Risk & Compliance Report for the Week Ending 5 September 2025

James Ross
Sep 6
12 min read

Executive Summary

Recent developments reveal a UK regulatory environment faced with a policy trilemma: balancing a new statutory mandate for growth and competitiveness against financial stability and consumer protection. An emerging supervisory framework from HM Treasury, the PRA, and the FCA introduces a 'supervisory dividend'—reduced oversight as a reward for firms demonstrating superior compliance and risk governance through credible evidence. This raises the evidentiary bar, shifting the burden onto firms to justify their decisions within an outcomes-based framework.

Concurrently, macroprudential oversight and systemic resilience remain the dominant regulatory focus. The revised HM Treasury-Bank of England crisis management MoU and a significant discussion paper on de-risking the gilt repo market confirm that the primary mandate of ensuring safety and soundness continues to drive structural market reforms.

A consultation on amendments to the Money Laundering Regulations indicates a tightening of the preventative regime, especially for cryptoasset businesses, aligning them with traditional finance standards. This regulatory change occurs alongside the Economic Crime Plan 2 progress report, which highlights increased predicate offending, especially fraud, showing the criminal threat outpaces public sector responses.

Table 1: Key Regulatory Deadlines and Consultation Closures

Event/Deadline	Date	Strategic Implication
FCA Consultation on LSEG Commitments Closes	29 September 2025	Final opportunity for Low Latency Connectivity Service (LLCS) providers and market participants to influence the outcome of the FCA's competition investigation into access to critical market infrastructure.
Technical Consultation on Draft MLR Amendments Closes	30 September 2025	Critical window for firms, particularly cryptoasset businesses, to provide technical feedback on the operationality and potential unintended consequences of proposed AML/CTF rules.
FCA Authorisation "Concierge Service" Operational	By October 2025	A new, dedicated channel for international firms and innovators to engage with the FCA; incumbent firms must monitor its impact on authorisation standards, timelines, and competitive dynamics.
Autumn 2025 Budget	26 November 2025	Key fiscal event that may contain further financial services policy announcements, tax changes affecting the sector, or updates on the government's growth and competitiveness agenda.
Bank of England Gilt Repo Market Discussion Paper Closes	28 November 2025	Significant opportunity for banks, CCPs, and NBFIs to shape potential future rules on central clearing mandates and minimum haircuts, which could materially alter market structure.
European Parliament Plenary Session on CMDI Proposals	15-18 December 2025	A key legislative milestone for the EU's bank resolution and deposit insurance framework, with direct relevance for UK firms with significant operations in the EU and subsidiaries.
Finalisation of FCA Rules for Targeted Support (AGBR)	By the End of 2025	Firms will have certainty on the new rules for providing targeted support to consumers, requiring final implementation, training, and activation of control frameworks.

1. Operationalising the Competitiveness Mandate: The New UK Supervisory Architecture

Recent correspondence from the FCA, PRA, and HM Treasury, responding to the House of Lords Financial Services Regulation Committee, provides the most precise articulation to date of how the regulators' secondary growth and competitiveness objective is being operationalised. The responses signal the emergence of a new, implicit supervisory architecture, wherein a lighter regulatory touch is not a universal entitlement but a conditional reward for firms that demonstrate exceptionally high standards of governance and a proactive compliance culture.

1.1. The Regulatory Response: Tangible Actions vs. Philosophical Restraint

The regulators' response is bifurcated: delivering concrete operational improvements while resisting calls for a fundamental re-evaluation of the cumulative regulatory burden. The FCA's letter highlights work "underway, or already completed, that addresses most of the Committee's recommendations," signalling a proactive posture. Tangible initiatives include a "concierge service" to streamline engagement for international firms (operational by October 2025) and a commitment to finalise new rules for targeted support under the Advice Guidance Boundary Review (AGBR) by year-end 2025.

In contrast, HM Treasury's response indicates a more cautious philosophical stance, declining at this time to commission a new, comprehensive study on the cumulative costs of compliance or to undertake a wholesale review of performance metrics. This position was reinforced by the PRA, which warned that post-implementation cost reviews would be "complex and resource-intensive." This coordinated messaging suggests an official reluctance to engage in a quantitative debate on the overall burden of regulation, favouring targeted, operational efficiencies over a fundamental reassessment of the post-2008 framework.

1.2. Implications of the Shift to Outcomes-Based Supervision

The most strategically significant element is the FCA's articulation of its evolving supervisory philosophy. The regulator stated that as it moves to more outcomes-based regulation, it "will not always provide prescriptive guidance," affording firms "latitude to judge how best to meet its requirements." This is explicitly linked to a new risk-based approach where the FCA "intends to supervise firms that are demonstrably seeking to do the right thing less intensively."

