UK/EU Investment Management Update (March 2025)

1. UK — FCA

2. UK — Short Selling Regulations 2025

3. UK — SMCR

4. UK — Enforcement

5. UK — MiFID II/MiFIR

6. UK — Financial Promotions

7. UK — Sanctions

8. UK — ESG

9. UK — AI

10. EU — Financial Services Work Programme

11. EU — ESG

12. EU — MIFIR

13. EU — Cryptoassets

14. EU — AI Act

1. UK — FCA

FCA Dear CEO letter to asset management and alternatives firms

On 26 February 2025, the FCA published a “Dear CEO” letter to firms in the asset management and alternatives sector. The letter states the FCA’s current supervisory priorities in relation to these firms, which are as follows.

• Private markets — Considering the rapid growth of private markets in recent years, the FCA makes three main observations. First, it expresses concerns about inappropriate valuations by firms when pricing transactions or calculating fees, and will soon be publishing the findings of its multi-firm review on Private Market Valuation Practices. Second, it notes that it will start a multi-firm review focusing on conflicts of interest at firms managing private assets. Finally, the FCA will continue to focus on supervision to support the sector’s transition to retail offers of private market products.
• Market integrity and disruption — The Bank of England recently published findings from the System Wide Exploratory Scenario, which considers how the UK financial system would respond to a market shock. In light of these findings, the FCA states that it will be (1) continuing to monitor liquidity risk; (2) considering findings on margin preparedness and discussing actions with relevant firms; and (3) continuing its data-led approach to identifying outlier firms and funds. The FCA’s focus here will particularly be on firms with high leverage, illiquidity, or concentrated investment strategies.
• Consumer outcomes— On the retail side, the FCA will start a multi-firm review this year of firms providing model portfolio services to understand how these firms are applying the Consumer Duty. Later this year, it will also publish findings from a multi-firm review of unit-linked funds.
• Sustainability Disclosure Requirements — The FCA will engage with firms with sustainability-related products to understand how such firms are implementing the labelling, naming, and marketing rules. For further detail on the UK Sustainability Disclosure Requirements, see our Sidley Update Final Rules on UK Sustainability Disclosure Requirements and Investment Labels — Key Takeaways for Asset Managers.
• Financial crime and market abuse — The FCA expresses the view that the increasing trend towards investment in private assets generates financial crime risks related to complex ownership structures. It notes that it will have a particular supervisory focus on anti-money-laundering (AML) controls in private markets funds. Finally, the FCA expect firms to ensure that their market abuse controls enable them to discharge obligations under the Market Abuse Regulation.

New “My FCA” Portal

On 27 February 2025, the FCA updated its My FCA webpage, reminding firms that My FCA is a new portal for registered and authorised firms that is launching in spring 2025.

My FCA is a single sign-in portal, using firms’ existing user details, for Connect, RegData, and the FCA’s Online Invoicing System.

Once signed in, a firm will be able to see its scheduled regulatory reporting and attestation tasks in one place. This will make it easier to see all the information relating to the firm’s regulatory activities and to fulfil the firm’s regulatory responsibilities.

FCA speech on growth agenda

On 27 February 2025, Nikhil Rathi (Chief Executive of the FCA) delivered a speech to the Association of British Insurers on economic growth. While the speech largely focused on insurance matters, a number of general issues were raised relevant to the wider financial services sector:

• Pace of regulatory change — In relation to the Consumer Duty, the FCA had published a Call for Input that received 170 responses from a range of firms. Respondents’ views on this topic varied, but Rathi noted in his speech that the FCA has heard concerns around the pace of regulatory change. As such, it is aiming for fewer large-scale changes in its five-year strategy for 2025–30.
• Growth proposals — Rathi announced that in coming weeks, the FCA will be progressing at pace the 50 or so growth proposals it made in its recent letter to the UK Prime Minister. These proposals include removing redundant data returns, supporting international promotion of UK financial services, opening up to more innovative firms, and cutting barriers between regulators.

FCA speech on approach to non-bank leverage

On 25 February, Sarah Pritchard, an Executive Director at the FCA, delivered a speech at the Investment Association Roundtable entitled “Helping markets thrive and managing systemic risk: the FCA’s approach to non-bank leverage.”

