Regulatory Update - October 2025

Tackling poor claims management practices

The FCA, Solicitors Regulation Authority, the ICO and the Advertising Standards Authority are working together in light of the proposed motor finance redress scheme to tackle misleading advertising.

Alison Walters, director, consumer finance, at the FCA, said:

“Misleading advertising and inadequate disclosure have meant that people are signing contracts with some firms without the facts. When they try to exit, they face high fees. We’re acting where we see bad practice and, through our own advertising, we’re ensuring consumers can make informed choices.”

Exit fees, in particular, are under scrutiny and the FCA have been tackling misleading adverts head on, removing or amending more than 740 since January 2024. The FCA notes that the number of misleading adverts increased significantly following the Johnson judgement, and their concerns include unrealistic claims about success rates and the value of potential compensation.

The FCA wrote to CMCs in a ‘Dear CEO’ letter published on 7 October reiterating their concerns including implying refunds are guaranteed, creating undue urgency, suggesting knowledge of agreements where none exists and customers being automatically signed up without knowledge or consent. The FCA is asking CMCs that identify issues to engage with them promptly.

Motor Finance Redress Scheme

The long-awaited proposals for the redress scheme have been published. The very short response time reflects the FCA’s decision to prioritise providing clarity for customers and firms.

The scheme will be operated by lenders, supported by brokers. Lenders will be liable for redress, although they may ask for contributions from brokers, particularly where brokers provided inadequate declarations. The FCA expects that firms will be able to look at adjusting interest and commission rates to make up any shortfalls that result – but stipulate that any adjustments must be reasonable, in line with the Consumer Duty, continue to offer fair value, and be consistent with the customer’s ability to pay.

Final rules are expected to be published in early 2026, but affected firms should begin preparations as soon as possible.

Affected firms should bear in mind that the FCA proposes that the deadline for motor finance complaints would be extended to 31 July 2026 (although the FCA could choose to bring this deadline forward) and that there is no extension for ‘leasing agreements’ (agreements which are not caught by legislation relating to unfair relationships and therefore not covered by the scheme). Firms should be actively investigating these cases, preparing to start sending final responses to these complaints from 5 December 2025.

FCA Speech: Do the right thing II

The speech, delivered on 20 October by Therese Chambers, joint executive director of enforcement and market oversight, reiterated that the FCA expects firms to continuously improve their approach to meeting high standards. Very much in line with the Conduct Rules, Consumer Duty and good practice examples in its multi-firm reviews, the key points are:

·       Recognising when something has gone wrong, taking responsibility and fixing it.

·       Cooperating with the FCA to ensure it won’t happen again.

·       Being open and honest with the FCA.

Definition of capital for FCA investment firms

The FCA have published Policy Statement 25/14 following Consultation Paper 25/10, setting out final rules to simplify and consolidate the definition of regulatory capital for FCA investment firms under MIFIDPRU 3. Affected firms won’t need to change their capital arrangements but may need to consider whether internal documents need to be updated.

Regulatory perspective and priorities for 2025 - Investments

In a speech delivered by Lucy Castledine, director of consumer investments, on 25 September 2025, the FCA reiterated their four priorities for 2025:

·       Support growth

·       Be a smarter regulator

·       Help consumers navigate their financial lives

·       Fight crime

Targeted support proposals are intended to bridge the gap between those who can afford bespoke personalised advice and those who rely on the support that is currently available for free. In practice, this will introduce a new regulated activity – providing suggestions to groups of consumers with common characteristics - which will be subject to the new Consumer Composite Investments (CCI) regime. More information is available in CP25/17.

Reform of the Anti-Money Laundering and Counter Terrorism Financing Supervision Regime

The Government’s response to its consultation sets out its chosen model for reform: model 3 Single Professional Services Supervisor (SPSS). The FCA will carry out the new supervisory functions as part of its remit and independently of HM Treasury. All firms currently supervised for AML/CTF by a PBS, all Accountancy Service Providers and Trust and Company Service Providers supervised by HMRC will be supervised by the FCA.

The FCA said “these changes will simplify the supervision of professional services, ensure more consistent oversight and help us identify and disrupt crime.”

Financial Crime Oversight Gaps

A recent survey found that as many as two-thirds of corporate finance firms not required to submit financial crime returns may not be meeting money laundering rules.

Effective financial crime controls are essential, however 11% of responding firms had no documented business-wide risk assessment – a requirement under the Money Laundering Regulations. Ten percent of firms did not retain documented evidence of customer due diligence, 29% of principal firms did not conduct financial crime risk assessments for their appointed representatives, and 6% of principal firms reported not monitoring their appointed representatives’ compliance with financial crime regulations or conducting on-site visits or audits.

Good practice was also identified, including:

·       firms regularly updating their business-wide assessments to reflect emerging risks

·       using detailed management information to strengthen financial crime controls

·       regularly reporting financial crime concerns to senior management.

The FCA have published the survey findings which is part of their strategy to fight financial crime. Firms are reminded that the FCA’s rules and the MLRs require firms to identify and assess the risks of money laundering and terrorist financing, have documented assessments of risks posed by clients, maintain records of CDD and EDD, and principal firms must adequately oversee the regulated activities carried out by ARs.

Our Compliance Consultancy website includes a range of Consumer Duty tools, designed to support your compliance.

Our online training courses introduce new staff to regulatory requirements, key legislation and process, and offer excellent refresher training for established staff, with up-to-date scenarios and soft skills training. Our full range of e-learning courses – including our new Market Abuse Regulation Training - are available online: Online Compliance Training | RB Compliance Consultancy