This week, we lead with the recent feedback from the Financial Conduct Authority (FCA) following its review of consolidation risks across wealth management. The nature of this feedback will allay many concerns that the review could have paved the way for greater disruption to this sector. Instead, it strikes a reassuring note that FCA’s findings and feedback reinforce existing expectations, albeit clarifications on certain prudential and financial resilience areas may yet have some impact.
Elsewhere, the Prudential Regulation Authority (PRA) has updated ICAAP and SREP expectations, requiring stronger stress testing and board oversight by July 2026. And a near-final PRA policy streamlines Capital Requirements Regulation (CRR) into the PRA Rulebook, with full implementation expected by 2027.
Finally, this week, the FCA cautions retail investors about contract for difference (CFD) risks, underlining the need for clear customer communications. And ESG ratings providers will soon be regulated to enhance transparency and trust in sustainable finance.
Consolidation risks in wealth management
The FCA’s multi-firm review of consolidation in the financial advice and wealth management sector highlights both opportunities and significant risks. While acquisitions can strengthen resilience and efficiency, poorly managed growth may lead to harm, such as weak governance, inadequate client service, and disorderly failure. The review found that some consolidators lacked robust financial resources and continuity planning, creating vulnerabilities for clients and markets.
The FCA is urging firms to prioritise strong governance, prudent capital management, and effective integration processes. Compliance with Consumer Duty and prudential standards remains critical, particularly where rapid expansion could compromise client outcomes. The regulator also warns that failure to plan for operational resilience and exit strategies could result in disorderly wind-downs, harming consumers and market confidence.
Firms considering acquisitions should review the FCA’s findings and ensure their strategies align with regulatory expectations.
Read more on FCA review of consolidation
ICAAP and SREP expectations updated
The PRA has refreshed its supervisory statement on the Internal Capital Adequacy Assessment Process (ICAAP) and Supervisory Review and Evaluation Process (SREP). The update reinforces expectations around stress testing, reverse stress testing, and capital planning, ensuring firms maintain resilience under severe but plausible scenarios.
The PRA emphasises that ICAAP should be proportionate to a firm’s size and complexity, with clear governance and board oversight. Firms must demonstrate robust risk identification and ensure capital adequacy aligns with their risk profile. Reverse stress testing remains a key tool for identifying vulnerabilities that could threaten viability.
Boards should review ICAAP frameworks now to confirm they meet enhanced standards and support sound decision making. Firms should familiarise themselves with the updated statement and prepare for the July 2026 effective date.
Read more on ICAAP and SREP updates
Restatement of CRR requirements
The PRA has published a near-final policy statement restating Capital Requirements Regulation (CRR) provisions into the PRA Rulebook. This move aims to simplify the UK prudential framework post-Basel 3.1 and ensure clarity for firms operating under domestic rules.
The restatement covers key areas including securitisation, counterparty credit risk, and settlement risk. While the substance of requirements remains largely unchanged, firms should note that the transition will involve structural and presentational adjustments. The PRA stresses that this is part of its broader effort to streamline regulation following the UK’s withdrawal from the EU, reducing reliance on retained EU law.
Firms should review the near-final materials now to understand how CRR obligations will be embedded in the Rulebook and prepare for implementation. Engage with the PRA’s consultation and plan for full adoption by 2027.
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FCA warns on CFD protections
The FCA has issued a warning to retail investors about the risks of trading CFDs, particularly when opting up to professional client status. While professional status may offer lower margin requirements, it removes key protections such as negative balance safeguards and access to the Financial Ombudsman Service.
CFDs remain high-risk products, with around 80% of retail customers losing money. The FCA continues to see poor practices, including firms incentivising clients to upgrade status without fully explaining the implications. Under Consumer Duty, firms must ensure communications are clear and outcomes are fair.
Opting up could expose investors to significant losses without recourse to standard protections. It suggests that investors should check the FCA Register before engaging and consider whether professional status is appropriate. Firms should review their practices to ensure compliance.
Read more on FCA warning on CFDs
ESG ratings to come under regulation
The FCA has welcomed draft legislation to bring ESG ratings providers under regulation, aiming to boost transparency and trust in sustainable finance. As firms increasingly rely on ESG data for investment decisions, the FCA plans to consult on a proportionate regime in 2025, aligned with IOSCO principles on governance, conflicts of interest, and robust controls.
The move supports global consistency and a level playing field for all ESG ratings providers. In the meantime, the FCA encourages providers to adopt the voluntary industry Code of Conduct, which reflects international best practice and is already influencing frameworks in Hong Kong, Singapore, and Japan.
Firms using ESG ratings should prepare for regulatory oversight and review due diligence processes now.
Read more on FCA move on ESG ratings regulation
