Welcome to the June 2025 edition of the Freshfields FS Insights newsletter, which contains a selection of thought leadership related to the financial services industry published over the past month by Freshfields lawyers from around the world. 

Cryptoassets

UK cryptoasset rules published in near-final form

At long last, the UK government has published a draft statutory instrument that will introduce a regulatory regime for cryptoassets. Unlike previous publications, which only provided a high-level outline of the future regime, the draft statutory instrument lays out more granular details. HM Treasury published the draft Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2005 on 29 April 2025, together with a related policy note. This follows the current Labour government’s announcement in November 2024 that it would proceed with the bulk of the previous Conservative government’s proposals for the creation of a cryptoasset regulatory regime. The SI will introduce new regulated activities related to cryptoassets by amending the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. That is, instead of a new regulatory regime specifically for cryptoassets, HM Treasury is working within the existing, well-known, regime by adding a number of new regulated activities. Related amendments will also be made to other legislation to account for the new regulated activities. The SI does not include provisions related to the market abuse and admissions and disclosures regime, which will be published in due course. For more information, see our briefing.

FCA publishes discussion paper outlining its proposed approach to regulating certain cryptoasset activities

Following HM Treasury’s long-awaited draft statutory instrument, the FCA published a related discussion paper on 2 May 2025 which outlines its proposed approach for regulating certain cryptoasset activities. The discussion paper specifically covers: (1) cryptoasset trading platforms; (2) intermediation in the context of cryptoasset activities; (3) cryptoasset lending and borrowing; (4) cryptoasset staking; (5) restricting the use of credit to purchase cryptoassets; and (6) decentralised finance. There remains a somewhat uneasy tension between the competing demands being placed on the FCA of protecting consumers whilst at the same time encouraging growth and competitiveness. On the one hand, the FCA makes clear its position that it continues to view cryptoassets as high-risk, speculative investments and warns that consumers should still expect to lose all their money if they buy them. On the other, it seeks through the proposals in the DP to achieve “an appropriate degree of consumer protection, enhance market integrity, support effective competition whilst facilitating international competitiveness and encouraging growth as far as reasonably possible.” For more information, see our blog post

Buy Now Pay Later

Taming the “Wild West”: UK Government leads BNPL into the regulatory stable

The UK Government has saddled up to bring order to what it terms the “wild-west” of Buy Now Pay Later. For years, BNPL has thrived in a lightly regulated space, growing rapidly as a popular payment choice for millions of UK customers. We have tracked this journey closely in previous posts (here, here and here). In the latest development on 19 May 2025, HM Treasury published a response to the October 2024 consultation on regulating BNPL, setting out the government’s final position on the proposals in the consultation. The government also published draft legislation which will bring certain BNPL agreements within the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. For more information, see our blog post, in which we explore the government’s legislative proposals, what they mean for the BNPL industry and how they reflect broader regulatory and consumer protection priorities.

Banking resolution

New UK bank levy for resolution becomes law

After almost a year working its way through Parliament, the Bank Resolution (Recapitalisation) Act 2025 received Royal Assent on 15 May 2025, largely in the form in which it was originally introduced as a bill, but with a few enhancements. The Act will enable the Bank of England to recapitalise a failing bank by requiring a payment from the Financial Services Compensation Scheme and in turn enable the FSCS to impose levies on the industry. The power applies where the resolution is effected by way of a sale to a third party or transfer to a bridge bank. It is aimed at small banks but it also gives the BoE the flexibility to use the mechanism for larger banks where necessary. For more information, see our blog post.

Prudential requirements

Responsible openness revisited: The PRA's evolving framework for international bank supervision

On 20 May 2025, the Prudential Regulation Authority published a policy statement (PS6/25) and updated supervisory statement (SS5/21), setting out a refined supervisory framework for international banks operating in the United Kingdom. These publications follow the PRA’s earlier consultation paper (CP11/24) in July 2024 on proposed updates to its approach to international banks and reflect the regulator’s final policy following industry feedback. Together, they underscore the PRA’s commitment to the principle of “responsible openness”, a supervisory approach that seeks to reconcile the benefits of cross-border financial integration with the imperative of domestic financial stability. For more information, see our blog post, in which we examine the PRA’s updated expectations including the regulatory drivers behind these changes, the implications for international banking groups, and practical steps firms should consider in response.