This represents a pivotal shift in the regulatory relationship. The promise of a "supervisory dividend" is conditional and creates a clear bifurcation in the regulatory landscape. Firms that can invest in and, crucially, evidence robust governance, a strong ethical culture, and sound, well-documented decision-making processes will likely benefit from greater operational autonomy. Conversely, firms unable to provide this evidentiary trail, or whose judgments result in poor outcomes, will likely face heightened, more intrusive supervisory engagement.

In an outcomes-based system, the burden of proof shifts dramatically to the firm. To qualify for less intensive supervision, a firm must proactively and continuously create a defensible evidentiary trail through high-quality management information, robust governance records, and clear rationales for its strategic decisions. This elevates the role of compliance and risk functions from rule-adherence checkers to strategic partners who must help the business document, challenge, and ultimately defend its judgments to the regulator.

2. Systemic Resilience and Crisis Management: The Enduring Primacy of Stability

. Another parallel theme is the continued regulatory drive to reinforce the financial system's resilience against systemic shocks. Developments across the UK and EU demonstrate that ensuring financial stability remains the paramount objective, with an emphasis on enhancing pre-emptive measures, clarifying crisis management protocols, and de-risking critical markets.

2.1. A Modernised UK Crisis Management Framework

The publication of a revised Memorandum of Understanding (MoU) between HM Treasury and the Bank of England fundamentally resets the UK's crisis management playbook. The new MoU, the first since 2017, reflects profound structural changes, explicitly accounting for the UK's withdrawal from the EU, the Subsidy Control Act 2022, and, critically, the new resolution regime for central counterparties (CCPs) introduced by FSMA 2023. The inclusion of the CCP resolution regime confirms that regulatory thinking has expanded beyond the banking sector to encompass all pillars of systemically critical financial market infrastructure.

2.2. De-risking Core Markets: The Gilt Repo Market

The imperative to pre-emptively manage systemic risk is most evident in the Bank of England's discussion paper on enhancing the resilience of the gilt repo market. The paper explicitly links the need for reform to lessons from the 2020 "dash for cash" and the 2022 LDI crisis, directly referencing the Financial Stability Board's (FSB) policy recommendations on non-bank financial intermediation (NBFI). The paper seeks market views on two primary structural reforms:

Greater Central Clearing: Exploring a potential mandate for central clearing of all gilt repo trades to reduce counterparty credit risk and mitigate disorderly deleveraging in the bilateral market.
Minimum Haircuts: Considering the imposition of minimum haircuts on non-centrally cleared gilt repo transactions to limit the build-up of excessive leverage and reduce the risk of pro-cyclical margin spirals during market stress.
2.3. European Parallel: Solidifying the CMDI Framework

The European Parliament has scheduled the legislative proposals for reviewing the EU bank Crisis Management and Deposit Insurance (CMDI) framework for its plenary session from 15 to 8 December 2025. This package of reforms is the EU's primary legislative response to the failure of Credit Suisse. The steady progress underscores a broad international consensus on hardening resolution frameworks to ensure the "too big to fail" problem is credibly addressed.

3. Financial Crime and AML: Intensifying Preventive Obligations

The UK's anti-money laundering (AML) regime is set for a significant tightening, while official reports reveal the immense strategic challenge posed by the scale of economic crime.

3.1. Analysis of Draft MLR Amendments

HM Treasury's technical consultation on draft amendments to the Money Laundering Regulations 2017 (MLRs) proposes several key changes with significant operational implications, particularly for the cryptoasset sector.

Change of Control (Cryptoasset Firms): The notification threshold is set to be lowered from 25% to 10%, aligning the MLR regime with the more stringent FSMA authorisation regime. The definition will capture holdings of 10% or more of shares or voting power, or the ability to exercise "significant influence."
Correspondent Relationships (Cryptoasset Firms): The draft SI introduces, for the first time, explicit rules requiring cryptoasset firms to apply Enhanced Due Diligence (EDD) to correspondent relationships with non-UK crypto firms, with an explicit ban on relationships with "shell banks."
High-Risk Jurisdictions: The trigger for mandatory EDD is narrowed to focus specifically on countries identified by the Financial Action Task Force (FATF) as subject to a "call for action."
Complex/Large Transactions: The EDD requirement is clarified to apply only where transactions are "unusually complex or unusually large," placing a greater onus on firms to develop and document a robust methodology for defining this baseline.

