Your guide to this week in regulation

According to HM Treasury (HMT), there are about 34,000 Appointed Representatives (ARs) in the UK operating under around 2,400 authorised firms. And yet, any authorised firm may appoint an AR without Financial Conduct Authority (FCA) permission; presenting concerns that some firms may not be capable of supervising their AR activities effectively.  

In a major development, HMT is now proposing to address this gap by reforming the legislative framework for ARs and introducing an AR Approval Gateway, with a new FCA permission to act as principal. The new prospective mechanism will allow the FCA to scrutinise principals proactively and ensure they have the necessary expertise, resources and systems in place to provide effective oversight of their ARs. 

Elsewhere this week, we highlight key climate developments from the Bank of England (BoE), internal moves as part of the Payment Systems Regulator’s (PSR) consolidation, and latest Solvency II guidelines from Europe. 

Appointed Representatives regime consultation 

Bank of England sets out approach to climate impacts 

The BoE has set out how it is embedding climate impacts into monetary policy, supervision and financial stability work. Speaking at the London Stock Exchange, Executive Director of the International Directorate James Talbot stressed that climate and transition risks are now influencing the macroeconomic outlook and are no longer viewed as distant concerns. The BoE is scaling up modelling to assess how physical risks such as heatwaves, floods and storms, and transition risks such as policy shifts affect inflation, output and investment. Recent analysis suggests weather‑related shocks are already influencing food and energy prices, with climate‑driven supply disruptions likely to become more frequent. 

For financial stability, the BoE highlighted the growing risk of a sharp market repricing if climate vulnerabilities are underestimated, alongside concerns that insurance gaps could widen as physical risks intensify. Supervisory expectations have been updated through Supervisory Statement 5/25, with a stronger focus on governance and risk assessment for banks and insurers. 

Firms should now prioritise developing scenario capabilities, improve data and strengthen board‑level oversight. The BoE also notes that engagement with the Climate Financial Risk Forum can support firms in enhancing their climate risk management. 

Read more on James Talbot speech at the London school of economics  

Bank of England researching the productivity implications of moving to net zero  

The BoE recently published a working paper analysing how the UK’s transition to net zero carbon emissions may affect productivity in the economy. Using a macroeconomic model, the authors find that in the early stages of the transition, Gross Domestic Product (GDP) and total hours worked are likely to fall, as firms face higher costs and households reduce demand. However, because hours worked are expected to decline more sharply than GDP, productivity (measured as output per hour worked) is expected to increase slightly.  

As the transition advances, electricity will become more easily substituted for petrol and gas, and clean energy technologies will continue to improve. This will allow economic output to recover whilst working hours will remain persistently lower, leading to further improved productivity over the medium term.  
Over the long term, the working paper concludes that the transition to net zero is unlikely to deliver large productivity improvements without substantial investment across the economy. The model indicates that ‘green’ capital would need to increase by nearly 150%, alongside a 15% increase in the UK’s overall capital stock.  

Senior managers may want to reflect on the scale of investment implied and review how well their organisations are preparing for changes in energy use and cost structures. The paper also highlights the importance of carbon pricing, suggesting firms monitor policy developments closely as they will play a central role in the transition.  

Read more on the productivity implications of the move to net zero 

FCA Chair appointed as PSR Chair 

Ashley Alder has been appointed Chair of the Payment Systems Regulator following the end of Aidene Walsh’s term. Already Chair of the FCA, Alder has taken on the additional role at a pivotal point as government plans to fold the PSR into the FCA move forward. He highlighted the importance of continuity during the transition and recognised Walsh’s leadership during a period of rapid regulatory change in payments. 

Walsh, who stood down from both the PSR and FCA Boards on 25 January, reflected on the progress made during her tenure, noting stronger outcomes across the PSR’s statutory objectives. She welcomed Alder’s appointment, emphasising the value of stable leadership as the consolidation took shape.

The consolidation of the PSR into the FCA is expected to streamline oversight of payment systems, but it will require close monitoring as the two regulators continue to integrate. Firms should now review any updates issued by the FCA and PSR since the transition began and consider whether future supervisory expectations or engagement routes may shift further.

Read more on the new Chair of the PSR Board 

EIOPA updates Solvency II supervisory guidelines 

The European Insurance and Occupational Pensions Authority (EIOPA) has published its revised guidelines on the Supervisory Review Process (SRP), completing a significant update to the framework first issued in 2015. The revisions align the SRP with the legal framework as amended through the Solvency II review and aim to create a more consistent, forward-looking and risk based supervisory regime across Europe. 

The updated Guidelines strengthen expectations in several areas. Supervisors are now required to undertake structured business model analysis at least every three years, integrate assessments of ICT and sustainability risks, and adopt clearer approaches to emerging risks. Enhancements have also been made to impact and risk classification, early intervention measures, and the use of a graduated ladder of intervention, while new provisions on joint on-site inspections seek to improve cross-border supervisory cooperation. The changes apply to both solo undertakings and groups. 

The guidelines will apply from 30 January 2027. Firms who operate within the EU may wish to review the revisions carefully, assess potential impacts on supervisory engagement and consider preparing for more structured interaction, including in areas such as ICT resilience, sustainability, business model viability and recovery planning. 

Read more on the EIOPA updates