THE GRC NAVIGATOR
Your Bi-Weekly GRC Intelligence Briefing
Issue 12 | 04 November 2025
Executive Summary
The Bank of England and HM Treasury unveiled their digital pound update. The FCA has slashed investment firm capital rules by 70%. Banking compensation sees restructuring with immediate bonus cap removal. Retail crypto ETN access now permitted, and early market response shows strong institutional interest with over £500m combined AUM. ESG ratings providers face mandatory FCA authorisation by 2028. The PRA’s Strong and Simple Framework (formally the Small Domestic Deposit Takers regime) for banks with assets ≤£20bn simplifies the prudential regime by introducing a single capital buffer set at no less than 3.5% of risk-weighted assets, while significantly reducing operational burden through simplified reporting requirements and disclosure simplifications. Meanwhile, the FCA’s enforcement focus intensifies
Top Story: Bank of England Advances Digital Pound into Design Phase
On 23 October 2025, the Bank of England and HM Treasury published a further update on the digital pound, as part of the ongoing design phase, which is expected to run through 2026. This represents a key moment for financial institutions as the UK accelerates its digital currency ambitions while taking a different approach from both the EU’s digital euro project and the US’s stance.
KEY ELEMENTS INCLUDE:
• A two-tier distribution model with commercial banks and e-money firms as intermediaries
• Individual holding limits initially capped at £10,000-£20,000 to prevent bank disintermediation
• Privacy-preserving architecture with the Bank unable to access personal transaction data
• Proposed offline payment capabilities for resilience during network outages
• No interest payments on holdings to maintain monetary policy transmission
• Interoperability requirements with existing payment rails including Faster Payments
The design phase, running through 2026, will involve extensive industry collaboration through working groups focusing on technology architecture, legal frameworks, and use cases. The Bank emphasises that any launch decision won’t be made before 2027, requiring both parliamentary approval and clear evidence of public benefit.
Governor Andrew Bailey’s accompanying speech emphasised that the digital pound would complement, not replace, physical cash, addressing concerns from privacy advocates. The Bank’s approach diverges from stablecoin models, maintaining that sovereign money requires central bank backing for systemic stability.
Regulatory Updates
Investment Firm Capital Rules
The FCA delivered its most significant regulatory simplification since IFPR introduction on 15 October, slashing investment firm capital rules text by 70% while maintaining prudential standards. The reform eliminates 30,900 words of outdated banking provisions incompatible with investment firm business models.
• Legal text reduced from 44,100 to 13,200 words across all IFPR documentation.
• Streamlined regulatory capital definitions with enhanced clarity on own funds calculations.
• Removal of complex banking-derived provisions that added compliance burden without risk benefit.
• Implementation date confirmed as 1 April 2026 providing adequate preparation time.
• Capital requirement levels maintained ensuring no reduction in prudential standards.
This reform directly supports the government’s Edinburgh reforms agenda. Boutique investment firms should see immediate compliance cost reductions, while larger IFPR firms must review internal capital adequacy assessment processes. Regulatory reporting systems may require updates to align with simplified definitions.
Remuneration Rules
Joint PRA/FCA Policy Statement PS21/25 published on 15 October restructures banker bonus rules delivering significant flexibility while strengthening individual accountability:
• Apply to banks, building societies, PRA-designated investment firms, and UK branches of third-country banks.
• The new framework establishes a uniform four-year deferral period across all material risk takers, including senior managers, with pro-rata vesting permitted from the grant date for SMFs. Deferral becomes genuinely proportionate rather than cliff-edge: 40% of bonus up to £660,000 gets deferred, rising to 60% on amounts above that threshold.
• Structural requirements get considerable relaxation. No mandatory retention periods on deferred awards, greater flexibility mixing cash and instruments, and permission to pay dividends or interest on deferred elements (while maintaining the 50% instruments floor overall). The material risk taker definition shifts to a 0.3% top-earners test plus qualitative factors, introducing an individual proportionality threshold where staff earning under £660,000 total compensation with variable pay below 33% can escape certain structural requirements.
• The SM&CR connection tightens significantly, with explicit expectations for pay adjustments up the management chain following adverse outcomes and requirements to embed PRA priorities in senior scorecards. The FCA has streamlined SYSC 19D into essentially a cross-reference to PRA rules, eliminating duplication.
• Implementation begins 16 October 2025 with mandatory application from the first performance year starting thereafter—2026 awards for calendar-year firms—though early adoption remains possible for 2025 awards and existing unvested arrangements.
The reforms aim to enhance UK competitiveness while maintaining robust accountability through extended clawback provisions that exceed both EU and US standards.
Retail Crypto ETN
The FCA’s 27th October publication confirmed their decision to permit retail investor access to crypto Exchange Traded Notes on 08 October 2025. This marks a shift in digital asset regulation, effective immediately. Crypto ETNs must trade exclusively on FCA-approved UK Recognised Investment Exchanges.
