Regulatory Round Up: What to Expect in 2025

Introduction

In 2024, we witnessed ongoing heightened activity from financial regulators. This included the introduction of new schemes (e.g., PRA’s Early Account Scheme¹), major financial penalties (e.g., PRA total fines of £91m across year;²and FCA total fines of £176m across the year³), controversial moves and increased supervisory intervention and consultation activity (e.g., on “Name and Shame”,⁴ financial crime,⁵ and motor finance⁶).

In 2024, we also witnessed significant political change, with Labour returning to power for the first time in 14 years. Firms remain on alert regarding the impact this could have on the regulatory landscape, particularly following Rachel Reeves’ keynote Mansion House speech⁷ focusing on growth and her contention that the regulatory changes introduced to eliminate risk after the financial crisis had “gone too far” and led to unintended consequences.

As 2025 kicks off with the Government demanding that the FCA and other key regulators prioritise ideas for boosting growth and investment,⁸ Pallas provides a regulatory round up of some of the key themes of 2024 and expectations for the new year.

1. Regulatory Operational Effectiveness

Regulators are increasingly focused on operational effectiveness. For instance:

The FCA started 2024 setting out its new enforcement strategy, focused on early intervention, streamlining and prioritising operations and triaging potential cases before opening an investigation in order to achieve “impactful deterrence”.⁹ The FCA’s year-end update highlighted the following:
- - - According to the FCA’s annual enforcement data published in September 2024,¹⁰ the interventions team advised on 268 cases, an increase from 209 in 2023. In total, there were 102 voluntary outcomes.
    - As at 31 March 2024, the FCA had 188 open enforcement actions, investigating 341 individuals and 162 firms, down from 224 open cases as at 31 March 2023.¹¹
    - More cases have been closed to clear the decks: the 2023/24 data shows that 60 cases closed last year, an increase from 38 the previous year.
    - The FCA is taking forward more prosecutions: 9 successful fraud prosecutions and 21 criminal charges in 2023 – “the most ever” – and a record 45 people facing criminal proceedings.¹²
    - Investigation times are also falling – as low as 14 months in recent cases compared to a 42-month average.¹³
    - The FCA has noted that it is prioritising consumer redress over fines¹⁴ – although whether this provides comfort in practice to firms is an open question.
    - While the FCA initially announced its controversial “Name and Shame” proposals in February 2024,¹⁵following widespread backlash, this looks set to be watered down such that any announcement of firms under investigation in the future will be subject to the FCA’s public interest test and an assessment on the impact on a particular firm (to take into account whether an announcement could seriously disrupt public confidence in the financial system or market). Further, a firm will be given 10 business days’ notice of any public announcement (a big change from 24 hours as originally proposed) in order to make representations and a further 2 business days’ notice should the FCA decide to proceed.¹⁶
The PRA has also been focused on (and targeted in) its approach to supervisory decisions and enforcement:¹⁷
- - - It has shrunk its caseload but is pursuing important cases and maximising financial penalties at their conclusion, issuing for instance fines of £33m against Citigroup in May 2024¹⁸ and a total of three fines amounting to £91m across the year.¹⁹
    - Further, the introduction of its Early Account Scheme,²⁰ which includes the availability of an enhanced settlement discount of up to 50% in respect of fulsome cooperation during the process and early admissions of breaches, highlights the PRA’s proactivity and potential to deal with cases more quickly.

In 2025, we expect:

The FCA has already provided a flavour of its direction of travel, announcing its 4 main areas of focus for 2025-2040: economic growth and innovation, financial crime, consumer resilience, and how it can become a more efficient and effective regulator.²¹ Within the confines of its resource constraints, we can anticipate more interventions and more engagement with firms and individuals, both from Supervision and Enforcement teams.
The FCA’s second consultation on Name and Shame will close in February 2025, with a decision expected on whether to proceed at the end of March 2025.²²
The Bank of England and PRA will continue to take enforcement action against a wider group of firms – and note that the Early Account Scheme does not remain available to critical third parties.²³

2. Financial Crime

Financial crime remains a key enforcement area for regulators, particularly following the FCA’s “hard line” rhetoric²⁴and recent announcement that it is one of its key four areas of focus.²⁵

2024 witnessed a number of high-profile financial penalties, including the FCA’s fine of £28m against Starling Bank Limited²⁶ and £16m fine against Metro Bank²⁷. As at March 2024, there were 83 total current FCA operations dealing with reducing and preventing financial crime.²⁸ Towards the end of the year, Therese Chambers, Joint Executive Director of Enforcement and Market Oversight, highlighted that 45 people were facing FCA criminal proceedings, covering offences ranging from fraud to forgery, insider dealing and money laundering.²⁹

The FCA took a number of new steps, bringing its first criminal prosecution relating to unregistered crypto-asset activity³⁰ and taking enforcement action against a firm enabling crypto trading for the first time under the Electronic Money Regulations 2011.³¹ It also issued its first fine against an audit firm, PWC, of £15m for failing to alert the FCA to suspected fraudulent activity in the course of an audit.³²

Further, at the end of November 2024, the FCA published policy statement PS24/17 addressing its changes to its Financial Crime Guide following its consultation in April 2024.³³ This reflects the FCA’s priority in combatting financial crime and assisting firms in understanding how best to prevent such activity and improve integrity in the financial markets. The FCA has made clear that the Financial Crime Guide is intended to be a valuable resource for firms in order to assist them in understanding the FCA’s expectations, its approach to assessing whether financial crime systems and controls are adequate and offering guidance on how to remedy any deficiencies. Firms now need to consider what adjustments, if any, may be needed to their financial crime systems and controls (e.g., changes to governance, monitoring systems or internal policies and training).

