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  • Financial Services Compensation Scheme Management Expenses Levy Limit for 2025/26 Explained

    Financial Services Compensation Scheme Management Expenses Levy Limit for 2025/26 Explained

    Understanding the FSCS Management Expenses Levy Limit for 2025/26

    The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have proposed a Management Expenses Levy Limit (MELL) of £108.6m for the Financial Services Compensation Scheme (FSCS) for 2025/26. This levy comprises a management expenses budget of £103.6m and an unlevied reserve of £5m.

    Key Changes and Budget Overview

    The proposed MELL represents a modest 0.5% increase (£0.5m) from the 2024/25 limit of £108.1m. Notably, the FSCS is absorbing approximately £2.7m of inflationary costs, making the actual levy lower in real terms. The management expenses budget covers essential operating costs including IT infrastructure, staffing, outsourcing, legal services, and claims handling.

    Budget Allocation and Cost Management

    Key budgetary changes for 2025/26 include:

    • Staff costs increase of 5% (£2.5m)
    • IT costs rise of 7% (£0.5m)
    • Professional and legal fees reduction of 8% (£0.8m)
    • Outsourced claims handling decrease of 13% (£1.8m)

    Operational Changes and Efficiency Measures

    The FSCS is implementing a new hybrid operating model from April 2025, bringing most claims processing in-house while partnering with PwC for remaining claims. This strategic shift aims to improve service quality, strengthen core processes, and achieve long-term cost efficiencies.

    Funding Structure and Industry Impact

    The management expenses budget is allocated across FCA and PRA firms through:

    • Base costs of £36.9m (split 50/50 between FCA and PRA regulatory fee blocks)
    • Specific costs of £66.7m (allocated based on claims volumes and types)

    The FCA funding class allocation is set to increase by £0.7m to £63.2m, while the PRA funding class allocation will decrease by £0.2m to £40.4m.

    Consumer Protection and Market Confidence

    The FSCS plays a crucial role in maintaining consumer confidence in financial services by providing compensation when authorized firms fail. For 2025/26, the FSCS forecasts compensation payments of £367m, demonstrating its vital consumer protection function.

    Seeking Professional Compliance Support

    Understanding and preparing for regulatory levies can be complex. For guidance on how these changes might affect your firm and ensuring compliance with regulatory requirements, contact our regulatory experts for specialized support.

    References

    CP25/1: Financial Services Compensation Scheme – Management Expenses Levy Limit 2025/26
    [pdf]

  • FCA Clarifies Motor Finance Regulations Following High Court Ruling

    FCA Clarifies Motor Finance Regulations Following High Court Ruling

    FCA’s Response to High Court Ruling on Motor Finance

    The recent High Court judgment has clarified the regulatory landscape concerning discretionary commission arrangements (DCAs) in motor finance. This ruling is significant for consumers and financial firms alike, as it highlights the responsibilities of lenders and dealers in their commission disclosures. The Court sided with the Financial Ombudsman Service, reinforcing consumer protection in the financial services sector.

    Judicial Review Outcome

    On 17 December 2024, the High Court ruled in favor of the Financial Ombudsman Service regarding a complaint about a DCA within a motor finance agreement involving Barclays Partner Finance. The judgment dismissed all three grounds of appeal made by the lender, indicating a clear interpretation of the rules as set forth by the Financial Conduct Authority (FCA) and the Consumer Credit Act 1974.

    Key Findings of the Judgment

    The judgment emphasized that Barclays Partner Finance, along with the car dealer, failed to meet mandatory standards in their dealings with the borrower. Specifically, the Judge upheld the Financial Ombudsman’s stance that:

    • The commission arrangements were not adequately disclosed to the borrower.
    • The relationship between the lender and the borrower was assessed as unfair under existing regulations.

    This ruling establishes a precedent for how DCAs should be handled, promoting transparency and fairness in motor finance agreements.

