- Important 2024 court judgments that will impact the FCA Enforcement landscape in 2025 and beyond. Two decisions by the UK Court of Appeal in 2024 may shape the approach of the Enforcement Division of the UK Financial Conduct Authority (FCA) in 2025 and beyond.
In FCA v. BlueCrest Capital Management (which should not be confused with the recent BlueCrest tax decision), the court significantly expanded the FCA’s powers in two key respects. First, it decided that the FCA has broad powers to change its case between the first instance decision of the Regulatory Decisions Committee (RDC) and the Upper Tribunal (UT), provided the updated case still has a real and significant connection with the subject matter of the process as heard by the RDC. This decision gives the FCA latitude to adapt and modify its case depending on the outcome of the RDC hearing and therefore increases the uncertainty for businesses and individuals considering an appeal from an RDC hearing going forward.
The BlueCrest court also decided that the FCA has statutory power to impose redress requirements on a particular regulated business (requiring that business to make payments to a class of investors or customers) without needing to establish the usual pre-conditions for civil actionability (e.g., breach of duty, loss, and causation). As such, this decision now increases the likelihood of potentially onerous redress requirements being imposed. It remains unclear at the time of writing whether there will be a further appeal to the UK Supreme Court on these issues.
In the long running case FCA v. Seiler and Another, the Court of Appeal reviewed a decision by the Upper Tribunal to make a partial costs order against the FCA in light of certain deficiencies in the FCA’s approach to proceedings (including its failure to call certain material witnesses) and its investigation. The Court of Appeal upheld the adverse cost award and declined to interfere with the Upper Tribunal’s conclusions regarding the deficiencies in the FCA’s approach. In its judgment, the Court of Appeal said the FCA could not expect to be able conduct itself as an ordinary litigant, not least given its statutory function. The FCA has been refused leave to appeal to the Supreme Court.
Whilst recent years have seen a number of Upper Tribunal cases in which the FCA has been criticised for the conduct of its investigations and proceedings, it is unusual for the FCA to face an adverse costs award. The FCA has reacted by reviewing and seeking to broaden its approach to disclosure. However, the finer details of what it means for the FCA not to conduct itself as an ordinary litigant (for example in the witnesses it elects to call) will still need to be worked out. We expect the Upper Tribunal and Court of Appeal to grapple with these issues in 2025.
- Non-financial misconduct. The FCA and Prudential Regulation Authority (PRA) will likely publish final rules that will introduce requirements relating to “non-financial misconduct” (NFM) (meaning conduct that does not directly relate to the performance of regulated roles and activities) across its rule books. These were expected at the end of 2024. Based on the consultation paper, the new requirements will enhance conduct requirements on individuals (including those with management oversight responsibility for compliance with NFM standards) and on regulated businesses in terms of their systems and controls and overall suitability to continue to be regulated.
Allied to this work, in late 2024 the FCA published the outcome of an extensive market survey on NFM. This revealed a significant increase in reported NFM incidents over the last three years, but considerable uncertainty in the market as to how best to categorise such incidents. Once introduced, the new rules may take some time to be properly tested and embedded.
- A focus on payments. The FCA announced in 2024 that it is planning a significant overhaul of the requirements imposed on payments businesses that hold customer funds (the safeguarding requirements). The safeguarding requirements are key, particularly in the event of an insolvency of a payments business, and the FCA’s planned reform reflects some recent poor customer outcomes in that scenario. Please see our October 2024 GT Alert for more extensive discussion of these reforms. Final rules for the first stage of the implementation are expected in 2025 and will allow payments firms to start making necessary changes.
At the end of 2024, Chancellor Rachel Reeves recognised the importance of the UK payments sector and announced a New Payments Vision for the UK (NPV) that may impact the policy dialogue in 2025. Whilst details are unclear, the NPV is likely to include an attempt to rejuvenate open banking as well as a focus on enhancing payments infrastructure, alongside streamlining regulations. Many of these themes were picked up in the FCA’s portfolio letter to payments firms in February 2025, in which the regulators priorities and concerns are identified.
In Europe, payment services firms will be continuing to prepare in 2025 for the introduction of PSD3 in 2026. PSD3 will introduce heightened security and authentication requirements and additional reporting obligations, and it will integrate electronic money institutions within the payment services framework. There is no sign yet as to how the UK will respond to these European changes. In a post-Brexit world it remains to be seen whether the UK will align closely with the PSD3 reforms or develop a bespoke response, both of which could impact operations for payment services firms operating in both the UK and Europe.
- Motor Finance Commission. Within the car finance arena, the payment of commission by lenders to motor car dealers (brokers) who successfully introduce customers (borrowers) to the lender has been an accepted practice with the customer being told by the lender (within the lender’s finance terms) that it may be paying commission to the broker and that details of the amount of commission being paid are available on request. In broad terms this practice has been conducted by lenders and brokers in compliance with the UK’s consumer credit legislation and the FCA’s rules and guidance.
In October 2024 the Court of Appeal found in three separate cases that lenders paying commission to brokers owed the underling borrowers a “disinterested duty” and a “fiduciary duty” which obliged them to obtain the customer’s “fully informed consent” to the payments. The Court of Appeal also found that merely mentioning that commission may be payable in the lender’s finance terms was insufficient and that this meant the commissions paid were “secret commissions”.
The Court of Appeal found that the remedies were recission of the original loan (which would mean the borrower would not have the benefit of the loan) and, more pertinently, the payment to the borrower of the commission paid to the broker as damages.
This set of decisions has been described as “the new PPI” and could, in theory, lead to considerable damages for both lenders and brokers. Anticipating this, and the potential for an unwieldy claims industry, the FCA has required lenders and brokers to pause their handling of complaints from borrowers which relate to “secret commissions”.
The Supreme Court has agreed to hear the appeals from the Court of Appeal decisions on an urgent basis and the hearing will take place in early April 2025 with the FCA being given permission to intervene as well.
- Growth & De (or Re)-regulation? In mid-November 2024, the Chancellor’s Mansion House speech included plans to publish a “Financial Services Growth and Competitiveness Strategy” which is a component of the UK’s modern industrial strategy, Invest 2035. The Financial Services Growth and Competitiveness Strategy will include a 10-year plan for the promotion of “sustainable and inclusive growth” within the UK’s financial services sector.
There was a four-week call for evidence which concluded in mid-December 2024. An aspect of the call for evidence related to enhancing the UK’s regulatory framework to support innovation and competitiveness and making the UK an attractive hub for asset management.
The Strategy (at least in draft form prior to further consultation) will likely be published by Spring 2025 and may include the following topics:
- the regulatory perimeter (at the moment some firms are required to be regulated but are not then subject to any specific rules);
- a review of the size and detail of the FCA’s handbook;
- funds regulation and improvements to the LTAF regime and the manner in which pension monies can be, and are, invested into real estate funds;
- tokenisation of interests in funds;
- the consumer credit regime and the manner in which credit is made available;
- the disclosure requirements for retail investment products (simplifying them and having more standardised and more easily comprehensible risk warnings for retail investors);
- the creation of a digital identity regime for retail customers enabling greater access to financial services products for all;
- the relaxation of some of the regulatory framework around mortgage lending; and
- the replacement of the certification regime within the FCA and PRA’s Senior Managers and Certification Regime with a more proportionate regime.
About our Financial Services Regulatory Practice: We help businesses and leading regulated individuals navigate their interactions with the UK regulators, particularly the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). The team have acted on some of the biggest enforcement cases since the financial crash and for household-name clients, as well as advising clients on UK regulations and pre-empting difficult regulatory interactions. We also have experience in the new-economy sectors of payments and crypto assets.