Table 2: Summary of Proposed Changes to the Money Laundering Regulations 2017

Area of Change	Current Rule (Implicit)	Proposed Change	Immediate Impact
Cryptoasset Firm Change of Control	25% beneficial ownership threshold for notification.	The threshold has been lowered to 10% for MLR-registered firms, aligning with the FSMA. Captures 10%+ share/voting power or "significant influence."	Requires immediate update of internal change of control procedures. M&A and investment activity will trigger notification requirements much earlier.
High-Risk Third Countries	Broad EDD requirement for high-risk jurisdictions.	Mandatory EDD trigger narrowed to FATF "call for action" list.	Simplifies the mandatory trigger but reinforces the need for firms' own risk-based assessments of country risk.
Complex/Large Transactions	EDD on transactions that are "complex or unusually large."	Clarified to "unusually complex or unusually large."	Firms must strengthen their documented rationale and systems for defining "unusual" to defend their application of standard vs. enhanced due diligence.
Cryptoasset Correspondent Links	General AML principles apply; no specific regime.	Explicit requirement to apply EDD to non-UK crypto correspondent relationships. Outright ban on relationships with shell banks.	Requires crypto firms to design, build, and implement a comprehensive correspondent due diligence framework, a significant operational and compliance resource uplift that mirrors traditional banking.
Pooled Client Accounts (PCAs)	Linked to Simplified Due Diligence (SDD) framework.	The link between PCAs and SDD is decoupled, removing the assumption of low risk.	Banks must adopt a more risk-sensitive approach to PCAs, potentially necessitating more thorough due diligence on the underlying client base of the professional intermediary.

3.2. The Enforcement Reality

The Economic Crime Plan 2 progress report presents a contradictory picture. While prosecutions for money laundering in England and Wales rose by 36% in 2024, the Crime Survey estimated 4.16 million fraud offences in the year to March 2025, a 31% increase. This massive volume of predicate offending creates a formidable challenge. The low, and likely falling, prosecution-to-offence ratio means the public sector is overwhelmed. Consequently, the regulatory and political expectation will be for the private sector to play an even greater preventative role, as embodied by the "failure to prevent fraud" offence, which places direct corporate liability on firms with inadequate controls.

4. Market Integrity and Prudential Oversight

Developments this week demonstrate a continued regulatory focus on the detailed mechanics of market function, firm-level prudential soundness, and data transparency.

4.1. Competition in Critical Market Infrastructure

The FCA is consulting on commitments offered by the London Stock Exchange Group (LSEG) to address competition concerns related to low-latency connectivity services (LLCS). The FCA's investigation focused on LSEG's exclusive rights to locate radio equipment on its data centre rooftop, which could constitute an abuse of a dominant position under the Competition Act 1998. LSEG has offered to terminate these exclusive rights and make half the rooftop space available to third parties on a fair, reasonable, and non-discriminatory (FRAND) basis.

4.2. Prudential Scrutiny for Investment Firms

The FCA's September 2025 IFPR newsletter signals a shift from high-level implementation to detailed, technical enforcement. Key issues flagged include:

CET1 Capital for LLPs: Incorrect treatment of allocated profits as Common Equity Tier 1 (CET1) capital where members have an unconditional right of withdrawal.
Investment Firm Groups (IFGs): A warning against structures designed to avoid prudential consolidation, with the FCA ready to use its powers under FSMA to compel the establishment of a UK parent undertaking.
Reporting and Governance: Common errors in Internal Capital Adequacy and Risk Assessment (ICARA) processes and MIF007 regulatory reporting.

CFOs and CROs at investment firms must ensure their capital calculations, group structures, and regulatory reports are technically robust and can withstand intense supervisory scrutiny.

4.3. EU Market Data Transparency

Two Commission Delegated Regulations supplementing MiFIR entered into force, extending ESMA's fining and supervisory fee framework to cover the new consolidated tape providers (CTPs). This is a necessary technical step in the EU's project to create a consolidated tape for market data, a key element of the MiFIR review aimed at enhancing market transparency and addressing data fragmentation.

5. Digital Assets Regulatory Framework: The Bank of England's Systemic Stablecoin Blueprint

A speech by Bank of England Deputy Governor Sarah Breeden outlined a sophisticated vision for a future "multi-money" ecosystem. It signalled a key pragmatic shift in the Bank's approach to regulating systemic stablecoins.

5.1. A Calibrated Risk-Based Approach to Stablecoin Regulation

The Bank will consult in 2025 on a new approach allowing systemic stablecoin issuers to hold some backing assets as high-quality liquid assets (HQLA), like short-dated gilts. This shifts from a conservative model requiring all assets in central bank reserves, responding to industry feedback that the seigniorage-based business model needs to earn a return. Allowing part of HQLA introduces a small market and liquidity risk but aims to create a viable regulatory regime and attract stablecoin innovation in the UK.