    Ongoing FCA Review

    The FCA is currently conducting a review of DCAs within the motor finance market, following a temporary ban implemented in 2021. The aim of this review is multifaceted:

    • To investigate the prevalence of misconduct associated with DCAs.
    • To determine if consumers have suffered losses due to inadequate disclosure practices.
    • To recommend pathways for ensuring fair compensation for affected consumers.

    In light of this ongoing review, firms were given additional time to respond to complaints regarding motor finance involving DCAs. This extension aims to ensure comprehensive and fair resolutions.

    Implications of the Supreme Court Appeal

    Alongside the High Court decision, the Supreme Court will hear an appeal related to three additional motor finance cases. These cases involve both DCAs and non-DCAs and pertain to the application of common law and equitable principles surrounding the Consumer Credit Act. The implications of this appeal are broad, affecting not only the current review but also the general understanding of compliance obligations for motor finance providers.

    Anticipated Changes in Industry Practices

    Following the Court of Appeal’s ruling, firms in the motor finance sector can expect an influx of complaints regarding DCAs as well as non-DCA transactions. To manage this effectively, the FCA has proposed extensions to the response time for dealing with such complaints. This measure aims to maintain order and consistency in resolving disputes between consumers and firms.

    Next Steps in Regulation

    The FCA plans to announce its policy statement by 19 December 2024, outlining the outcome of its consultation regarding the extension of time for complaints related to non-DCAs. Furthermore, the FCA intends to outline future steps in its DCA review by May 2025. However, the progress of the Supreme Court appeal may influence the specifics of these advancements.

    Conclusion

    The High Court’s ruling and ongoing FCA review are critical in reshaping the landscape of motor finance, reinforcing the necessity for transparent practices in commission arrangements. With regulatory scrutiny increasing, firms must reassess their compliance frameworks to align with evolving standards. Stakeholders are encouraged to reflect on their practices and consider the potential impacts of these judicial decisions.

    For businesses needing guidance on compliance in the regulatory landscape, seeking expert support is crucial. Contact us for tailored assistance on navigating these changes and ensuring adherence to FCA regulations. Contact Us today.

    References

    FCA responds to High Court motor finance judicial review decision

  • Financial Services Compensation Scheme Management Expenses Levy Limit for 2025/26 Explained

    Financial Services Compensation Scheme Management Expenses Levy Limit for 2025/26 Explained

    Understanding the FSCS Management Expenses Levy Limit for 2025/26

    The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have proposed a Management Expenses Levy Limit (MELL) of £108.6m for the Financial Services Compensation Scheme (FSCS) for 2025/26. This levy comprises a management expenses budget of £103.6m and an unlevied reserve of £5m.

    Key Changes and Budget Overview

    The proposed MELL represents a modest 0.5% increase (£0.5m) from the 2024/25 limit of £108.1m. Notably, the FSCS is absorbing approximately £2.7m of inflationary costs, making the actual levy lower in real terms. The management expenses budget covers essential operating costs including IT infrastructure, staffing, outsourcing, legal services, and claims handling.

    Budget Allocation and Cost Management

    Key budgetary changes for 2025/26 include:

    • Staff costs increase of 5% (£2.5m)
    • IT costs rise of 7% (£0.5m)
    • Professional and legal fees reduction of 8% (£0.8m)
    • Outsourced claims handling decrease of 13% (£1.8m)

    Operational Changes and Efficiency Measures

    The FSCS is implementing a new hybrid operating model from April 2025, bringing most claims processing in-house while partnering with PwC for remaining claims. This strategic shift aims to improve service quality, strengthen core processes, and achieve long-term cost efficiencies.

    Funding Structure and Industry Impact

    The management expenses budget is allocated across FCA and PRA firms through:

    • Base costs of £36.9m (split 50/50 between FCA and PRA regulatory fee blocks)
    • Specific costs of £66.7m (allocated based on claims volumes and types)

    The FCA funding class allocation is set to increase by £0.7m to £63.2m, while the PRA funding class allocation will decrease by £0.2m to £40.4m.

    Consumer Protection and Market Confidence

    The FSCS plays a crucial role in maintaining consumer confidence in financial services by providing compensation when authorized firms fail. For 2025/26, the FSCS forecasts compensation payments of £367m, demonstrating its vital consumer protection function.

