As we approach 2025, regulated firms continue to face an evolving regulatory landscape that demands proactive planning and investment.
To navigate these changes successfully, and as part of 2025 planning, regulated firms need to allocate sufficient budget and resources not only for new regulatory projects but also for enhancing their existing compliance frameworks.
Key Regulatory Focus Areas for 2025
Fraud Prevention and Financial Crime
The FCA has made it clear that reducing financial crime remains a top priority. But by financial crime FCA has made it clear they mean all financial crime’s not just money laundering.
In 2025, firms can expect increased scrutiny of their anti-fraud measures, particularly concerning investment fraud and push-payment scams.
To meet regulatory expectations, firms should consider:
Putting in place a fraud risk framework, and ensuring it remains up to date
Upgrading transaction monitoring systems to better detect suspicious patterns and new threats
Enhancing staff training so they understand anyone can be a victim of fraud
Firms that fail to demonstrate robust fraud prevention measures may face heightened reputational and regulatory risk.
Market Abuse Detection
The FCA has been significantly increasing its capability to tackle market abuse across asset classes. During 2024 they have been actively requesting market abuse risk assessments, conflicts registers and PA dealing logs.
This means firms must ensure their market abuse surveillance systems are fit for purpose.
Key considerations include:
Investing in cross-asset class surveillance technology
Refining alert parameters to reflect the risk assessment and identify risks (as opposed to having systems that simply generate alerts)
Developing more sophisticated analytics to identify complex abuse patterns
Firms should also review their market abuse policies and procedures to ensure they align with the FCA's evolving expectations.
Wholesale and Capital Markets Reforms
The FCA is finalising "far-reaching" reforms to capital markets, signalling a significant shift in the regulatory landscape for wholesale market participants.
These changes aim to enhance the UK's competitiveness while maintaining market integrity. In 2025, firms operating in this space should prepare for:
Streamlined listing rules to attract a broader range of companies to UK markets
Enhanced transparency requirements, particularly in bond and derivatives trading
More rigorous market abuse detection and prevention expectations
Potential new reporting obligations to support market oversight
Considering the challenges faced during the initial implementation, it would be prudent for firms to conduct a post-implementation review of their MiFID II/MiFIR and MAR compliance frameworks. This review can help identify any gaps that may have emerged since the regulations came into force, ensuring that your firm is not only compliant but also well-prepared for future regulatory changes.
AI and Digital Assets
The FCA could develop AI guidelines like its approach for algorithmic trading and could establish a comprehensive framework for AI governance that emphasises:
1. Governance Framework
The FCA could mandate that firms implement a governance framework for AI, requiring boards and senior management to be accountable for the ethical and regulatory compliance of AI systems. This would include clear responsibility for AI oversight.
2. Testing and Validation
The FCA could require rigorous testing and validation of AI systems before deployment to ensure they function correctly, avoid bias, and align with regulatory standards. This could include stress testing AI models
3. Ongoing Monitoring and Review
The FCA could require firms to implement ongoing monitoring of AI systems, ensuring they continue to perform in line with regulatory and ethical guidelines.
4. Risk Controls and Safeguards
The FCA could require similar risk controls for AI, mandating firms to have mechanisms in place to pause or terminate AI operations if they pose risks to compliance, security, or fairness. Safeguards against unintended or harmful actions by AI would be critical.
5. Audit Trails and Record-Keeping
The FCA could require firms to maintain comprehensive audit trails of AI system decisions and actions, ensuring traceability and enabling analysis in case of compliance reviews or incidents.
Business as Usual: Strengthening Core Compliance Functions
While preparing for new regulatory initiatives is crucial, firms must not neglect their ongoing compliance responsibilities. The following areas require continuous attention and investment:
Compliance Monitoring
A robust compliance monitoring programme remains essential. Firms should:
Regularly review and update their monitoring plans
Ensure adequate coverage of high-risk areas with a particular focus on areas with potential for harm to consumers.
Leverage data analytics to enhance monitoring effectiveness
Consider engaging external experts to conduct independent reviews of your monitoring programme to identify potential blind spots.
Risk Assessments
Comprehensive risk assessments are the foundation of effective compliance. In 2025, firms should:
Ensure they have comprehensive Enterprise-wide Risk Assessments to document and score the effectiveness of their risk and control framework
Ensure they have standalone risk assessments for core regulatory regimes such as market abuse, CASS, fraud, AML, and consumer duty.
Incorporate emerging risks, such as those related to AI and digital assets
Ensure risk assessments inform resource allocation and system configuration
Our consultants can help you develop a risk assessment methodology tailored to your firm's unique risk profile.
Training and Development
The FCA expects firms to provide high-quality, targeted compliance training. To meet this expectation regulated firms need to supplement their annual mandatory online training with:
Role-specific training
Realistic scenarios and case studies with examples that could come up in the firm
Coaching and one-to-one development for individuals identified in your succession plans
Bespoke training solutions can significantly enhance your staff's ability to identify and mitigate compliance risks.
Board Reporting
Effective communication with the Board on compliance matters is crucial. Firms should focus on:
Ensure the Board understands the key strengths and weaknesses of the businesses they oversee through their annual Consumer Duty Board Reports. The FCA will provide feedback on the 2024 submissions later this year which should help you identify enhancements.
Given the continuing rise in cyber threat, the spotlight is firmly on where firms rely on third parties. Boards should ensure robust governance of operational risks. Ensuring Boards understand the use of AI/ML (Artificial Intelligence / Machine Learning) technologies in their firms, including risk management and compliance with regulatory expectations.
Ensure boards have a clear understanding of cybersecurity risks and are effectively overseeing the firm's cyber resilience.
Our experts can help you develop reporting templates that meet regulatory expectations and provide valuable insights to your Board.
Preparing for 2025
As the regulatory landscape continues to evolve, firms that proactively prepare for upcoming changes will be best positioned to thrive. Here are some of the ways Leaman Crellin can support you with that:
Gap Analysis: Identify areas where your current compliance framework may fall short of regulatory expectations.
Regulatory Scanning: Stay ahead of emerging requirements with our expert tracking and insights into upcoming regulatory changes.
Control Enhancements: We will work with you to enhance your control framework ensuring they meet regulatory and audit expectations but also, so you understand and are able to maintain going forward.
Board Engagement: Enhance your Board reporting to ensure directors are well-informed and can provide effective oversight.
Training Programme Design: We’ll create tailored training solutions that address your firm's specific compliance needs and regulatory focus areas. Ensuring the team are upskilled and that the business is future proofed.
The FCA has become incredibly active asking for information to be shared with them by email with relatively short deadlines. Don't wait until you are asked, contact us today to discuss how we can help you prepare your firm for the challenges coming up in 2025.
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