• MiFID II permissions mandatory for firms distributing to retail clients
• Full Consumer Duty obligations apply including value demonstrations and outcome monitoring
• Enhanced target market identification and product governance requirements
• Mandatory complex product warnings and comprehensive risk disclosures
While creating new revenue opportunities, firms must balance growth ambitions with enhanced consumer protection obligations. Early market response suggests strong institutional interest, with WisdomTree and BlackRock ETPs already exceeding £500m combined AUM since 16 October approval.
ESG Ratings Framework
On 27 October 2025 the Government laid before Parliament the Financial Services and Markets Act 2000 (Regulated Activities) (ESG Ratings) Order 2025, which will bring ESG ratings providers into the FCA perimeter once approved. This addresses transparency and reliability concerns that have plagued sustainable finance markets.
• The new regime is scheduled to commence on 29 June 2028, with ESG ratings providers required to obtain FCA authorisation by then, subject to transitional provisions.
• Code of conduct aligned with IOSCO principles for ESG ratings providers
• FCA enforcement powers including fines and public censure for non-compliance
• £3 million allocated for FCA framework development in 2025/26
Asset managers face enhanced due diligence requirements on ESG data providers, while investment firms must update third-party risk management frameworks. This development, combined with the FCA’s earlier pause on SDR implementation, suggests a recalibration toward quality over speed in sustainable finance regulation.
Short Selling Regime
CP25/29 published 28 October proposes significant reforms to UK short selling transparency and reporting requirements, with consultation closing 6 November. The proposals aim to enhance market liquidity while maintaining appropriate oversight.
• Aggregated net short position reporting replacing individual position disclosure
• Simplified reporting processes reducing administrative burden on market participants
• Reduced barriers to legitimate short selling activity enhancing market efficiency
• Enhanced transparency mechanisms for systemic risk monitoring
• Alignment with international best practice while maintaining UK competitive advantage
The consultation signals FCA intent to enhance UK capital markets liquidity and efficiency, potentially increasing institutional trading activity. Firms should assess current short selling practices and engage with the consultation before the 6 November deadline.
PRA Developments
PRA Amends Capital Framework with Strong and Simple Implementation
ASSET MANAGEMENT, INVESTMENT FIRMS
PS20/25: The Strong and Simple Framework (28 October 2025)
• PS20/25 is the capital pillar of the Strong and Simple framework – it turns the SDDT regime from a nice concept into a full alternative prudential universe for smaller, domestic banks and building societies. It applies to firms with assets ≤£20bn and a UK-focused, low-trading, non-IRB profile, and confirms that the simplified capital regime will apply from 1 January 2027.
• Substance-wise, it rewires everything for SDDTs: Pillar 1, Pillar 2A, buffers, the PRA buffer, capital definitions and reporting are all recut into a simpler set calibrated for low-complexity balance sheets. ICAAP moves onto standardised templates, with stress testing effectively embedded in the annual ICAAP cycle rather than via separate, ad hoc exercises. Pillar 3 disclosures are pared back to the basics, limiting market-facing complexity that adds little for non-systemic firms.
• This means a materially lighter process burden, clearer expectations and far fewer bespoke modelling demands which is attractive for building societies and smaller challenger banks. But it’s not a soft option: capital floors and Pillar 2 mechanics are designed to keep overall resilience broadly in line with Basel 3.1 outcomes, and the PRA is explicit that this is proportionate simplification, not a loosening of standards. For boards, the real risk is transitional: mis-planning the move from CRR/Basel 3.1 into Strong and Simple could leave firms over- or under-capitalised just as the new regime bites.
Additional Policy Statements
PS18/25: Retiring the Refined Methodology (28 October 2025)
• PS18/25 closes a long-running chapter in UK capital policy. The “refined methodology” allowed selected firms using the standardised approach to benchmark their Pillar 2A capital against IRB-derived risk weights, softening perceived conservatism in the old CRR standardised regime. With Basel 3.1 re-calibrating credit risk and introducing the output floor, the PRA’s view is that the original rationale has largely evaporated.
• The PS confirms the decision to retire the refined methodology for all firms, with implementation aligned to 1 January 2027, i.e. when Basel 3.1 goes live in the UK – not 2026 as originally trailed in CP9/24. In parallel, it finalises clarificatory tweaks to Pillar 2A treatments for IRRBB and pension obligation risk (effective 1 July 2026), and hard-wires these into SoP5/15 and SS31/15.
• Conceptually, PS18/25 trades bespoke relief for simplicity and consistency. Firms lose a powerful lever that could offset high standardised RWAs on low-LTV mortgages and similar assets, so some will see upward pressure on total capital requirements. But they gain a cleaner, more transparent framework in which Basel 3.1 is the primary driver of risk sensitivity, not supervisory benchmarking. The risk for smaller banks is that, absent careful portfolio and product-pricing review, the removal of refined methodology benefits quietly erodes RoE just as other Basel 3.1 impacts land.
