THE GRC NAVIGATOR

Your Bi-Weekly GRC Intelligence Briefing

Issue 1 | 1 May 2025

Executive Summary

This week marks a significant shift in the UK’s regulatory approach, with Chancellor Rachel Reeves and the FCA both revealing plans to streamline financial rules while maintaining robust supervision. The government unveiled a comprehensive draft regulatory regime for cryptoassets, while the FCA announced simplification measures including replacing portfolio letters with market reports and halting certain SDR requirements. Meanwhile, the PRA has been active with several policy statements and a proposed increase to the FSCS deposit protection limit. In the private markets, fundraising continues at pace despite macroeconomic uncertainties, with several significant fund closes announced.

Top Story: UK Government Unveils Draft Cryptoasset Regulatory Framework

ALL FINANCIAL SERVICES

Chancellor Rachel Reeves this week announced what the Treasury describes as a “comprehensive” draft regulatory regime for cryptoassets, representing a significant development for UK financial institutions exploring digital asset opportunities. The framework aims to provide regulatory clarity while supporting innovation in the rapidly evolving sector.

KEY ELEMENTS INCLUDE:

◆ A principles-based approach that categorizes different types of cryptoassets

◆ Authorization requirements for cryptoasset service providers

◆ Clarification that certain staking services will not be treated as collective investment schemes

◆ Consumer protection measures for retail investors

◆ Clear compliance pathways for firms looking to engage with digital assets

The draft legislation follows extensive consultation and adopts a different approach than the EU’s Markets in Crypto-Assets (MiCA) regulation in certain aspects, creating potential cross-border compliance considerations for firms operating in both jurisdictions.

Crypto Regulation

The UK Government has unveiled draft legislation establishing a comprehensive regulatory regime for cryptoassets, marking a significant step in bringing digital assets within the financial regulatory perimeter.

KEY ELEMENTS INCLUDE:

◆ Confirmation that staking services are NOT considered collective investment schemes

◆ Clear pathways for crypto firms to obtain UK authorization

◆ Consumer protection measures aligned with traditional financial products

APPROACH	UK	EU (MICA)	US
Framework	Principles-based with specific cryptoasset provisions	Comprehensive regulation with detailed token classification	Fragmented between SEC, CFTC and state regulations
Focus	Focus on activities rather than product types	Strong focus on stablecoin regulation	Still developing with enforcement-led approach
Innovation	Sandboxing and innovation support	Registration and authorization requirements	Varies by administration policy

Implementation timeline: The Treasury plans to introduce secondary legislation by Q3 2025, with FCA rules finalized by early 2026.

Regulatory Updates

FCA Simplifies Regulatory Approach

ASSET MANAGEMENT, BANKING

The FCA has announced several measures aimed at streamlining regulatory obligations:

◆ Portfolio Letter Replacement: The regulator will phase out its portfolio supervision letters in favor of broader market reports, reducing duplication and providing more consistent guidance across sectors.

◆ Red Tape Reduction: A proposal to cut regulatory burden for investment firms by up to 70%, with specific focus on simplifying capital requirements for smaller firms.

◆ SDR Plans Halted: The FCA has paused implementation of the Sustainability Disclosure Requirements (SDR) for portfolio managers, responding to industry feedback about implementation challenges.

◆ AI Testing Support: A new live testing service for artificial intelligence applications in financial services has been launched, indicating the regulator’s more innovation-friendly approach.

PRA Developments

Recent Policy Statements

The PRA has published several key policy statements over the past quarter:

◆ PS5/25: Step-in Risk, Shadow Banking Entities and Groups of Connected Clients – Clarifies exposure limits for connected counterparties – Provides detailed guidance on shadow banking entity identification and monitoring – Introduces standardized risk assessment frameworks for step-in risk

◆ PS4/25: FSCS Management Expenses Levy Limit – Sets the management expenses levy limit for 2025/26 – Ensures appropriate funding for the deposit protection scheme operations

◆ PS3/25: PRA Approach to Policy – Outlines modernized regulatory approach following post-Brexit review – Emphasizes proportionality principles for different institution types – Introduces revised consultation timelines to enhance industry engagement

◆ PS2/25: Streamlining Firm-Specific Capital Communications – Reduces regulatory reporting burden while maintaining prudential standards – Simplifies capital requirement communications

FSCS Deposit Protection Limit

The PRA has proposed increasing the Financial Services Compensation Scheme (FSCS) deposit protection limit to £110,000 from the current £85,000.

