Your guide to this week in regulation

This week, we lead with a key development in the UK Government’s pensions reform agenda. The conclusion of the Pensions Investment Review represents only one chapter in a broader suite of sequenced reforms. In the meantime, the industry will need to wait for the Government’s publication of its roadmap to provide necessary clarity around its longer-term strategy. 

In other news, recent research from the Financial Conduct Authority (FCA) provides food for thought around the usefulness of and limitations in forms of AI around consumer outcomes. The theme of innovation continues in our third item, as the FCA continues with the rollout of its ‘crypto roadmap’ through two substantial consultations; both displaying a heavy degree of read-across from comparable regulations with necessary adaptations.  

We round off this week with the FCA’s commitment to a widespread, yet unexpected exercise to review the accuracy of its requirements, limitations and directions imposed on firms, which will prompt inevitable questions for many affected firms. 

Finally, we pick up recent developments in the quest for faster settlement, driven by the desire for improvements in liquidity and, ultimately, UK competitiveness. 

Pensions Investment Review: final report and government responses to consultations 

The UK Government recently published its final report on the Pensions Investment Review, outlining reforms to improve retirement outcomes for savers and stimulate economic growth. The review was initially launched in July 2024 to address concerns that many Defined Contribution (DC) pension schemes are fragmented, underperforming, and overly focused on minimising cost at the expense of value for savers. 

A key reform is the reduction of fragmentation in DC pension schemes. The report sets out that legislation will limit the creation of new default arrangements, promoting scale and efficiency. A new contractual override scheme will allow consolidation of underperforming or outdated schemes, provided independent experts certify that it is in savers’ best interests. This reflects a shift in focus from minimising costs to encouraging investment strategies that consider long-term returns and value. A new Value for Money (VFM) framework, coming into effect in 2028, will require schemes to report publicly on performance, fees and quality.  

These reforms also aim to enable DC schemes to invest in a wider range of assets. The Government will hold a reserve power in the Pension Schemes Bill, which will enable it to set baseline targets for pension schemes to invest in a broader range of private assets.

Phase Two of the review will be launched in the coming months, and a roadmap is due to be published for the private pensions market that outlines how these reforms fit in with wider changes. 

Read more about the Pensions Investment Review Final Report 

FCA research note on using AI for consumer guidance 

The FCA recently released a research note assessing the benefits and limitations of Large Language Models (LLMs) like ChatGPT in consumer-facing financial services. This involved two pilot projects: 

1. Simplifying Financial Concepts: Using ChatGPT versions 3.5 and 4 to create simplified definitions of complex financial terms. 
2. Providing Consumer Guidance: Comparing the effectiveness of LLM-generated responses in a fixed chatbot for cash savings inquiries with a traditional website Q&A format.

The pilots aimed to evaluate how firms can assess consumer outcomes from LLMs and improve the regulator's understanding of these tools. Key lessons learned include: 

1. LLMs can simplify complex information, enhancing readability and accessibility, but require a robust evaluation framework that combines human judgement with automated tools.
2. Their effectiveness is context-dependent, with user comprehension and engagement influenced by the integration of the model into the customer journey, including content design.
3. There is strong demand for AI-driven assistance, as users showed a positive response to automated support and a willingness to engage with intelligent systems in decision-making. 

Read more about the LLM pilots on consumer guidance 

Read the full Research Note on the LLM Pilots on Consumer Guidance 
 

FCA consults on stablecoin issuance, cryptoasset custody rules, and a prudential regime for cryptoasset firms 

The FCA has published two consultation papers (CP25/14 and CP25/15) setting out proposals for issuing stablecoins, crypto custody and financial resilience of cryptoasset firms, with the aim of supporting a safe, competitive sector.  

CP25/14 sets out the proposed rules and guidance for the activities of issuing a qualifying stablecoin and safeguarding qualifying cryptoassets, including qualifying stablecoins. The FCA’s aim is to ensure regulated stablecoins maintain their value and that customers are provided with clear information on how the backing assets are being managed. 

The FCA’s further consultation paper (CP25/15) sets out the proposed prudential rules and guidance for issuing qualifying stablecoins and the safeguarding of qualifying cryptoassets. It details the risks the FCA wants to prevent, desired outcomes for consumers and markets, and the standards the FCA will expect firms to meet to enable consumers to place trust in qualifying stablecoins.  

The FCA is seeking feedback on both sets of proposals by 31 July 2025 and will be working closely with the Bank of England on the upcoming regime to ensure a clear pathway in regulation for stablecoins.

 
Read more about the FCA's proposals on stablecoins and crypto custody 

FCA updates to requirements, limitations and directions 

The FCA is undertaking a review of the requirements, limitations and directions imposed on firms and published on the Financial Services Register. Following a review to check that these restrictions were accurate and up to date, the FCA has identified around 11,000 requirements, limitations and directions relating to 9,000 firms which require amendment. 

Where the FCA identifies minor changes that do not impact the activities that a firm can or cannot undertake, it will make these changes automatically without engaging with the firm. Where more substantive changes are needed, firms can expect to be contacted by the FCA over the next few months to agree the most appropriate route forwards. 

Firms do not need to take proactive action in response to this; the FCA will contact any firms who need to respond. 

Read more about FCA updates to requirements, limitations and directions 

FCA outlines expectations on faster settlement of trades in funds 

From 11 October 2027, the settlement period for listed stocks and bonds in the UK, Switzerland, and the EU will transition to T+1, meaning trades will settle within one business day. This change enhances market efficiency, liquidity, and competitiveness. In a bid to align fund settlements more closely with the faster market cycles, the FCA has encouraged UK funds, which currently operate on T+3 or T+4 settlement cycles, to adopt a T+2 settlement cycle.  

The FCA highlights the benefits for investors, including quicker access to investments and reduced operational risk, aligning with the Consumer Duty to support customers’ financial objectives. Funds unable to settle within T+2 must justify their need for longer settlement times such as specific investor constraints.  

Fund managers should proactively plan for this transition, addressing operational challenges and collaborating with stakeholders to ensure readiness. The shift reflects the UK’s commitment to improving market infrastructure and delivering better outcomes.  

Read more about the FCA's expectations on faster settlement of trades in funds