Several points of interest were raised in the speech:

• The FCA supports targeted improvements to public and private disclosure in order to mitigate the build-up of systemic risk from non-bank financial institution (NBFI) leverage. Here, Pritchard emphasised the need for continuing close dialogue with industry to balance any disclosure rules with confidentiality concerns.
• Secondly, Pritchard highlighted that regulators must have the necessary data, systems, and tools in place to effectively monitor NBFI leverage use and identify systemic risk. Given the FCA’s regulatory remit and patterns of leverage use in the UK market, she noted that fund managers covered by the Alternative Investment Fund Managers Directive (AIFMD) will be an area of focus for the FCA.
• Finally, Pritchard highlighted the FCA’s role co-chairing a working group for the recent Financial Stability Board consultation on NBFI leverage.

2. UK — Short Selling Regulations 2025

FCA to consult on new short selling rules in Q3 2025

On 12 February 2025, the FCA revised its webpage on the notification and disclosure of net short positions.

As discussed in our Sidley Update of February 2025, following the UK government’s publication of the Short Selling Regulations 2025, the FCA will be consulting on detailed rules to implement the new short selling regime.

The update confirms that

• the FCA intends to consults on new short selling rules in Q3 2025; and
• certain aspects of the new regime (such as the new requirement to publish aggregated net short positions by issuer) will be implemented once the FCA has finalised the new rules and made technical and operational changes.

In the interim, the existing UK short selling regime will continue to apply, including the current public disclosure of individual firms net short positions in issuers at the 0.5% threshold and above.

It is expected that the final FCA rules will be published some time in 2026.

3. UK — SMCR

FCA speech on firm culture

On 4 February 2025, the Chief Operating Officer of the FCA, Emily Shepperd, delivered a speech at the 10th Annual Culture and Conduct in Financial Services Summit.

The speech highlighted the importance of culture in driving positive conduct and decision-making in the financial services sector. Shepperd notes that the FCA will continue to focus on monitoring and enforcing culture and conduct standards, especially in relation to non-financial misconduct such as bullying, harassment, and discrimination.

In terms of regulatory work in this area, Shepperd notes that

• the FCA has been updating its rules and guidance on non-financial misconduct and expects to set out more detail on its proposed next steps shortly; and
• the FCA also intends to review the Senior Managers and Certification Regime (SMCR) in collaboration with HM Treasury and the Prudential Regulation Authority (PRA), to improve SMCR’s effectiveness. The FCA will publish a consultation paper on this “in due course.”

4. UK — Enforcement

‘Name and Shame’ — House of Lords Financial Services Regulation Committee (FSRC) report on FCA proposals to publicise enforcement investigation

On 6 February 2025, the FSRC published a report on the FCA’s plans to publicise enforcement investigations. For the most recent update on the FCA’s proposal, please see our Sidley Update of December 2024.

The report expresses the FSRC’s concerns about the FCA’s original consultation, which proposed to announce more investigations at an early stage, using a flexible public interest framework. The FSRC considered that the FCA had failed to engage with the industry, justify the need for the changes, consider the impact on firms and markets, or provide a cost-benefit analysis. The report also questions how the proposals would align with the FCA’s secondary objective to promote international competitiveness and growth.

The FSRC recommended that the FCA should proceed with the proposals only if it can demonstrate that it has addressed the stakeholders’ concerns and that changes are proportionate and necessary. The report also urges the FCA to review its internal processes and communication strategies, expedite its investigative processes, and change its policy of producing cost-benefit analyses only for rules.

The FCA is expected to make a decision on the proposals in Q2 2025, its second consultation having closed on 17 February 2025. The FSRC has requested that the FCA report its findings before the changes are implemented.

FCA fines Mako Financial Markets Partnership LLP

On 17 February 2025, the FCA published a Final Notice imposing a financial penalty of £1,662,700 on Mako Financial Markets Partnership LLP (Mako) for failing to ensure effective systems and controls to guard against financial crime. This Final Notice concludes the FCA’s investigations into cum-ex trading, in relation to which it has now imposed fines of more than £30m.

Here, Mako executed purported over-the-counter equity trades on behalf of clients of the Solo Group (Solo). The trading was circular, which the FCA notes is highly suggestive of financial crime, and appeared to have been carried out to allow the arranging of withholding-tax reclaims in Denmark and Belgium.

