142 of MiCA.
While the Joint Report provides several policy recommendations, it also notes that engagement with DeFi by EU consumers and businesses lags behind that of other developed economies, such as South Korea. In discussing risks and market developments, the Joint Report identifies potential issues in crypto lending, borrowing, and staking, including concerns over excessive leverage, financial crime exposure, and the amplification of market shocks due to market interconnectedness.
For further insights into the evolving regulatory landscape for cryptoassets, please refer to our detailed Update on MiCA and its implications for cryptoasset service providers: How Will the EU Markets in Crypto-Assets Regulation Affect Crypto and Other Financial Services Firms?
ESMA issues supervisory briefing on the authorisation of CASPs under MiCA
On 31 January 2025, ESMA published a supervisory briefing on the authorisation of CASPs under MiCA. The guidance is intended to align practices across the EU Member States and prevent regulatory arbitrage through ensuring all CASPs meet robust standards of risk management, governance, and operational resilience.
Among other things, ESMA provides the following guidance:
- CASPs are inherently high risk given their direct dealings with retail investors, innovative business models, and the cross‑border nature of their operations. As such, no CASP should be categorised as “low risk.” Instead, NCAs should apply elevated scrutiny where multiple risk factors, such as large client bases, complex group structures, or extensive cross‑border activity, are present.
- CASPs must ensure decision-making is firmly rooted in the EU. This requires a local management team with at least one executive board member based in, or readily accessible to, the home Member State.
- Where group structures extend beyond the EU, NCAs should critically assess whether such arrangements undermine local autonomy and effective supervision.
- While outsourcing of noncore functions may be acceptable, CASPs must retain effective control over all critical services. Outsourcing to third countries or extensive sub-outsourcing arrangements should be carefully scrutinised, as they may impair supervisory access and operational continuity.
