UK Regulatory Update | Asset Management Sector | Q3

Welcome to Mayer Brown's UK Regulatory Quarterly Newsletter for the asset management sector. In this edition, covering Q3 2025, we cover five key topics as summarised here. Details for each topic are shown in more detail below. You can also download a pdf of the complete newsletter using the "Resource Downloads" link below.

FCA issues new policy statement and consults on guidance for non-financial misconduct rules– On 2 July 2025, the UK Financial Conduct Authority ("FCA") published a policy statement and draft guidance under which it will extend the scope of the FCA Code of Conduct Handbook ("COCON") to non-banking firms to cover serious non-financial misconduct (in the form of workplace bullying, harassment, and violence). The FCA will also consult on draft guidance relating to COCON and fitness and proprietary assessments for employees and other senior personnel.

FCA and HMT consult on changes to the senior manager and certification regime – On 15 July 2025, HM Treasury ("HMT") and the FCA issued consultation papers on reforms to the UK senior manager and certification regime. The proposed reforms will, amongst other things, remove the certification regime in its entirety, remove detailed requirements for statements of responsibilities and simplify/streamline the framework for pre-approvals of senior managers.

FCA publishes review into climate reporting by asset managers, life insurers and pension providers– On 6 August 2025, the FCA published its findings on climate reporting by asset managers and certain other regulated firms. The review focused on compliance with FCA climate disclosures. Overall, the FCA found that its disclosure rules have increased consideration of climate risks and supported integration into these FCA authorised firms' decision-making processes.

FCA and HMT consult on changes to the UK appointed representative regime – On 11 August 2025, HMT issued a policy statement setting out two key reforms to the appointed representative regime. FCA authorised firms will need to seek a new regulatory permission from the FCA to act as principal to an appointed representative. Secondly, the Financial Ombudsman Services will be granted investigative powers over the appointed representative itself. The FCA is consulting on rules to increase the supervision by FCA authorised firms acting as principals over appointed representatives and the oversight by principals of their appointed representatives.

Minor amendments proposed by FCA to Sustainability Disclosure Requirements (SDR) – The FCA is proposing changes to the ESG sourcebook for to give asset managers more flexibility in relation to certain fund level sustainability reports.

FCA issues new policy statement and consults on guidance for non-financial misconduct rules

What are the key drivers for reform?

The FCA has noted that aligning the conduct rules in banks and non-banks (including asset management firms) for cases of serious non-financial misconduct ("NFM") will help drive consistency of approach and enable robust action by regulated firms.

In the FCA's words: "Too often where we see poor market conduct, or consumers being failed by financial services firms, we find cultural failure within firms. One of the clearest warning signs of a failing culture is non-financial misconduct – behaviours such as bullying and sexual harassment – going unchallenged. Failure to tackle toxic behaviours drives away good people, prevents staff from speaking up and undermines performance. It damages growth and enables financial misconduct ... At present, there is a discrepancy between the rules that apply to banks and non-banks. We are changing that so our rules on NFM will align."

The reforms come nearly two years after its previous consultation on NFM and diversity and inclusion (D&I) in the financial sector. Since then, the FCA has dropped its D&I proposals.

Who is impacted by these regulatory reforms?

The new rules will apply to all FCA authorised firms (including asset managers) with a Part 4A permission under the Financial Services and Markets Act (2000) and staff in those firms who are subject to COCON.

What are the proposed regulatory requirements?

On 2 July 2025, the Financial Conduct Authority (FCA) published a significant policy statement and consultation paper (CP25/18) addressing NFM in the non-banking sector.

The FCA will amend its COCON, to include specifically workplace bullying, harassment, and violence. In addition, the FCA will consult on draft guidance relating to COCON and the Fit and Proper Test for Employees and Senior Personnel (FIT).

• Extension of COCON Scope: The FCA will extend the scope of COCON in non-banking firms to match that of banks, making it clear that serious misconduct (in the form of bullying, harassment, and violence) between staff is within the FCA's remit.
• Alignment with Employment Law: The wording of the change to COCON has been revised since the 2023 proposals, to more closely align with the employment law test for unlawful harassment. However, the workplace misconduct in scope is not limited to the "protected characteristics" under the Equality Act, and so non-discriminatory harassment (or "bullying") will also be caught.
• Regulatory References: The FCA confirmed that serious substantiated NFM may need to be disclosed in regulatory references, helping to deter misconduct and counter 'rolling bad apples' – people moving from firm to firms without appropriate disclosure. However, the FCA considers that the new COCON rule does not apply retrospectively and "does not expect firms to do any retrospective analysis of whether it has incorrectly determined a conduct rule breach in the past".
• Clarification and Guidance: The FCA is also consulting on the need for additional FCA Handbook guidance in COCON and FIT to help firms subject to the senior manager and certification regime to consistently interpret and apply the rules. This includes guidance on and examples of the boundary between work and private life; how NFM may be outside of the scope of FCA senior manager and certification regime or COCON; distinctions between breaches of Individual Conduct Rules 1 (integrity) and 2 (due skill, care and diligence); factors for determining whether NFM breaches conduct rules; and reasonable steps that managers must take to prevent and address NFM.
• Fitness and Propriety: The draft additional FIT guidance, if introduced, will clarify that serious NFM, including conduct outside the workplace (e.g., criminal convictions, allegations or posts on social media), may be relevant to fitness and propriety assessments. However, the FCA does not expect firms to proactively monitor employees' private lives.
• COND and SYSC: The FCA has decided not to proceed with any amendments to the Threshold Conditions (COND) or Senior Management Arrangements, Systems and Controls (SYSC) sourcebooks.