    Seeking Professional Compliance Support

    Understanding and preparing for regulatory levies can be complex. For guidance on how these changes might affect your firm and ensuring compliance with regulatory requirements, contact our regulatory experts for specialized support.

    References

    CP25/1: Financial Services Compensation Scheme – Management Expenses Levy Limit 2025/26
    [pdf]

  • FCA Clarifies Motor Finance Regulations Following High Court Ruling

    FCA Clarifies Motor Finance Regulations Following High Court Ruling

    FCA’s Response to High Court Ruling on Motor Finance

    The recent High Court judgment has clarified the regulatory landscape concerning discretionary commission arrangements (DCAs) in motor finance. This ruling is significant for consumers and financial firms alike, as it highlights the responsibilities of lenders and dealers in their commission disclosures. The Court sided with the Financial Ombudsman Service, reinforcing consumer protection in the financial services sector.

    Judicial Review Outcome

    On 17 December 2024, the High Court ruled in favor of the Financial Ombudsman Service regarding a complaint about a DCA within a motor finance agreement involving Barclays Partner Finance. The judgment dismissed all three grounds of appeal made by the lender, indicating a clear interpretation of the rules as set forth by the Financial Conduct Authority (FCA) and the Consumer Credit Act 1974.

    Key Findings of the Judgment

    The judgment emphasized that Barclays Partner Finance, along with the car dealer, failed to meet mandatory standards in their dealings with the borrower. Specifically, the Judge upheld the Financial Ombudsman’s stance that:

    • The commission arrangements were not adequately disclosed to the borrower.
    • The relationship between the lender and the borrower was assessed as unfair under existing regulations.

    This ruling establishes a precedent for how DCAs should be handled, promoting transparency and fairness in motor finance agreements.

    Ongoing FCA Review

    The FCA is currently conducting a review of DCAs within the motor finance market, following a temporary ban implemented in 2021. The aim of this review is multifaceted:

    • To investigate the prevalence of misconduct associated with DCAs.
    • To determine if consumers have suffered losses due to inadequate disclosure practices.
    • To recommend pathways for ensuring fair compensation for affected consumers.

    In light of this ongoing review, firms were given additional time to respond to complaints regarding motor finance involving DCAs. This extension aims to ensure comprehensive and fair resolutions.

    Implications of the Supreme Court Appeal

    Alongside the High Court decision, the Supreme Court will hear an appeal related to three additional motor finance cases. These cases involve both DCAs and non-DCAs and pertain to the application of common law and equitable principles surrounding the Consumer Credit Act. The implications of this appeal are broad, affecting not only the current review but also the general understanding of compliance obligations for motor finance providers.

    Anticipated Changes in Industry Practices

    Following the Court of Appeal’s ruling, firms in the motor finance sector can expect an influx of complaints regarding DCAs as well as non-DCA transactions. To manage this effectively, the FCA has proposed extensions to the response time for dealing with such complaints. This measure aims to maintain order and consistency in resolving disputes between consumers and firms.

    Next Steps in Regulation

    The FCA plans to announce its policy statement by 19 December 2024, outlining the outcome of its consultation regarding the extension of time for complaints related to non-DCAs. Furthermore, the FCA intends to outline future steps in its DCA review by May 2025. However, the progress of the Supreme Court appeal may influence the specifics of these advancements.

    Conclusion

    The High Court’s ruling and ongoing FCA review are critical in reshaping the landscape of motor finance, reinforcing the necessity for transparent practices in commission arrangements. With regulatory scrutiny increasing, firms must reassess their compliance frameworks to align with evolving standards. Stakeholders are encouraged to reflect on their practices and consider the potential impacts of these judicial decisions.

    For businesses needing guidance on compliance in the regulatory landscape, seeking expert support is crucial. Contact us for tailored assistance on navigating these changes and ensuring adherence to FCA regulations. Contact Us today.

