Dear Clients and Friends,
Following a summer of page turning FCA proposals, welcome to the final stretch of 2025. The FCA has not slowed its pace, pushing forward with the delivery of its competitive market agenda, diverging from the EU and following an ambitious strategy to reshape how UK financial market participants will operate; a strategy which is giving compliance teams plenty to grapple with.
Looking ahead to the rest of 2025, we expect more of the same. The FCA is clearly doubling down on its goal to be a more agile, assertive regulator. This means faster interventions, more thematic reviews, and continued focus on market integrity. Meanwhile, firms will need to balance growing and changing regulatory demands with commercial pressures in a volatile economic environment.
The rest of this year is unlikely to offer much breathing room, but we’ll be keeping a close eye on it all and helping you stay one step ahead.
To stay up to date with pertinent regulatory developments, we invite you to visit our website at juddadvisory.com and follow our LinkedIn page. For more information on SEC updates, our partners at HighCamp Compliance provide quarterly and periodic updates. You can check out the latest news on their website and follow their LinkedIn page.
- Artificial Intelligence
As AI becomes embedded across financial services with a shift away from “random” ChatGPT requests to dedicated tools and use cases, the regulatory response remains fragmented. So far, the FCA has been cautious rather than prescriptive. While it has acknowledged AI’s transformative potential, formal guidance has largely been limited to high-level principles on innovation, data ethics, and consumer protection. The FCA has been clear that it will not be regulating AI use specifically (similar to their approach on cyber security) but it does expect firms to apply the same service provider diligence and controls that would be applied to other suppliers and tools.
In the absence of AI specific rules, our clients have moved beyond mere compliance notification and approval for AI use and are now switching attention to building robust governance frameworks: clear documentation of model inputs and outputs, risk assessment / mitigation for each use of AI and regular reviews by cross-functional AI risk committees.
We have designed an effective risk assessment framework. This has already been applied to various AI tools in the market and is ready for further application to a variety of use cases. For firms managing investor capital, reputation and regulatory foresight matter, so they’re not waiting to be told what “good” looks like; they are grabbing the AI bull by the horns.
- Final Rules on Research Payments
The FCA’s journey on investment research payments has come full circle. In 2024, MiFID investment firms were given a new option to pay – so-called joint payments- and this has now been extended to fund managers.
The rules applying to fund managers seeking to use the joint payment method mirror those introduced for MiFID firms: a written policy, annual budgets not tied to trading volumes, fair allocation of costs, ongoing value assessments, and clear disclosures to investors. The implications are clear – trade counterparties should be chosen for the quality of execution they provide, rather than as a means of paying for research. As a final reminder, certain items remain off-limits in terms of what can or cannot be paid for via joint payments or research payment accounts (RPAs); fees for services like corporate access and capital introduction services cannot be covered by such means of payment, for example.
The change took effect on 9 May 2025. UK managers now have all three payment options available: their own PCL, RPAs, or joint payments (think old commission sharing agreement model but with some new conditions). With all payment options now on the table, the real question is whether investors are willing to move back towards bundled commissions after several years of unbundling.
- Non-Financial Misconduct and SM&CR generally
As anticipated, the FCA have proposed various initial changes to personal accountability regimes in 2025. We’ll start with changes and proposed guidance in relation to Non-Financial Misconduct (“NFM”).
The FCA published a policy statement and further consultation paper (CP25-18) in July, setting out proposed changes to the NFM regime. From 1 September 2026 serious workplace misconduct, such as bullying and harassment, will be within scope of the Code of Conduct (COCON) for non-banks, though the rules will not apply retrospectively to previous behaviour.
Alongside this, the FCA is consulting on draft guidance to help firms interpret COCON and FIT in relation to NFM, and to determine if firms want this guidance published. The draft guidance aims to assist firms in applying both the conduct rules and Fit and Proper (“FCP”) tests for employees and draws on feedback received in respect of their original consultation paper (CP 23-20). Interestingly, it sets out expectations for managers under the ‘reasonable steps’ rule. One addition clarifies that although minor offences like minor driving offences / fines aren’t generally relevant, repeated behaviour could cast doubt on an individual’s FCP.
The second update relates to the SM&CR reforms- read our full summary here. Whilst many were disappointed by the long wait for the more substantial phase 2 changes, there is the matter of a fundamental change to the Financial Services and Markets Act to contend with. As such, we are welcoming the initial changes which are largely practical and reflect how the industry has been applying rules in practice since the advent of the SM&CR.
- Regulatory returns changes
As part of the FCA’s five-year strategy, they committed to being a ‘smarter regulator’, promising to be more efficient and effective. We also know they have pledged to support the economic growth and competitiveness of the United Kingdom. This is their reasoning behind a few changes to regulatory returns consulted on and implemented in 2025. These include:
- Removing FSA039 – Client Money and Client Assets (as of 27 June 2025).
- Removing the requirement for firms to complete nil returns on REP008 – Conduct Rules reporting for solo-regulated firms.
- Streamlining of DISP 1 Annex 1 R – Complaints – these filings will now be due at a fixed date every 6 months rather than based on firms’ accounting reference dates, and those firms that previously had to file multiple complaints reports can consolidate into one.