Mako had additionally failed to identify red flags in other instances related to the Solo Group business, such as

• a series of transactions that had no obvious rationale and that resulted in the Solo Group controller’s incurring a €2m loss, to the benefit of his business associates; and
•  payment from a United Arab Emirates–based third party connected to the Solo Group for outstanding debts owed by the Solo Group’s clients (which Mako had received without performing any due diligence).

In connection with the above, the FCA found that Mako had breached the following FCA Principles:

• Principle 2 (Skill, care, and diligence) — Mako did not exercise due skill, care, and diligence in (1) applying its AML policies and procedures and (2) failing to properly assess, monitor, and mitigate the risk of it’s being used to facilitate financial crime.
• Principle 3 (Management and control) — Mako had inadequate systems and controls to identify and mitigate the risk of being used to facilitate fraudulent trading and money laundering in relation to business introduced to it by the Solo Group.

5. UK — MiFID II/MiFIR

FCA publishes policy statement on reforming commodity derivatives regulatory framework

On 5 February 2025, the FCA published its policy statement on reforming the commodity derivatives regulatory framework (PS25/1). The relevant legal instruments were published by the FCA on 28 February 2025.

The changes introduced by PS25/1 include the following:

• Position limits will apply only to 14 “critical” contracts. The FCA will review the list of critical contracts periodically and consult on any changes.
•  Trading venue operators will be provided with greater discretion, in certain areas, to determine the arrangements necessary to safeguard the orderliness of their market. That discretion will need to be exercised with reference to criteria set by the FCA to ensure that arrangements deliver sufficient risk monitoring and mitigation.
• The FCA will introduce new types of exemptions to support the hedging needs of firms by providing them with greater access to liquidity.

Most of the new rules will come into force on 6 July 2026, with exemptions under the current regime continuing to apply until 5 July 2026. Transitional provisions and rules that enable trading venues to receive and process applications for exemptions will commence from 3 March 2025.

6. UK — Financial Promotions

FCA publishes financial promotions data and analysis

On 7 February 2025, the FCA published data for Q4 2024 on its actions against firms for breaching financial promotions rules as well as analysis of financial promotions data for the full 2024 calendar year.

Several points of interest arise from the 2024 data:

• For authorised firms, 19,766 promotions were amended/withdrawn following the FCA’s interventions. This is an increase of 97.5%, compared with 10,008 in 2023.
• For unauthorised firms and individuals, the FCA issued 2,240 alerts (which provide a warning to the public). While this is a decrease of 2% from 2,286 in 2023, the alerts remain high compared with historical levels.
•  The FCA has been using data and technology to increase its capacity to identify and assess around 480,000 new websites that could be providing or promoting financial services or products without its permission.

The FCA notes its ongoing concerns about the levels of compliance with financial promotion rules and will continue to focus on this area to reduce consumer harm.

7. UK — Sanctions

OFSI releases Threat Assessment for the financial services industry

On 13 February 2025, the Office of Financial Sanctions Implementation (OFSI) released a Financial Services Threat Assessment (Threat Assessment). This forms part of OFSI’s ongoing efforts to assist UK financial services firms in understanding and protecting against threats to sanctions compliance.

The Threat Assessment notes that since February 2022, UK financial services firms have reported over 65% of all the suspected breaches received by OFSI. While most of these are from banks and payment service providers, OFSI states that the sanctions threats outlined are relevant to other UK financial services firms of all sizes.

The Threat Assessment highlights the following common compliance issues:

• improper maintenance of frozen assets;
•  breaches of specific and general OFSI licence conditions;
• inaccurate ownership assessments; and
• inaccurate UK nexus assessments.

The report goes on to provide a detailed description of relevant threats (such as use of third-party “enablers” to carry out transactions; intermediary jurisdictions) and outlines several “red flags” for firms.

8. UK — ESG

FCA policy paper on extension of SDR to portfolio managers delayed

On 14 February 2025, the FCA updated its consultation webpage on extending the UK Sustainability Disclosure Requirements (SDR) to portfolio managers. At present, the SDR applies only to fund managers; “portfolio managers” would generally refer to those firms providing investment management services to single clients (such as single managed accounts).