    References

    FCA responds to High Court motor finance judicial review decision

  • Updates to the Safeguarding Rules for Payments and E-Money Firms

    Updates to the Safeguarding Rules for Payments and E-Money Firms

    Key Changes to Safeguarding Requirements

    The FCA is proposing significant changes to the safeguarding requirements for payment institutions and e-money institutions in a two-stage process:

    Interim Stage Changes

    • Introduction of detailed requirements for record-keeping and reconciliations
    • Enhanced monitoring and reporting, including monthly returns to the FCA
    • Annual external audits of safeguarding compliance
    • More prescriptive requirements around the use of insurance policies and guarantees
    • Requirements to consider diversification of third parties used for safeguarding

    End-State Stage Changes

    Once the current safeguarding regime in the PSRs and EMRs is repealed, additional changes will include:

    • Introduction of a statutory trust over safeguarded funds and assets
    • Requirement to receive relevant funds directly into designated safeguarding accounts
    • New requirements around funds held by agents and distributors
    • Additional permissions needed for firms investing in secure liquid assets
    • Provisions for dealing with unclaimed funds

    Implementation Timeline

    The FCA proposes:

    • A 6-month implementation period for the interim rules
    • A further 12-month implementation period for the end-state rules

    Key Requirements

    Record Keeping and Reconciliations

    Firms will need to:

    • Maintain detailed records of safeguarded funds and reconciliations
    • Perform daily internal and external reconciliations
    • Maintain a resolution pack with key information
    • Address any discrepancies promptly

    Monitoring and Reporting

    New requirements include:

    • Monthly safeguarding returns to the FCA
    • Annual external audits of safeguarding compliance
    • Notification requirements for material breaches
    • Allocation of safeguarding oversight to a director/senior manager

    Statutory Trust

    The end-state rules will introduce a statutory trust covering:

    • Relevant funds
    • Assets purchased with relevant funds
    • Insurance policies and guarantees
    • Proceeds of policies and guarantees

    Impact on Firms

    Firms will need to:

    • Review and update their safeguarding arrangements
    • Implement new policies and procedures
    • Update systems and controls
    • Train staff on new requirements
    • Consider impacts on business models and arrangements with third parties

    Expected Benefits

    The changes aim to:

    • Reduce shortfalls in safeguarded funds
    • Enable faster return of funds to customers if firms fail
    • Reduce insolvency costs
    • Provide greater legal certainty
    • Improve supervision and oversight
    • Strengthen customer protection
  • Understanding the MiFID Organisational Regulation: Key Insights from CP24/24

    Understanding the MiFID Organisational Regulation: Key Insights from CP24/24

    Fundamental Changes to MiFID Organizational Requirements

    The Financial Conduct Authority (FCA) has proposed substantial changes to transfer the firm-facing requirements of the MiFID Org Regulation into the FCA Handbook rules. This represents a significant shift in how investment firms will need to comply with organizational and conduct requirements.

    Key Changes Proposed

    The FCA aims to maintain the current requirements while transferring them from EU-derived legislation into FCA rules. The changes will affect:

    – Common platform firms
    – MiFID investment firms
    – Third country firms
    – MiFID optional exemption firms
    – Article 3 firms

    Core Areas Impacted

    The proposals cover several critical operational areas:

    – Client categorization and safeguarding
    – Best execution obligations
    – Record keeping requirements
    – Conflicts of interest management
    – Organizational arrangements
    – Systems and controls
    – Compliance functions
    – Risk management
    – Personal transactions
    – Outsourcing

    Implementation Timeline

    The FCA is seeking feedback on the proposals by:

    – 28 February 2025 for the main consultation
    – 28 March 2025 for discussion elements in Chapter 4

    Regulatory Impact

    While maintaining the substance of existing requirements, firms will need to:

    – Review and update compliance frameworks
    – Ensure alignment with new rulebook locations
    – Adjust internal policies and procedures
    – Maintain detailed records of implementation
    – Train staff on revised requirements

    Future Changes

    The FCA has indicated potential future reforms to:

    – Rationalize overlapping conduct rules
    – Simplify organizational requirements
    – Better calibrate rules to different business models
    – Enhance flexibility while maintaining protections
    – Remove unnecessary complexity

    Requirements for Different Firm Types

    Specific provisions apply based on firm classification:

    MiFID Investment Firms:
    – Must comply with full organizational requirements
    – Subject to detailed systems and controls obligations
    – Required to maintain robust compliance functions

    Article 3 Firms:
    – Subject to analogous but not identical requirements
    – Some flexibility in application of certain provisions
    – Must meet core organizational standards

    Third Country Firms:
    – Required to meet equivalent standards
    – Subject to territorial scope considerations
    – Must demonstrate comparable protections

    Maintaining Standards

    The FCA emphasizes that while moving requirements into the Handbook, firms must:

    – Maintain existing compliance standards
    – Ensure continued client protection
    – Preserve market integrity
    – Maintain effective risk management
    – Document compliance procedures

    Next Steps

    Firms should:

    1. Review current compliance frameworks against proposed changes
    2. Identify gaps requiring remediation
    3. Plan system and process updates
    4. Prepare staff training programs
    5. Document implementation approach
    6. Consider providing consultation feedback

    The changes aim to create a more coherent regulatory framework while maintaining existing standards and protections. Firms must ensure they understand and implement the revised requirements appropriately while maintaining operational effectiveness.

  • FCA Provides Update on High Court Decision and Motor Finance Complaint Review

    FCA Provides Update on High Court Decision and Motor Finance Complaint Review

    FCA Comments on High Court Ruling Regarding Motor Finance

    The Financial Conduct Authority (FCA) acknowledges the clarity provided by the recent High Court judgment concerning discretionary commission arrangement (DCA) complaints.

    Judgment Overview

    On 17 December 2024, the High Court ruled in favor of the Financial Ombudsman Service, which had upheld a complaint regarding a DCA in a motor finance agreement. The court dismissed all three appeals from the lender, Barclays Partner Finance.

    The judge determined that the Financial Ombudsman appropriately interpreted regulatory guidelines and the Consumer Credit Act 1974, concluding that the lender and the involved car dealer did not comply with existing standards. The court found that the disclosure of commission arrangements was insufficient and the relationship between the lender and borrower was deemed unfair.

    Review of Discretionary Commission Arrangements

    The FCA appreciates the increased understanding this ruling offers regarding consumer complaints tied to DCAs. Currently, the FCA is reassessing the use of DCAs in the motor finance sector prior to the 2021 ban. The review aims to identify if widespread misconduct occurred regarding DCAs, whether consumers suffered losses, and the best method for ensuring proper compensation is delivered consistently.

    During this review, firms were granted additional time to respond to complaints related to motor finance involving DCAs.

    Implications of Upcoming Court Proceedings

    The Supreme Court has agreed to hear an appeal concerning three additional motor finance cases, which involve both DCAs and non-DCAs. This appeal will examine the application of common law, equitable principles, and the Consumer Credit Act rather than the FCA’s regulations.

    Managing Complaints from Consumers

    Following the Court of Appeal decision, firms offering motor finance are expected to receive a significant number of complaints. The FCA has proposed a further extension for firms to respond to motor finance complaints that do not involve a DCA. This extension aims to maintain order and consistency in addressing consumer and firm outcomes.

    The FCA plans to publish a policy statement detailing the outcomes of this consultation by 19 December 2024.

    Next Steps in the Review Process

    Both the High Court ruling and the Supreme Court appeal address critical legal issues pertinent to the ongoing review of DCAs. The FCA intends to outline the next steps of the DCA review in May 2025. An update regarding non-DCA motor finance commission complaints is also anticipated at that time, although the details will depend on the developments from the Supreme Court appeal.

  • FCA Outlines Next Steps After High Court Ruling on Motor Finance Commission Practices

    FCA Outlines Next Steps After High Court Ruling on Motor Finance Commission Practices

    FCA Response to High Court Decision on Motor Finance

    The Financial Conduct Authority (FCA) acknowledges the clarity provided by the recent High Court judgment regarding discretionary commission arrangement (DCA) complaints.