PS19/25: CRR Restatement (28 October 2025)
• PS19/25 is the legal plumbing that makes the post-Brexit capital world hang together. It takes the remaining live chunks of the EU Capital Requirements Regulation and ports them into the PRA Rulebook and associated statements of policy, ahead of CRR revocation and Basel 3.1 implementation in 2027.
• The PRA emphasises continuity of substance: most requirements on level of application, counterparty credit risk, settlement risk and various “other CRR” provisions are restated largely as-is, with changes focused on tidying cross-references and embedding them into domestic instruments. Where there is policy movement is around securitisation. The PS finalises targeted changes on the SEC-SA p-factor, STS securitisation risk weights, treatment of mortgage guarantee schemes, and expectations for unfunded credit protection in synthetic SRT transactions, plus an updated framework for ECAI mapping.
• Strategically, PS19/25 means that by 1 January 2027 firms will be operating under a fully “PRA-native” capital framework: Basel 3.1 rules, SDDT regime where relevant, and restated CRR all in one coherent suite. That reduces legal risk and ambiguity around assimilated law, but raises an operational challenge: documentation, policies, model inventories and permissions all need to be re-mapped to new Rulebook parts and SoPs, with particular care around securitisation and groups.
The reforms represent the most significant simplification of UK banking regulation since Brexit. The SDDT regime receives institutional backing from the Financial Policy Committee, which supports the framework as a proportionate approach that simplifies compliance for smaller firms while maintaining the resilience standards required of the broader banking system. This consensus reflects a regulatory shift toward tailored requirements that enable smaller domestic-focused banks to compete effectively without compromising prudential standards..
“This is not deregulation, it’s smart regulation – maintaining safety and soundness while removing unnecessary complexity that adds cost without commensurate benefit.”
— Sam Woods, CEO, Prudential Regulation Authority
Fund Launches & Capital Raises
Alternatives Gather Pace - GHO Capital Scales Up Healthcare Platform
BC Partners Nears First Close
D1 Capital Moves Deeper into Private Equity
D1 Capital Management is targeting $1bn for its first dedicated private equity fund, launched in mid-October. The vehicle will formalise the firm’s growing roster of private deals, focusing on high-growth businesses where D1 already has public-markets expertise. For investors, the strategy offers a way to access D1’s crossover approach in a closed-end structure, and highlights how large hedge fund platforms are increasingly building out parallel private equity franchises.
Armira Reaches €1bn Across Latest Fundraising
Millennium Expands into Private Markets
Enforcement Watch
Insider Dealing
The FCA’s £100,281 fine against Neil Dwane for insider dealing represents its largest individual penalty for market abuse in 2025. The case involved trading ahead of a profit warning that saw ITM Power’s shares fall 37%. The lifetime ban and public censure underscore the regulator’s zero-tolerance approach to market integrity breaches.
Data Protection
Moneda Capital Group
The FCA announced that it has launched an investigation into ‘fixed rate return’ bond provider Moneda Capital and has confirmed that it is investigating a number of people that are associated with the business at the same time.
Therese Chambers, Joint Executive Director of Enforcement, confirmed at her 21 October speech that the FCA is pursuing “fewer but faster” enforcement outcomes, with average case resolution times targeted to fall by 30% through streamlined processes and earlier settlement incentives.
Market Developments
Consolidation Practices Under Scrutiny
The FCA’s 31 October review of consolidation in financial advice revealed “poor outcomes” from several high-profile mergers. Key concerns include inadequate due diligence on acquired client banks, excessive use of debt financing, and misaligned incentive structures. The regulator is considering new rules requiring enhanced DD standards and debt-to-EBITDA limits for consolidators.
Private Credit Concerns
UK Pension Schemes Boost Private Markets Allocations
Twenty UK pension providers announced £3bn of new commitments to domestic private markets on 19 October, responding to government pressure to support UK growth. The Chancellor welcomed the moves but noted total allocations remain below the 5% target outlined in the Mansion House reforms.
Regulatory Calendar
◆ 12 November: Deadline for responses to FCA consultation proposals on cryptoasset activities (CP25/25 chapters 1-5)
◆ 17 November: FCA open finance innovation sprints commence (running until 12 February 2026)
◆ 18 November: Deadline for responses to FCA consultation on motor finance consumer redress scheme (CP25/27)
Question of the Week
With both the central bank digital currency and private stablecoins gaining traction, institutions face important decisions about infrastructure investment, customer retention, and revenue model adaptation in an environment where traditional deposit relationships may change. How should UK banks prepare for digital pound implementation while protecting their deposit base from disintermediation?
We welcome your perspectives on this challenge.