The consultation paper on this topic (CP24/8) closed in June 2024, and a policy statement was expected in Q2 2025. However, the FCA has announced that it no longer intends to publish the policy statement in Q2 2025. It states that it wishes to take the necessary time to ensure that the rules deliver good outcomes for customers, are practical for firms, and support the growth of the sector.

The FCA also refers to industry feedback suggesting it is taking longer than expected for some asset managers to comply with the SDR and labelling regime. It acknowledges the potential impact on portfolio managers.

For further detail on the SDR and investment labels regime, please see our Sidley Update Final Rules on UK Sustainability Disclosure Requirements and Investment Labels — Key Takeaways for Asset Managers.

9. UK — AI

Treasury Committee launches inquiry into AI in financial services

On 3 February 2025, the House of Commons Treasury Committee published a Call for Evidence as part of an inquiry into AI in various sectors of UK financial services.

The inquiry is designed to focus on establishing the opportunities and threats related to AI in UK financial services, and the Call for Evidence focuses on the following key areas:

• current use of AI and expected changes in the next 10 years, including the rate of adoption
• potential improvements AI can make to productivity
• barriers to adoption
• risks to financial stability (e.g., cybersecurity threats, third-party dependencies, and model complexity), and possible mitigations
• benefits and risks to consumers (particularly for vulnerable consumers)
• how the UK government and regulators can balance opportunities against threats

The Call for Evidence is open for submissions until 17 March 2025.

10. EU — Financial Services Work Programme

European Commission 2025 work programme

On 11 February 2025, the European Commission published its 2025 work programme, together with related annexes (the Work Programme) and an accompanying communication (the Communication).

Among other things, the Communication highlights a strong focus on simplification proposals (such as the “Omnibus” sustainability package discussed in the EU — ESG section below). It also notes that the European Commission is aiming to reduce the burden for all administrative costs by 25% for all companies.

The Work Programme outlines European Commission policy priorities and legislative initiatives for the next year. Proposals affecting the investment management sector include, for example, its review of the securitisation framework under the Securitisation Regulation, a revision of the Sustainable Finance Disclosure Regulation (SFDR), and proposed amendments to the Packaged Retail Investment and Insurance Products Regulation.

The European Commission also intends to withdraw some pending proposals, such as the proposed directive on credit servicers, credit purchasers, and the recovery of collateral. The Work Programme is subject to negotiation and potential changes, ahead of a joint declaration on EU legislative priorities for 2025 with the co-legislators.

ESMA 2026-28 programming document

On 31 January 2025, ESMA issued its 2026–28 Programming Document (the Programming Document), setting out ESMA’s ambitions and priorities for this period.

The Program includes several points of interest for the investment management sector:

• Redemptions and subscriptions — Under the AIFMD and Undertakings for Collective Investment in Transferable Securities (UCITS) Directive, ESMA will in 2026 develop guidelines (directed at national competent authorities) on the activation of suspensions of subscriptions and redemptions of funds.
• Reporting — Under the current reviews of AIFMD and UCITS, ESMA is working with the other European Supervisory Authorities (ESAs) on integrated supervisory data collection to reduce reporting burdens for market participants and to ensure that the appropriate data is available to authorities (e.g., by reducing duplicative and inconsistent requirements).
• NBFI — The Programming Document states that monitoring the risks of the NBFI sector will likely remain high on ESMA’s agenda in the coming years.
• SFDR — ESMA will, alongside the other ESAs, publish its annual report on the extent of voluntary disclosures of principal adverse impact in SFDR. The ESAs may provide more guidance and Q&As for sustainability disclosures under the SFDR.

ESMA also highlights its ongoing work on the development of the single rulebook applicable to the investment management sector, which allows users to view associated rules and guidance in relation to a given piece of legislation.

11. EU — ESG

European Commission ‘Omnibus’ sustainability package

On 26 February 2025, the European Commission published new proposals to consolidate reporting requirements across multiple EU regulations. The press release for the proposals can be found here, and the European Commission has also published a Q&A on the same.

Among other things, the legislative package contains extensive changes to:

• CSRD (Directive (EU) 2022/2464);
• CSDDD (Directive (EU) 2024/1760); and
• the Taxonomy Regulation (Regulation (EU) 2020/852).