    High Court Ruling

    On December 17, 2024, the High Court ruled in favor of the Financial Ombudsman Service concerning a complaint related to a DCA in a motor finance agreement. The Court dismissed all three appeal grounds submitted by Barclays Partner Finance.

    The Judge determined that the Financial Ombudsman appropriately interpreted the relevant rules and the Consumer Credit Act 1974. It was concluded that both the lender and the car dealer failed to meet the required standards by not adequately disclosing their commission arrangements to the borrower. The Court found the relationship between the lender and borrower to be unfair under these circumstances.

    Ongoing Review of DCAs

    The FCA welcomes the clarity this judgment brings to consumer complaints involving DCAs. Currently, the FCA is reviewing the use of DCAs in the motor finance market prior to the 2021 ban. This review aims to identify any widespread misconduct, ascertain if consumers incurred losses, and determine appropriate compensation processes for affected consumers.

    Firms have been granted additional time to respond to motor finance complaints involving DCAs during this review period.

    Supreme Court Appeal

    The Supreme Court has agreed to hear an appeal regarding the Court of Appeal’s decision related to three other motor finance cases involving both DCAs and non-DCAs. This appeal focuses on the application of common law, equitable principles, and the Consumer Credit Act, rather than the FCA’s own rules.

    Next Steps for Firms

    Following the Court of Appeal’s judgment, it is expected that firms providing motor finance will face a significant number of complaints. To address this, the FCA has proposed extending the timeline for firms to respond to complaints where non-DCAs are involved. This extension aims to ensure orderly and consistent outcomes for both consumers and firms.

    A policy statement regarding the outcome of this consultation will be published by December 19, 2024.

    Future Developments

    Both the High Court ruling and the upcoming Supreme Court hearing address significant legal questions pertinent to the FCA’s review. The FCA plans to outline further steps in the DCA review by May 2025 and will provide updates on motor finance non-DCA commission complaints at the same time. However, the specifics will depend on the progress of the Supreme Court appeal and any subsequent decisions.

  • Updates to the Safeguarding Framework for Payment and E-Money Firms

    Updates to the Safeguarding Framework for Payment and E-Money Firms

    Summary of Key Changes to Safeguarding Regime

    The FCA is proposing significant changes to strengthen the safeguarding requirements for payment institutions and e-money firms in a two-stage process:

    Stage 1 – Interim Rules

    The interim rules aim to improve compliance with existing safeguarding requirements and enhance monitoring through:

    • Mandatory record keeping and reconciliation requirements to prevent shortfalls
    • Monthly regulatory returns providing detailed safeguarding data
    • Annual external audits of safeguarding compliance
    • Requirements to conduct due diligence and consider diversification when selecting third parties that hold safeguarded funds
    • Additional controls around insurance policies and guarantees used for safeguarding

    Stage 2 – End-State Rules

    The end-state rules will fully replace the current regime and introduce additional requirements including:

    • A statutory trust over safeguarded funds to provide greater legal protection
    • Requirements for funds to be received directly into designated safeguarding accounts
    • New requirements for agents and distributors to either:
      • Pay funds directly into the principal firm’s safeguarding account, or
      • Have the principal firm safeguard an estimated value of funds held by agents
    • Enhanced controls over fixed-term and notice accounts

    Implementation Timeline

    The FCA proposes:

    • 6 month implementation period for interim rules after final rules published
    • 12 month implementation period for end-state rules after final rules published
    • Transitional provisions to help firms adapt to the new requirements

    Expected Benefits

    The changes aim to:

    • Reduce the risk of shortfalls in safeguarded funds
    • Enable faster return of funds to customers if firms fail
    • Lower costs associated with distributing funds in insolvency
    • Improve monitoring and supervision of safeguarding arrangements
    • Reduce risks from holding funds with non-bank providers

    Costs and Impact

    The FCA estimates:

    • Total industry costs of £106.2m over 10 years (PV-adjusted)
    • Benefits of £150.8m over 10 years (PV-adjusted)
    • Net positive benefit of £44.6m
    • Main costs from:
      • Systems changes to implement new requirements
      • Ongoing compliance costs including audits and reporting
      • Potential operational changes for firms using non-bank providers
  • Understanding the MiFID Organisational Regulation

    Understanding the MiFID Organisational Regulation

    FCA Proposes Changes to MiFID Organisational Requirements and Operating Conditions

    The Financial Conduct Authority (FCA) is consulting on transferring the firm-facing requirements of the Markets in Financial Instruments Directive (MiFID) Organisational Regulation into its Handbook rules. This move aims to provide continuity for firms while enabling future reforms to make rules better suited to UK markets.

    Key Changes Proposed

    The FCA plans to transfer provisions from the UK version of Commission Delegated Regulation (EU) 2017/565 (MiFID Org Regulation) into its Handbook. This includes requirements covering:

    – Conduct rules and systems controls for market integrity
    – Investor protection measures
    – Organisational requirements for investment firms
    – Client categorisation and communications
    – Best execution and order handling
    – Record keeping obligations

    The regulator aims to maintain the current substance of these requirements while moving them from directly applicable legislation into FCA rules. This will provide firms with continuity while enabling future reforms to better tailor rules to UK markets.

    Scope and Application

    The changes will affect a broad range of FCA-authorised firms including:

    – MiFID investment firms
    – Optional exemption firms
    – Third country firms
    – UCITS managers
    – Collective Investment Scheme operators
    – Small UK Alternative Investment Fund Managers
    – Occupational Pension Scheme firms
    – Recognised investment exchanges

    The FCA is taking a phased approach, with this initial consultation focused on transferring existing requirements without policy changes. A second phase will look at potential reforms to harmonize and rationalize requirements.

    Key Areas for Future Reform

    The consultation outlines several areas where the FCA sees potential for future improvements:

    – Streamlining requirements for firms conducting similar activities
    – Adapting rules for new risks and business models
    – Removing duplication from multiple EU directives
    – Simplifying core conduct rules
    – Rationalizing systems and controls requirements
    – Clarifying conflicts of interest management
    – Updating outsourcing provisions

    The FCA seeks feedback on rules that may be:
    – Challenging to navigate or apply
    – Imposing disproportionate costs
    – Creating difficulties in interaction with other requirements
    – Presenting barriers to innovation

    Client Categorisation Review

    The consultation includes a specific focus on reviewing the client categorisation regime, which hasn’t been substantially updated in 17 years. Key considerations include:

    – Whether current category boundaries remain appropriate
    – If protections are properly calibrated for each category
    – How to handle entities acting on behalf of underlying clients
    – The process for clients moving between categories
    – Interaction with financial promotion rules

    Implementation Timeline

    The consultation is open until:
    – February 28, 2025 for main proposals
    – March 28, 2025 for the discussion chapter on future reforms

    The FCA plans to publish final rules in line with the government’s timeline for repealing the existing legislation. Firms should review the proposals and consider:

    – Systems and controls changes needed
    – Updates required to policies and procedures
    – Staff training requirements
    – Client documentation reviews
    – Record keeping adjustments

    Impact Assessment

    The FCA does not expect significant cost increases for firms as the proposals maintain existing requirements. Some one-off familiarization costs may arise but these are expected to be minimal.

    Longer-term, the proposals aim to:
    – Reduce regulatory complexity
    – Lower compliance costs
    – Enable more efficient supervision
    – Support innovation and competition
    – Maintain market integrity and consumer protection

    Next Steps

    Firms should:
    – Review consultation paper CP24/24
    – Assess operational impact
    – Submit feedback by relevant deadlines
    – Monitor for policy statement and final rules
    – Plan implementation approach
    – Consider longer-term opportunities for simplification

    The FCA encourages feedback particularly on areas where requirements could be streamlined or improved while maintaining appropriate protections. This will help shape future reforms to create a more effective UK regulatory framework.