In 2025, we expect:

The FCA plans to continue to engage with firms following the publication of PS24/17 and to publish its findings.
Further guidance from the FCA, including specifically in respect of fraud prevention, AI and machine learning and politically exposed persons which the FCA has anticipated it will prioritise.
Further enforcement outcomes relating to financial crime.

3. Conduct and Culture

Conduct and culture remain critical to financial regulators’ focus on ensuring integrity in the markets, with breaches of individual and senior conduct rules in the spotlight.

For instance, the FCA started 2024 by launching a data collection exercise compelling 184 investment banks, 217 commercial insurers, 349 insurance intermediaries and 288 wholesale brokers to provide information about non-financial misconduct (“NFM”) related incidents and outcomes (including the use of non-disclosure agreements), as well as data regarding the locations and circumstances of incidents.³⁴ Lloyd’s of London also received a data request regarding NFM incidents since 2021.³⁵ The FCA’s survey, published in October 2024, showed an increase in incidents in the past 3 years.³⁶

The FCA also confirmed that the FCA will take account of the Treasury Select Committee’s March 2024 ‘Sexism in the City’ report to ensure meaningful action against NFM in the sector, pausing for instance the Committee’s recommendation that the regulators drop their proposals for data reporting and target setting.³⁷

The regulators’ attention to this area was reflected, for example, in:

The PRA’s fine of £118,808,000 against the former CEO of Wyelands Bank for breaching three PRA Conduct Rules.³⁸ The PRA ultimately accepted a voluntary undertaking taking into account (i) residence outside the United Kingdom; and (ii) acceptance of the failings set out in the Notice and agreement to pay the financial penalty.³⁹
The FCA fine of £350,000 against the CEO of Wise Assets for failing to notify the FCA of his failure to declare a capital gains tax liability to HMRC, in breach of SMCR 4, which the FCA considered should have been self-reported given its relevance to his fitness and propriety.⁴⁰ Interestingly, the fact that the matter had attracted press attention was particularly relevant to the FCA’s analysis.⁴¹
The FCA Warning Notice against Odey⁴² although here focusing on Odey’s lack of integrity on the basis of frustrating the disciplinary process, disregard for governance and not being candid with the FCA rather than on the alleged NFM per se.

In 2025, we expect:

The FCA’s Policy Statement on ‘Tackling Non-Financial Misconduct in the Financial Sector’, including guidance on the treatment of non-financial misconduct under the SMCR.
The FCA and PRA Policy Statements on the remaining D&I proposals.
An update on the outcome of the current Certification Regime following Reeve’s Mansion House speech and suggestion that it would be revised following a review by the Treasury, FCA and PRA.⁴³

Conclusion

Financial regulatory activity shows no sign of abating, but regulators are operating under ever more scrutiny as illustrated by the public attention to the All-Party Parliamentary Group’s report in November 2024 which scathingly criticised the FCA’s leadership and accused the regulator of systematic failures including regulatory inaction, cultural deficiencies and inadequate handling of whistleblower evidence,⁴⁴ as well as the FCA’s public row-back and dilution of its “name and shame” proposals.⁴⁵

In the meantime, it remains critical for firms to ensure that adequate systems and controls, policies and training are in place and that all regulatory information requests are dealt with promptly and properly. The Pallas team is at your service if we can assist with your firm’s regulatory response to regulatory inquiries and/or enforcement investigations.

A busy 2025 lies ahead.

¹ https://www.bankofengland.co.uk/prudential-regulation/publication/2024/january/the-bank-of-england-approach-to-enforcement-policy-statement

² https://www.bankofengland.co.uk/prudential-regulation/the-bank-of-england-enforcement

³ https://www.fca.org.uk/news/news-stories/2024-fines

⁴ https://www.fca.org.uk/publication/consultation/cp24-2.pdf and https://www.fca.org.uk/publications/consultation-papers/cp24-2-part-2-greater-transparency-our-enforcement-investigations

⁵ https://www.fca.org.uk/publication/consultation/cp24-9.pdf and https://www.fca.org.uk/publication/policy/ps24-17.pdf

⁶ https://www.fca.org.uk/news/statements/fca-consult-extending-time-motor-finance-firms-handle-commission-complaints

⁷ https://www.gov.uk/government/speeches/mansion-house-2024-speech

⁸ https://www.bbc.com/news/articles/cy0n14ywzqpo

⁹ https://www.fca.org.uk/news/speeches/evolving-enforcement-approach-protect-grow-markets

¹⁰ https://www.fca.org.uk/data/fca-enforcement-data-2023-24

¹¹ https://www.fca.org.uk/data/fca-enforcement-data-2023-24