The GRC Navigator

ALL FINANCIAL SERVICES

The FCA has set out a strategy that balances innovation with market integrity. It has launched a Scale-Up Unit while maintaining financial crime enforcement.

Jessica Rusu, Chief Data, Information and Intelligence Officer, told an audience at Merchant Taylors' Hall on 17 September 2025 that the regulator's 5-year strategy mentions innovation on every page and treats growth support as central to its work. It is a response to US deregulation while maintaining UK market integrity.

Chief Economist Kate Collyer's "rebalancing risk" argument, delivered at Warwick Business School on 15 September 2025, accepts that innovation requires managed risk-taking, shifting from risk elimination to risk tolerance.

• In her speech at the AFME Conference, Therese Chambers (joint executive director) positioned financial crime controls as an "investment in market confidence" and a growth strategy.
• The FCA has increased enforcement speed and assertiveness, with faster case closures, substantial penalties for misleading executives, and convictions for insider trading and crypto fraud.
• The FCA emphasises upstream prevention via digital tools such as Firm Checker and ScamSmart and is developing new models for targeted consumer guidance and advice.
• 1,500 permissions were cancelled in 2024, triple the previous figure.
• FCA initiatives include AI Labs, Tech Sprints, and new market models (e.g., PISCES) for private securities trading.

INSURANCE, CONSUMER PROTECTION

The FCA announced on 19 September 2025 that approximately 270,000 motorists will receive £200 million compensation following intervention in total loss claims practices, with £129 million already distributed. Insurers systematically undervalued vehicles through automatic deductions for assumed pre-existing damage, disadvantaging careful drivers and breaching Consumer Duty requirements.

Sarah Pritchard, FCA Deputy Chief Executive, stated: "We'll step in where we see poor practice, and if firms fall short, we'll ensure customers are compensated. This should send a clear message that ripping off motorists is unacceptable."

Process changes include revised valuation methods, removal of automatic deductions, and clearer settlement terms.

DIGITAL ASSETS, ASSET MANAGEMENT

Consultation Paper CP25/25, published 17 September 2025, moves crypto regulation from an anti-money laundering focus to full financial services standards. It requires FCA authorisation, SM&CR accountability, operational resilience, and financial crime controls, while acknowledging DLT characteristics through specific adjustments.

Key divergences from traditional finance include treating permissionless DLT as distinct from outsourcing and proportionate capital requirements reflecting crypto business models.

The parallel Consumer Duty discussion (closing 15 October 2025) explores Financial Ombudsman Service access, creating potential liability expansion.

CAPITAL MARKETS

The FCA's 26 September statement intensifies its scrutiny on high-risk investment schemes promoted by unregulated firms, particularly unlisted loan notes, mini-bonds, and alternative asset products. These investments typically fall outside the FCA's regulatory perimeter, exempt under the RAO.

Consumer protection mechanisms, such as recourse to the Financial Ombudsman Service or FSCS compensation, are not available to investors, making due diligence essential for both retail and intermediary compliance.

• The FCA's concerns centre on aggressive and misleading marketing directed largely at retail investors through online advertising and social media. Its statement notes recent enforcement actions against unauthorised promoters and restates the "10% high-risk investment exposure" rule (mirroring the consumer restriction in COBS 4.12A), urging compliance functions to review client activity for excessive risk concentration.

Firms should:

• Ensure all investment offering materials reference FCA authorisation and key risks.
• Advise clients to verify firm status via the FCA Register before engaging with high-risk instruments.
• Monitor portfolio allocations for clients exposed to loan notes and mini-bonds, ensuring they fall within permitted thresholds.
• Regularly review staff training on financial promotions, especially for digital platforms where FCA enforcement is increasingly active.

FINANCIAL SERVICES

On 25 September, the FCA published clarifications on how statutory and contractual cancellation rights apply where tax-free pension lump sums ("pension commencement lump sum" or PCLS) are taken, especially in light of HMRC's Newsletter 173. The core FCA position: statutory cancellation rights under COBS 15.2 (Joining, Transfers, UCITS) do not apply to standalone PCLS withdrawal-cancellation rights are only triggered if entering a new pension arrangement or transferring a scheme.

Pension providers must design contract terms that distinguish between access (withdrawal) and contract establishment/transfer. Some providers voluntarily extend cancellation rights beyond those required by FCA or HMRC rules, but clarity and documentation matter. The FCA expects providers to make it easy for pension customers to understand their cancellation rights and product implications, with guidance cross-referencing both contractual and statutory regimes.

Firms should:

• Audit pension product materials for clarity on cancellation rights and withdrawal processes.
• Verify that contractual rights are clearly presented and not conflated with statutory requirements.
• Stay updated on evolving HMRC guidance to ensure product features align with permitted tax treatment.

CAPITAL MARKETS

The process to appoint a consolidated tape provider for UK bond market transparency has been delayed due to a legal challenge.

• The FCA asserts the procurement process was fair and competitive and is continuing market engagement. This impacts wholesale market participants seeking reliable consolidated data feeds for transaction cost analysis and compliance under best execution obligations. Contract signing is postponed until resolution.

BANKING, ASSET MANAGEMENT

The MPC's 7-2 vote to maintain Bank Rate at 4% shows deepening policy divisions, with CPI inflation at 3.8%, nearly double target. Governor Bailey's exchange of open letters with Chancellor Reeves, the third in 2025, acknowledges persistent inflation drivers including 5% services inflation and wage growth expected to remain near 3.75% through year-end.