“The increased FSCS limit represents a practical response to inflation since the last adjustment and helps maintain confidence in the UK banking system.” — Robert Jenkins, Former Member, Bank of England Financial Policy Committee

PROTECTION SNAPSHOT:

◆ Current FSCS limit: £85,000 (unchanged since 2017)

◆ Proposed new limit: £110,000 (+29%)

◆ EU equivalent (€100,000): ~£85,000 at current exchange rates

◆ US equivalent (FDIC): $250,000 (~£195,000)

Insurance Special Purpose Vehicle Framework

The PRA is consulting on reforms to the UK Insurance Special Purpose Vehicle (ISPV) regulatory framework, seeking to:

◆ Enhance operational flexibility for insurance-linked securities

◆ Streamline approval processes for established structures

◆ Maintain appropriate safeguards while supporting market growth

Operational Resilience

The PRA has finalized its policy on operational resilience for critical third parties to the UK financial sector (PS16/24), focusing on:

◆ Enhanced oversight of technology and service providers

◆ Mandatory resilience testing and reporting

◆ Coordinated approach with FCA to reduce duplication

Fund Launches & Capital Raises

UK Private Equity Firm Closes Largest-Ever Fund

INFO SECTORS: ASSET MANAGEMENT, PRIVATE EQUITY

Palatine Private Equity has raised £254 million for its largest fund to date, with significant re-ups from existing limited partners. The fundraise demonstrates continued investor confidence in UK mid-market opportunities despite macroeconomic uncertainty.

Alternative Investment Fundraising Momentum

INFO SECTORS: ASSET MANAGEMENT, PRIVATE CREDIT

Several notable fund closes highlight ongoing institutional appetite for alternative strategies:

◆ LLR Partners has closed its seventh fund at $2.45 billion, exceeding its initial target

◆ Private credit investor Escalate Capital celebrated 20 years with a new $350 million fund close

◆ StepStone secured $705 million for its fourth tactical growth fund targeting companies “outside traditional VC ecosystem”

◆ Allied Industrial Partners hit its $300 million hard cap for its debut fund after previously operating on a deal-by-deal basis

Cross-Border Venture Activity

INFO SECTORS: ASSET MANAGEMENT, VENTURE CAPITAL

UK tech investor Volution has teamed with Japan’s SBI to raise a new $100 million fund aimed at bridging the Series A and B funding gap. The partnership highlights increasing cross-border collaboration in venture capital and potential opportunities for UK-based growth companies seeking international expansion capital.

ESG Fund Launches Continue Despite Regulatory Pause

MEDIUM RISK SECTORS: ASSET MANAGEMENT

Despite the FCA halting certain SDR requirements, sustainable investing continues to attract product development:

◆ Franklin Templeton has launched ESG-enhanced, low-carbon S&P 500 and World ETFs

◆ RLAM has adopted the Sustainability Focus label across its £11 billion portfolio range

Enforcement Watch

Value Assessment Scrutiny Intensifies

ALL FINANCIAL SERVICES

The FCA’s focus on value continues as multiple fund managers publish assessments revealing underperforming products:

◆ Columbia Threadneedle identified 17 funds failing to deliver performance value

◆ Janus Henderson flagged over a third of its funds for performance concerns

◆ Schroders highlighted 10 funds for underperformance

These disclosures signal that the FCA’s Assessment of Value requirements continue to drive meaningful review of fund performance and fees, with the regulator likely to increase scrutiny of remediation plans for underperforming products.

FCA Complaints Data Shows Investment Product Improvement

WEALTH MANAGEMENT, BANKING

Investment products saw a double-digit decrease in complaints, according to the latest FCA data. This positive trend suggests that enhanced disclosure requirements and the Consumer Duty may be creating more suitable product design and distribution practices across the sector.

Market Developments

Global Asset Management Industry Reaches Record $128 Trillion AUM

INFO SECTORS: ASSET MANAGEMENT

The global asset management industry has reached a record $128 trillion in assets under management, with active ETFs emerging as a particular growth area. The trend presents both opportunities and competitive challenges for UK asset managers, especially as regulatory differences between jurisdictions create both barriers and advantages.

Crypto Enforcement Shifts in the US

: DIGITAL ASSETS, BANKING

The US Department of Justice has disbanded its crypto investigation unit, while the SEC staff has issued guidance clarifying that certain dollar-backed stablecoins may not implicate securities laws. These developments signal a potential regulatory easing in the US crypto space that contrasts with the UK’s more structured approach through its new proposed regulatory framework.

Trade Tensions Impact UK Consumer Confidence

ALL FINANCIAL SERVICES

UK consumer confidence has plummeted to record lows amid global trade tensions and tariff concerns. Financial institutions should consider the implications for credit risk, investment strategies, and potential market volatility as economic uncertainty increases.

Regulatory Calendar

June 2025

Question of the Week

How should UK asset managers balance the PRA’s proposed £110,000 FSCS deposit protection limit increase with emerging market stability concerns when designing cash management strategies for their clients?

We welcome your perspectives on this challenge.

Insight: Regulatory Simplification

This week’s developments signal a clear regulatory pivot toward simplification without compromising oversight effectiveness. The FCA’s approach of replacing detailed portfolio letters with sector-wide market reports appears designed to provide more consistent guidance across the industry while reducing the resource burden of individualized correspondence.

Artizan Governance

Artizan Governance