FCA’s new consultation on the definition of capital for FCA investment firms

On 24 April 2025, the FCA issued a consultation paper (CP25/10) on the definition of capital for FCA investment firms. The FCA says it wants to simplify the rules around what counts as regulatory capital (or "own funds") for investment firms. Right now, firms have to juggle between different sets of rules, including some that were originally designed for banks. This can be pretty confusing and cumbersome. The FCA's goal is to streamline these rules, making them easier to understand and apply, without lowering the standards of financial resilience. However, the FCA’s proposals appear to be not just about simplification. They’ve made some important clarifications and changes that should be welcomed by investment firms, especially private equity investors in investment firms. For more information, see our blog post, in which we discuss clarifications concerning the loss-absorption criteria for capital to qualify as Common Equity Tier 1 instruments, and changes concerning the inclusion of minority interests in a prudential consolidation.  

Banking litigation

UK Banking litigation in focus: Recent cases and emerging trends

In the last 6 months, we have seen a range of important cases and developments before the Courts in the UK affecting financial institutions. In a webinar on 22 May 2025, Tom Clark, Benjamin Ng, Julia Schulman, Sunil Singh and Sharon Tong discussed recent English court decisions, emerging trends and cases to watch, including Standard Chartered v Guaranty Nominees, in which the court implied a contractual term to enable a long-term contract to function with the use of a court-determined reasonable alternative rate in place of a defunct LIBOR benchmark. In addition, following the Supreme Court decision in Philipp v Barclays, the decision in Santander UK v CCP Graduate School provides an important clarification of the duties owed by financial institutions to victims of APP fraud and rejects the notion of a “retrieval duty” owed by a receiving bank to a third-party victim. In the context of voluntary customer redress schemes, the High Court rejected a judicial review challenge to the FCA’s decision not to expand the redress scheme on interest rate hedging products to more sophisticated customers in All-Party Parliamentary Group On Fair Banking, R (On the Application Of) v The Financial Conduct Authority. Last but not least, following the Court of Appeal’s decision in Johnson v FirstRand Bank & others last year, the financial services industry awaits the important Supreme Court decision expected in July. For more information, see our blog post. A recording of the webinar is available on request.  

Motor finance commissions and consumer redress

No Worse Off #14: Managing consumer redress liabilities: recent restructuring experience and the motor finance sector

As discussed above and in last month’s newsletter, the UK Supreme Court is expected to issue its decision on motor finance commissions in the landmark case of Johnson v FirstRand Bank Limited in July, in what could be a pivotal moment for the motor finance sector and the broader financial services industry. In our latest podcast episode of "No Worse Off," Freshfields partners Emma Gateaud and Craig Montgomery are joined by two industry experts for an in-depth discussion of motor finance claims and consumer redress restructuring. Drawing on our extensive experience in recent consumer redress restructurings, we consider the potential impact of the upcoming Supreme Court judgment. Our guests, Sheraz Afzal (Chief Legal Risk & Compliance Officer at Quint Group Ltd) and Jamie Drummond-Smith (Independent director, adjudicator and creditor representative), share their frontline experience in these restructurings, offering valuable insights from recent cases in the consumer finance sector. For more information, see our podcast episode.

Sustainable finance and ESG

FCA pauses the extension of SDR to portfolio management

On 30 April 2025, the FCA announced that it has paused its plans to extend the Sustainability Disclosure Requirements (SDR) and investment labels regime to portfolio management. The FCA has consulted in April 2024 on the extension of the SDR and investment labels regime to portfolio management (CP24/8). We covered the FCA’s proposals in detail in our blog post here. The FCA has since reflected on the feedback received as part of the consultation process (which ended in June 2024) and decided not to finalise the rules on extending SDR to portfolio management at this time. The extension of SDR to portfolio management is not off the table, but the FCA wants to take time to carefully consider the feedback and various challenges raised in order to ensure that portfolio managers are positioned to implement the regime effectively before introducing any requirements. For more information, see our blog post.

The PRA’s updated supervisory expectations for managing climate-related risks: what this means for banks and insurers

For a long time, both the PRA and FCA have recognised that climate change is a potential material financial risk to regulated firms. On 30 April 2025, the PRA published a consultation paper (CP10/25) setting out proposed updates to its supervisory expectations regarding banks’ and insurers’ approaches to managing climate-related risks, together with a draft supervisory statement updating SS3/19. The PRA’s view is that since SS3/19 was published in 2019, banks and insurers have taken concrete and positive steps to improve their climate risk management capabilities, but progress is uneven and more needs to be done to meet the PRA’s expectations. Firms have also asked the PRA to provide more clarity on its expectations. As David Bailey, the PRA’s Executive Director for Prudential Policy, emphasised in a speech at the Climate Financial Risk Forum on 30 April 2025, these are expectations, not rules. Furthermore, they are enhancements to the expectations set out in SS3/19 rather than a change of direction in the PRA’s approach to climate risk. They consolidate existing guidance and reflect developments in international standards. Nevertheless, they are likely to impose additional burdens and compliance costs on firms, though these should be more limited for firms that have been keeping up to date with developments. For more information, see our blog post.

