Risk & Compliance Report For the week ending August 15, 2025

Executive Summary

This week's key regulatory updates show increased focus on consumer protection, operational resilience, and new financial products. In the UK, a Commercial Court ruling on the Consumer Rights Act 2015 highlights legal risks in procedural clauses, requiring immediate review. HM Treasury's plan to reform the AR regime with an FCA gateway will raise compliance burdens and liability for firms. Supervisory attention also targets eliminating pension transfer "sludge practices' and safeguarding the credibility of Sustainability-Linked Loans (SLLs).

In the European Union, a landmark European Court of Justice ruling has redefined liability for unauthorised payments under the Payment Services Directive (PSD), establishing a high "gross negligence" standard that will constrain how payment providers handle disputes. Meanwhile, the Single Resolution Board (SRB) continues its push from resolution planning to demonstrable operational readiness, requiring banks to develop and test actionable "transfer playbooks."

Across both jurisdictions, two cross-cutting themes are prominent: a heightened focus on cyber resilience, particularly the management of third-party and supply-chain risk, and the continued regulatory pivot towards data-driven supervision (SupTech), which will demand greater investment in data governance and analytics from all regulated firms.

UK

• Unfair Contract Terms (Consumer Rights Act 2015): The Commercial Court's decision in Regera SARL v Cohen establishes a critical precedent regarding the enforceability of procedural clauses in consumer contracts. The setting aside of default judgments under CPR 13.2 was predicated on a finding that a clause permitting the unilateral appointment of a replacement service of process agent was unfair under Section 62 of the Consumer Rights Act 2015. The court found it created a "significant imbalance" in the parties' rights.

  • Impact & Recommendations: Financial institutions must initiate a comprehensive review of standard form consumer contracts, particularly guarantee and loan agreements, to identify and remediate clauses that could be construed as procedurally unfair. This review should scrutinise any terms allowing for unilateral appointments or amendments without adequate notification. Legal and compliance functions must assess the enforceability of such clauses to mitigate litigation and reputational risk.

• Financial Ombudsman Service (FOS) Funding Model: The FOS is consulting on a proposal to recalibrate its case fee structure in alignment with the "polluter pays" principle. The proposed differentiated fee model is contingent on the stage of complaint resolution, creating a financial incentive for firms to engage in proactive and early-stage settlement.

  • Impact & Recommendations: Firms' cost-of-compliance and financial projection models must be updated to account for a potentially variable FOS fee structure. This development necessitates a strategic review of Internal Dispute Resolution (IDR) frameworks to optimise for efficiency and early-stage resolution, thereby managing aggregate case fees. The financial impact will be most acute for firms with high complaint volumes that frequently proceed to a final ombudsman decision.

• Appointed Representatives (AR) Regime Reform: HM Treasury's policy statement signals a fundamental overhaul of the AR regime, transitioning to a more stringent supervisory model. The introduction of a regulatory gateway under the Financial Services and Markets Act 2000 (FSMA) will subject principal firms to a formal FCA permissioning process, which will assess their capacity and control frameworks for overseeing ARs.

  • Impact & Recommendations: Principal firms must prepare for a significant uplift in supervisory expectations, regulatory engagement, and associated costs. The gateway will require firms to demonstrate robust due diligence, monitoring, and governance frameworks for their entire AR population. Furthermore, the extension of FOS jurisdiction introduces a new vector of liability, requiring principals to re-evaluate their indemnity provisions and enhance oversight controls to manage conduct risk within their AR networks.

• Sustainability-Linked Loans (SLLs): The FCA's follow-up letter indicates continued supervisory focus on mitigating greenwashing and ensuring market integrity. The regulator requires a demonstrable, material linkage between SLLs and credible corporate transition strategies. The letter also stresses the imperative for robust governance to manage inherent conflicts of interest between commercial lending and sustainability advisory functions.

  • Impact & Recommendations: Banks must enhance their ESG risk frameworks to validate the credibility of SLLs. This includes refining due diligence processes for setting and verifying Sustainability Performance Targets (SPTs), ensuring they are material, ambitious, and core to the borrower's business. Internal policies must delineate roles and establish ethical walls to manage conflicts of interest.

• SME Banking Undertakings: The CMA's proposal to release the remaining anti-bundling provisions of the 2002 SME banking undertakings is based on its assessment that market dynamics have evolved sufficiently to ensure effective competition.

  • Impact & Recommendations: The potential removal of these restrictions would represent a structural market change. Firms should begin strategic reviews of their SME product offerings and pricing models to prepare for a potentially more competitive and less restrictive environment for product bundling.