5.2. Future-Proofing Core Infrastructure for Tokenisation

The speech outlined the Bank's strategy to upgrade its core infrastructure. The new RTGS service, RT2, is designed for settlement in central bank money for assets traded on external systems, including DLT. To support this, the Bank plans to launch a "synchronisation lab" in 2026 for industry experimentation with DvP settlement models. This aims to ensure central bank money remains the essential, risk-free settlement asset, maintaining the Bank's role in payment system stability amid private sector innovation.

6. Judicial Precedent: Affirmation of the Part VII Transfer Mechanism

A High Court judgment sanctioning the banking business transfer scheme from Credit Suisse International to entities within the UBS group provides significant legal clarity on the utility of the Part VII FSMA 2000 process for complex financial reorganisations. The court's pragmatic, commercially-minded approach reaffirms that the Part VII scheme is a robust and flexible legal tool.

The judgment delivered several key interpretations:

The "Accepting Deposits" Condition: The court held that the inclusion of intergroup deposits, which are not a regulated activity, was sufficient to satisfy the statutory condition for a banking business transfer scheme under section 106(1)(b) of FSMA, potentially widening the scope of portfolios that can be transferred via this mechanism.
Assessing Customer Impact: The court conducted a thorough assessment and was satisfied there was "no significant adverse impact," giving weight to the transferee's strong capital position and extensive customer communications.
Use of Ancillary Orders: The court demonstrated its willingness to make ancillary orders under section 112(1)(d) of FSMA, where failing to do so would undermine the commercial rationale of the scheme.

This precedent provides legal certainty and a clear procedural roadmap for firms planning future mergers and acquisitions (M&A), internal reorganisations, or simplification programmes.

7. Strategic Outlook and Recommendations

The week's developments reveal three dominant strategic vectors shaping the risk and compliance environment.

7.1. Key Strategic Vectors

The Emergence of a Conditional Supervisory Model: UK regulatory oversight intensity will be explicitly linked to the demonstrated quality of a firm's internal governance, risk management, and culture.
The Primacy of Systemic Resilience: The substantive regulatory agenda remains focused on strengthening the financial system against macroprudential and structural market risks.
Rapid Convergence in Digital Asset Regulation: The regulatory framework for cryptoassets is now rapidly converging with that of traditional finance, eliminating regulatory arbitrage.

7.2. Prioritised Management Checklist

Priority Level	Action Item	Responsible Functions
Immediate (Next 4 weeks)	Formulate and Submit Technical Feedback on Draft MLR SI: Review the draft Statutory Instrument on MLR amendments and submit formal feedback to HM Treasury before the 30 September deadline, focusing on operationality.	Compliance, Legal, Cryptoasset Business Units
Immediate (Next 4 weeks)	Analyse Gilt Repo Market Impact: Model the potential cost, capital, and liquidity impact of a central clearing mandate or minimum haircuts on business models and submit evidence-based feedback to the Bank of England by 28 November.	Treasury, Risk, Trading, Public Affairs
Immediate (Next 4 weeks)	Review Infrastructure Access Arrangements: Conduct an internal assessment of any critical infrastructure or data access arrangements that could be perceived as exclusive or anti-competitive in light of the FCA's LSEG consultation.	Legal, Competition Law, Strategy
Next Quarter (to end-2025)	Conduct Board-Level Gap Analysis for Outcomes-Based Supervision: Assess the firm's ability to produce a defensible evidentiary trail for its key strategic and risk decisions, focusing on MI quality and governance records.	Board, Executive Committee, Risk, Compliance, Internal Audit
Next Quarter (to end-2025)	Finalise AGBR Implementation Plan: Develop a clear timetable for staff training, procedural updates, and the implementation of monitoring and control frameworks for the new targeted support rules.	Retail Business Units, Compliance, L&D, Operations
Next Quarter (to end-2025)	Conduct Granular IFPR Technical Review: Initiate a detailed review of IFPR compliance, validating the firm's approach to CET1 capital for LLPs, the scope of prudential consolidation, and the accuracy of MIF007 reporting.	CFO, CRO, Head of Compliance, Finance
Strategic (Next 6-12 months)	Initiate MLR Implementation Project: Conduct a comprehensive gap analysis and plan the implementation of the final MLR amendments, which are expected to be presented to Parliament in early 2026.	Compliance, IT, Operations, Project Management Office
Strategic (Next 6-12 months)	Evaluate Systemic Stablecoin Strategy: Monitor the Bank of England's forthcoming stablecoin consultation and assess the strategic opportunities or threats arising from a viable, UK-regulated systemic stablecoin.	Strategy, Innovation, Treasury
Strategic (Next 6-12 months)	Monitor EU Legislative Files: Maintain a watching brief on the progress of the CMDI and MiFIR CTP files, developing implementation plans to ensure compliance as they come into force.	EU Compliance, Legal, Regulatory Affairs