The next regulatory layer for ESG rating providers: ESMA consults on draft RTS

On 2 May 2025, the European Securities and Markets Authority published a consultation on draft Regulatory Technical Standards under Regulation (EU) 2024/3005 on the transparency and integrity of environmental, social and governance rating activities (the ESG Rating Provider Regulation). The draft RTS translate the Regulation’s high-level provisions into operational requirements. The key provisions under consultation include market access, separation of activities, disclosure, remaining open questions and the timeline for the draft RTS. Stakeholders have until 31 July 2025 to provide comments, and the final draft RTS are due for submission to the European Commission by 2 October 2025. For more information, see our blog post, which builds on our earlier briefing from February 2024 on the ESG Rating Provider Regulation.

Investment research

Investment research payment optionality: New joint payment option increases flexibility in how fund managers pay for research

On 9 May 2025, the Financial Conduct Authority published its policy statement (PS25/4) outlining the final set of rules allowing fund managers to pay for investment research using a “joint payment” option for research and execution services. The rules were adopted following the FCA’s consideration of responses to its consultation paper (CP24/1), which proposed changes to the restrictions around how fund managers pay for investment research. The new rules came into effect immediately on publication. The joint payment option is intended to address operational complexities and barriers UK fund managers have encountered when purchasing research. The change follows similar rules introduced last year for UK MiFID investment firms. For more information, see our blog post.

Pensions and private capital

Increasing UK pension scheme investments in private markets: Opportunities and challenges for private capital providers

In early May 2025 the Mansion House II Accord revealed that 17 of the largest workplace pension providers in the UK have pledged to allocate at least 10% of their defined contribution default funds to private markets by 2030, with 5% specifically earmarked for UK investments. Further, in its recent response to its 2024 consultation on “Unlocking the UK pensions market for growth”, the Government confirmed its support for various measures to encourage pension schemes to shift their pension investment strategy to the UK market generally, and to UK infrastructure and growth assets more specifically. The Government has also confirmed that the Pension Schemes Bill will include a reserve power for the Government to take action to mandate certain levels of investment in private capital markets in the UK, if the sea change they are pressing for does not happen voluntarily. With workplace pension funds in the UK holding over £2 trillion in assets, there are clear opportunities for private capital providers and intermediaries who can identify and introduce solutions to overcome some of the challenges described in our blog post.

Qualifying holding procedures

Simplifying qualifying holding procedures: A step towards efficiency and deregulation in Germany

In line with current market sentiment and regulatory initiatives to streamline regulatory processes and reduce bureaucratic hurdles, the German Federal Financial Supervisory Authority (BaFin) has proposed a new draft regulation aimed at simplifying qualifying control procedures for financial institutions. The proposal ties in seamlessly with the statement made at BaFin’s annual press conference by its president, Mark Branson, calling for less complexity in regulation and more proportionality, and is a further building block in the broader deregulation approach that BaFin currently appears to be pursuing. For more information, see our blog post.

Fitness and propriety

Are you still fit and proper? Proposed new BaFin circular on members of the management and supervisory boards
  
Fit and proper (F&P) requirements are among the key requirements that apply to board members of banks and other financial institutions. Regulators have already developed comprehensive requirements and guidance on F&P requirements, both on national and on EU levels. While these requirements have existed for a while already, they continue to evolve and adapt to new challenges that institutions face, such as new ESG-related F&P requirements that will be introduced through CRD 6. In this vein, BaFin has published a consultation on a new F&P circular, which will apply to German credit institutions, financial services firms (not investment firms) and financial holding companies. For a quick overview on the key aspects of the consultation and several noteworthy changes, see our blog post.

Correspondent banking

Second Circuit: Bank Audi’s use of correspondent bank accounts insufficient for personal jurisdiction
  
Plaintiffs continue to invoke the use of U.S.-based correspondent banking accounts as a foothold for personal jurisdiction in actions against foreign defendants.  This theory has gained traction in large part because nearly every international bank and corporation flows money through such accounts, often incidentally.  A recent summary order from the Second Circuit Court of Appeals, however, reinforces that the mere use of a U.S.-based correspondent bank, without more, is unlikely to subject foreign banks doing business with American customers to personal jurisdiction in U.S. courts.  Given the prevalence of correspondent banking, multinational corporations and banks are wise to continue monitoring developments in this area. For more information, see our blog post.