EU

• Payment Services Directive (PSD) & Unauthorised Transactions: The ECJ's ruling provides a critical interpretation of Articles 56, 58, 60, and 61 of the PSD. It establishes a dual temporal condition for user notification of unauthorised transactions: "without undue delay" and within the 13-month statutory maximum. Crucially, the judgment holds that for transactions resulting from a lost, stolen, or misappropriated instrument, the user's right to redress is only forfeited upon a showing of intent or gross negligence in the notification delay, setting a high evidentiary bar for payment service providers (PSPs).

  • Impact & Recommendations: PSPs must immediately review and amend their operational procedures for handling unauthorised transaction disputes. The legal basis for refusing refunds due to delayed notification is now significantly constrained by the "gross negligence" standard. This necessitates specialised training for claims handlers and revisions to customer-facing terms and conditions to reflect this nuanced liability framework accurately.

• Bank Resolution & Transferability: The SRB's consultation on operational guidance for separability and transferability signals a shift from planning to operational readiness. The advice is intended to ensure that transfer tools within a resolution strategy are executable in a crisis, requiring banks to develop detailed "transfer playbooks."

  • Impact & Recommendations: Banks under the SRB's remit must ensure their resolution planning incorporates the development and testing of detailed, actionable transfer playbooks. This requires significant operational investment in identifying legal, financial, and operational impediments to a swift transfer of assets or business lines.

• Supervisory Colleges (CRD IV): The publication of new RTS and ITS updates the operational framework for supervisory colleges, aligning it with the CRD V framework. The regulations formalise processes for planning, coordination, and information exchange in both going-concern and emergencies

  • Impact & Recommendations: Cross-border banking groups must ensure their internal governance, risk management, and capital planning processes are fully compliant with the enhanced coordination and information-sharing requirements mandated by the new technical standards.

Financial Crime & Cyber Security

• Cyber Resilience & Third-Party Risk: The FCA's insights from its Cyber Co-ordination Group underscore the systemic importance of operational resilience, particularly concerning third-party dependencies. The application of frameworks like the Cross Market Operational Resilience Group's (CMORG) Reconnection Framework is highlighted as regulatory best practice. The regulator also signals concern over the aggregation of vulnerabilities and the novel attack vectors introduced by AI and LLMs.

  • Impact & Recommendations: Firms' operational and cyber resilience frameworks must be stress-tested against complex, multi-party incident scenarios. Third-party risk management programs require enhanced due diligence, robust contractual provisions for incident response, and integrated testing. A specific governance and control framework for the deployment of AI is now essential, addressing risks such as model poisoning, data integrity, and adversarial attacks.

• AML/CTF Supervisory Technology (SupTech): The EBA's report on SupTech adoption indicates a clear directional trend towards data-driven AML/CTF supervision. While acknowledging implementation challenges like data quality and resource constraints, the long-term objective is to enhance risk identification and analytical capabilities for competent authorities.

  • Impact & Recommendations: Firms should anticipate increasingly sophisticated and data-intensive requests from AML supervisors. Investment in data governance, quality, and analytics capabilities is no longer optional but a prerequisite for effective regulatory engagement and demonstrating compliance with AML/CTF obligations.

Markets, Investments & Pensions

• MiFIR Market Data & Transparency: The European Commission's consultation on amending MiFIR Delegated Regulation (EU) 2017/567 is a direct consequence of the MiFIR II review. The proposed changes, particularly to the definition of a "liquid market" for equities and the "reasonable commercial basis" for market data, will have a direct impact on pre-and post-trade transparency obligations.

  • Impact & Recommendations: Investment firms and trading venues must analyse the proposed technical standards to assess their effect on liquidity classifications, reporting logic, and data provision policies. System and process changes may be required to comply with the revised framework.

• Cryptoassets & Stablecoins: The FMLC's response to the FCA's consultation (CP25/14) highlights significant legal uncertainties that could create operational and legal risks. Key issues include the potentially broad scope of the "issuing" activity and the cross-jurisdictional complexities of applying an English law statutory trust to globally held backing assets.

  • Impact & Recommendations: Firms developing stablecoin or crypto-custody offerings must proceed with caution. A thorough legal analysis is required to determine which entities within a group structure could fall within the regulatory perimeter. The choice of legal structure for holding backing assets is critical and must account for potential conflicts of law and recognition issues in different jurisdictions.

• Pension Transfer Processes: The FCA's review of pension transfers reinforces its focus on eliminating "unreasonable barriers" and "sludge practices" under the Consumer Duty. The findings draw a clear distinction between necessary delays for consumer protection (e.g., scam checks) and undue friction in the transfer process.

  • Impact & Recommendations: Life insurers and pension providers must critically evaluate their end-to-end transfer processes. This involves mapping customer journeys, identifying friction points, and ensuring that any delays are robustly justified and documented as being in the customer's interest. Firms must be prepared for increased transfer volumes driven by the introduction of pensions dashboards and ensure their systems can meet Consumer Duty timeliness expectations.

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