Such changes are a move in the right direction, leading to cleaner and more focused data, (which will be analysed by the regulator’s own AI tools) but with less burden placed on firms. As a result, the FCA will be better placed to review and target their supervision efforts, so making sure what is sent to the regulator is correct, on time and complete is key.
Now is the time to test the quality of what is being submitted to the FCA and to see if you can self- identify trends over time. It’s better to start looking in the mirror and assessing the integrity of your own data before the FCA draws your attention to it.
- SEC updates
The SEC formally withdrew several rules proposed under the Gensler Commission. The rules are no longer on hold, they are abandoned!
The rules withdrawn include:
- Predictive Data Analytics (PDA for short)
- Safeguarding (the new Custody Rule that Gensler had intended to repropose)
- Cybersecurity for Investment Advisors (‘IAs’), Registered Investment Companies, and Business Development Companies
- Cybersecurity for Broker Dealers
- Enhanced ESG disclosure for IAs
- Outsourcing by IAs
The AML rule has also been delayed until 2028, potentially for a new administration to contend with.
Furthermore, a recent court ruling has sent the SEC back to the drawing board on its short selling transparency rule. While the court did not overturn the regulation, it agreed with industry groups that the SEC must more thoroughly assess the costs and benefits. Although the rule has not been scrapped, the SEC, under its new leadership, will need to revisit it. This could mean changes ahead for firms reporting short positions.
- UK Regulatory Reform
With the UK pressing ahead on regulatory reform, private markets funds and hedge funds are entering what may be the most consequential period since the advent of AIFMD. The FCA’s consultations on a redesigned regime, alongside increased supervisory scrutiny of private markets, mark a clear shift toward a more proportionate but also more interventionist framework.
The proposed replacement of the current AIFMD model with a tiered system based on net asset value is a defining moment. For smaller managers, this portends lighter obligations and quicker routes to market; for large managers, a recalibrated full-scope regime will still demand robust systems and controls specific to strategy. The message is that proportionality will apply, but accountability will not ease.
At the same time, the FCA has been stepping up on-site visits of, communications with, and questionnaires issued to private market firms, with a sharp focus on valuations, governance, and investor disclosures.
2025 is shaping up not as a pause in regulatory momentum, but as a pivot toward a more UK- centric model of data led oversight. Regulatory reform is coming, and by approaching compliance strategically, at scale, and with the right technology, firms can manage change effectively.
- Review into smaller asset management firms
We shared our take on the FCA’s latest review into smaller asset management firms here. One of the focus points was the client opt-up process. The FCA found that some firms are still slipping up when it comes to properly categorising investors or documenting assessments of elective professional clients, and it’s clearly an area of focus for the regulator. It also links back to the Consumer Duty – get your categorisations wrong, and suddenly you’re in scope. From what we see, the opt-up process is often patchy and poorly documented, so whilst we’re crossing our fingers that as part of their competitive agenda the FCA make the opt-up process less cumbersome, it isn’t going away. A Q4 priority should be giving your own opt-up processes a proper health check to make sure you’re not caught out.
- Enforcement Cases
Recent high-profile cases, from lifetime bans to reversals of long-standing convictions, show that the regulator is not easing up on its commitment to integrity, transparency, and market confidence.
The prohibition of Simon Oliver and the industry ban proposed for Crispin Odey both reinforce the FCA’s willingness to step in swiftly where it perceives conduct risk at the individual level. Similarly, the final outcome in Jes Staley’s case signals the FCA’s determination to hold senior leaders to account, even years after the events in question. At the same time, the discontinuance of proceedings against Tom Hayes, following the Supreme Court’s overturning of his conviction, shows that the regulator will recalibrate when the legal landscape shifts. For firms, this mix of assertiveness and agility is a reminder that regulatory expectations are being enforced more quickly, but also that decisions can turn on broader judicial outcomes.
Against this backdrop, the Janus Henderson case remains a reference point for fund managers: historic product governance and disclosure failings continue to carry reputational and financial cost long after remediation. The FCA’s messaging here is consistent; firms must demonstrate that fee structures, investment strategies, and communications to clients are fair and clearly described.
Amid these developments, the FCA maintains the spotlight on swift and targeted enforcement; five recent investigations were concluded, with public outcomes, in less than 16 months, compared with an average of 42 months in 2023/24. Also, the debate over introducing a broader “public interest” test to allow earlier announcements of investigations has been settled. Strong industry feedback led the FCA to stick with its existing “exceptional circumstances” framework, but the proposed “name and shame” proposals were scrapped earlier in the year following widespread industry criticism.
Looking ahead, compliance functions across private markets and hedge funds should expect little respite. The regulator is becoming faster, more interventionist, and increasingly focused on the behaviours and decisions of senior leaders. For those who can embed compliance into strategy, treating it as a source of resilience and competitive edge, there will be opportunity. For those who lag, the FCA’s recent actions are a clear warning shot.
If you’re looking for more information or need help navigating the topics covered, don’t hesitate to contact us at judd@juddadvisory.com or contact your regular Judd consultant.