BANKING

The PRA's proposed deletion of 37 reporting templates under CP21/25 removes 15% of the regulatory reporting burden. The Future Banking Data programme's timeline, with consultation closing 22 October and January 2026 implementation, indicates urgency relative to US simplification.

The proposed deletions include financial assets reporting, performing/non-performing exposures, and credit loss provisions deemed duplicative or unnecessary.

A former BlackRock chief investment officer is preparing a new credit/special sits hedge fund with a ~$700m initial target.

• The fund targets widening dispersion across corporate and structured credit as refinancing walls meet higher-for-longer rates.
• LP interest points to continued appetite for event-driven and relative-value credit exposures that don't rely on beta.

Nordic Capital secured €5bn of commitments toward Fund XII, roughly halfway to its c. $10bn target.

• Blue-chip platforms with deep sector benches (healthcare/tech/financial services) continue to out-raise peers despite denominator effects.
• Scale matters: larger funds can price and execute complex take-privates and corporate carve-outs where competition is thinner.

Aurora announced a $2.1bn close for its seventh flagship, continuing a control-buyout focus across resilient services and industrial niches.

• Oversubscription points to LP preference for established managers with realised DPI and clear exit channels.
• The larger pool gives flexibility to co-invest and support platform roll-ups despite slower sponsor-to-sponsor markets.

Skyline sealed $125m to back very small-cap companies, a corner where sponsor competition and entry prices remain attractive.

• "Micro-market" funds benefit from high valuations at the top end by operating where proprietary sourcing and operational support matter most.
• Expect heavier emphasis on earn-out structures and seller roll-overs to reconcile valuation expectations.

Corsair completed a $600m multi-asset continuation vehicle and associated secondaries fund to extend ownership in select assets and provide liquidity to existing LPs.

• The deal follows the tight M&A exit window and the growing role of GP-led secondaries in closing valuation gaps.
• It gives LPs a choice of rolling over or cashing out, while resetting growth capital and incentive alignment for the next hold period.

HEDGE FUNDS

The world's largest listed hedge fund manager, Man Group, had a volatile first half of 2025. Assets under management rose to a record $193.3 billion on strong net inflows, but performance was mixed across strategies. Trend-following products such as AHL Alpha and AHL Evolution posted returns of -7.8% and -10.4% respectively for H1 2025, among the toughest conditions for trend managers in decades. Man Group's asset-weighted investment performance trailed major peers over the period, largely due to underperformance in certain flagship alternatives.

INVESTMENT TRUSTS

Saba Capital's launch of a UCITS ETF targeting UK investment trusts challenges the governance model of the £267 billion sector. With trusts trading at an average 14.2% discount to NAV (£38 billion in trapped value), Weinstein's strategy bypasses board resistance by accumulating voting power across multiple trusts to force value-realising actions.

ASSET MANAGEMENT

Goldman Sachs is withdrawing Petershill Partners from public markets. The $4.5 billion take-private at a 35% premium came while the vehicle traded at a 40% discount to NAV. The delisting removes retail access to private markets at a time when institutional allocations to alternatives are at record highs.

The timing, amid UK market outflows exceeding £15 billion annually, points to international banks' declining confidence in London as a listing venue.

ASSET MANAGEMENT

Active fund managers in the UK, including firms like Baillie Gifford, are set to lose billions in mandates as the government forces a major consolidation of the £392 billion Local Government Pension Scheme (LGPS). This move will close two of the eight existing pension pools, Access and Brunel, and transfer nearly £90 billion in assets to the remaining six. The government's goal, championed by Chancellor Rachel Reeves, is to lower costs and encourage pools to manage more assets in-house, a model inspired by Canada's large pension funds.

While firms like Baillie Gifford, which has the largest exposure with nearly £10 billion in mandates from the two pools, hope to retain their relationships, the consolidation will reduce the number of external mandates and intensify competition. This adds to the existing pressure on UK active funds, which are already struggling with years of client outflows to lower-cost passive alternatives.

FINANCIAL SERVICES

Stuart Kirk's warning about unchecked AI spending points to governance weaknesses similar to pre-crisis risk management failures. Boards approving hundreds of billions in AI infrastructure often lack a basic understanding of the technology and rely on management claims about its potential without real oversight.

The absence of standardised AI ROI metrics lets executives avoid accountability while expanding budgets. Current governance structures, designed for industrial-era capital allocation, cannot evaluate investments where advantage comes from algorithms rather than physical assets.

Compensation committees increasingly link executive rewards to AI implementation metrics without defining success criteria or considering value destruction risks. The accounting treatment of AI investments as capital rather than operating expenses obscures true costs while inflating reported assets.

ASSET MANAGEMENT

The US ESG deregulation and European compliance acceleration places UK asset managers in a difficult position. While Paul Atkins dismisses ESG disclosures as "social and political objectives," the EU's CSRD and SFDR create prescriptive reporting requiring thousands of data points.

UK managers must maintain two compliance regimes: simplified US requirements for US clients and the more detailed European requirements.

The FCA's evolving SDR regime adds a third layer, creating unique UK obligations. Compliance costs can exceed 15% of operating expenses for mid-sized managers, with ESG-specific headcount tripling since 2022.

Reform UK allies have called for the elimination of "virtually all" regulators, echoing US deregulation and adding political pressure on the government's approach. This follows Germany's appointment of a new deregulation chief who promises to be "more subtle than Elon Musk" in cutting bureaucracy.