The proposals will now be submitted to the European Parliament and the Council for their consideration and adoption.

For an analysis of the proposals, please see our Sidley Update EU Omnibus Package: Key Changes Proposed by the Commission on ESG Reporting and Due Diligence.

12. EU — MIFIR

European Commission consultation on commodity derivative markets

On 26 February 2025, the European Commission published a targeted consultation document on the functioning of commodity derivatives markets and certain aspects relating to spot energy markets.

The consultation is addressed to commodity market participants in the EU, regardless of where such market participants are domiciled or where they have established their principal place of business.

The consultation was published alongside the European Commission’s Action Plan on Affordable Energy and has several objectives:

• First, it seeks to make the EU commodity derivatives markets more efficient and resilient, ultimately delivering benefits to the real economy, and bearing in mind the Commission’s general objective to reduce regulatory burden on EU firms.
• Second, it will allow the European Commission to collect evidence to feed into broader reflections on the wholesale energy and related financial markets that may inform future policy choices in this area. This may require legislative amendments to MiFID and Regulation on Wholesale Energy Market Integrity and Transparency.
• Finally, the solutions under consideration may in some cases be specifically targeted at certain types of contracts or commodities. For example, the European Commission considers it could be possible to identify specific solutions for gas‑related contracts (as opposed to other commodities).

Firms are invited to respond to the consultation by 9 April 2025.

13. EU — Cryptoassets

Publication in Official Journal of regulations on notification of intention to provide cryptoasset services

On 20 February 2025, two regulations supplementing MiCA were published in the Official Journal of the European Union:

• Commission Delegated Regulation (EU) 2025/303 supplementing MiCA with regard to regulatory technical standards (RTS) specifying the information to be included by certain financial entities in the notification of their intention to provide cryptoasset services (the Delegated Regulation); and
• Commission Implementing Regulation (EU) 2025/304 of 31 October 2024 laying down implementing technical standards (ITS) for the application of MiCA with regard to standard forms, templates, and procedures for the notification by certain financial entities of their intention to provide cryptoasset services (the Implementing Regulation).

Under Article 60 of MiCA, certain financial entities that wish to provide cryptoasset services must make a notification to the regulator. Articles 60(13) and (14) of MiCA require ESMA to develop RTS and ITS specifying the information, forms, templates, and procedures for this notification.

The Delegated Regulation and the Implementing Regulation have been published in accordance with this requirement and will enter into force on 12 March 2025.

For further detail on MiCA, see our Sidley Update How Will the EU Markets in Crypto-Assets Regulation Affect Crypto and Other Financial Services Firms?.

ESMA guidelines on reverse solicitation under MiCA

On 26 February 2025, ESMA published the official translations of its guidelines on reverse solicitation under MiCA.

Article 61(1) of MiCA allows an exemption from authorisation where a cryptoasset service or activity is initiated at the own exclusive initiative of a client established or situated in the EU. In connection with this, Article 61(3) of MiCA requires ESMA to produce guidelines on situations in which a third-country firm is deemed to solicit clients established or situated in the EU.

ESMA delivered its final report on the guidelines in December 2024. The guidelines are set to apply 60 days from the publication of official translations, which will be 27 April 2025.

14. EU — AI Act

Draft guidelines on AI system definition published under EU AI Act

On 6 February 2025, the European Commission published an approved draft of non-binding guidelines (the AI Guidelines) on the definition of an “AI system” under Article 3(1) of Regulation (EU) 2024/1689 (the AI Act). The scoping provisions of the AI Act include firms that use AI systems.

The AI Guidelines split the definition of an “AI system” into seven main elements:

1. a machine-based system;
2. that is designed to operate with varying levels of autonomy;
3. that may exhibit adaptiveness after deployment;
4. that, for explicit or implicit objectives;
5. infers, from the input it receives, how to generate outputs;
6. such as predictions, content, recommendations, or decisions; and
7. that can influence physical or virtual environments.

The AI Guidelines then provide further clarification and examples on each above element of the definition. There are no automatic or exhaustive lists of systems falling within or outside the definition, but the European Commission will update the AI Guidelines periodically.

For further detail on the AI Act, see our Sidley Update Top 10 Questions on the EU AI Act.