What are next steps?

The consultation on the draft guidance is open until 10 September 2025. The FCA intends to finalise any accompanying guidance by the end of 2025, ahead of the new rules coming into force on 1 September 2026.

FCA and HMT consult on changes to the senior manager and certification regime

What are the key drivers for reform?

His Majesty's Treasury ("HMT") and the FCA acknowledge the key role which the senior managers and certification regime ("SMCR") has played in improving standards and accountability across the financial services sector. However, there is an acceptance that it has significantly increased administrative costs and burdens on regulated firms.

Who is impacted by these regulatory reforms?

These reforms will impact all firms and their employees subject to the SMCR.

What are the proposed regulatory requirements?

In July 2025, both HMT and the FCA published consultation papers (FCA consultation paper CP25/21, July 2025) (HMT consultation paper 15 July 25) proposing significant reforms to the SMCR.

• Removal of Certification Regime: The HMT consultation paper proposes a fundamental legislative change: the complete removal of the certification regime from the Financial Services and Markets Act 2000 (as amended) ("FSMA").HMT proposes to repeal sections 63E and 63F of FSMA, removing the statutory duty for firms to certify employees in specified functions and the associated regulatory requirements. The intention is to allow the FCA and UK Prudential Regulation Authority ("PRA") to use their existing rule-making powers under FSMA to design a replacement regime.
• Reform of the SMCR: HMT proposes to (i) reduce the number of senior manager roles (ii) modify the statutory requirements that all senior managers must be pre-approved by the regulator and replace this with notification rather approval for certain roles (iii) revise the detailed requirements for statements of responsibilities for each senior managers to be replaced with a simpler regime. However, all individuals in senior manager functions will remain subject to the SMCR's individual accountability and conduct requirements, and regulators would retain their powers to supervise and, if necessary, take action against these individuals.
• Proposed FCA reforms: The FCA is consulting on the following changes: (i) reform of the 12 week rule which allows regulated firms to appoint a interim senior manager on a temporary basis to provide greater time and flexibility for firms (ii) extending the validity period for criminal record checks and removing the requirements to obtain such checks for internal moves (iii) removing duplication in certification for dual roles e.g. where an individual is a material risk taker and a senior manager under SMCR (iv) reducing the timeframe for regulatory references to 4 weeks (v) further guidance on the scope of SMF7 (Group Entity Senior Manager) and SMF18 (Other Overall Responsibility Function) roles (vi) raising the threshold for firms classified as enhanced SMCR firms by 30%.
• Next Phase of FCA SMCR reforms: The FCA has outlined the next wave of regulatory reforms which it will consult on when the primary legislation set out in the HMT consultation is agreed: (i) removing certain SMCR roles which require pre-approval (ii) greater flexibility for interim SMCR appointments (iii) further streamlining the assessment processes for senior managers (iv) reducing the frequency of statement of responsibility submissions and simplifying the prescribed responsibilities and management responsibility maps and (v) simplifying the process for reporting breaches of the conduct rules and when to refer to them in regulatory references.

What are next steps?

The consultation periods for both the HMT and FCA consultation papers expire on 7 October 2025, after which the government will consider feedback and, subject to parliamentary time, progress the necessary legislative amendments to FSMA.

FCA publishes review into climate reporting by asset managers, life insurers and pension providers

What was the purpose of the review?

In 2021, the FCA finalised climate disclosure rules for asset managers, life insurers and FCA-regulated pension providers. These rules required firms to disclose climate-related information in line with the Taskforce on Climate-related Financial Disclosures ("TCFD") recommendations.

Who is impacted by these regulatory reforms?

The FCA has stated that this review is relevant to asset managers, life insurers and FCA regulated pension providers.

What were the findings of the review?

The FCA reported that its rules have driven further consideration of client risks for in-scope firms resulting in more transparency with clients, investors and consumers. There have been challenges with availability of data and some information has been too complex for retail investors with a less granular and more proportionate approach being required.

Specifically, the FCA noted:

• Risk management: Firms noted that the rules have helped them to consider climate change as a material risk, build their capabilities and integrate climate risks and opportunities into their strategies.
• Audience: The disclosures may be too complex for retail investors compared to institutional investors. As such, firms purportedly received limited responses from retail investors on their TCFD reports, particularly at product level.
• Accessibility: While entity level reports were broadly accessible from a firm's main webpage, product (i.e. fund) level reports were often difficult to find contributing to the lower levels of engagement at product level by retail investors.
• Data: Firms were generally able to report on backward-looking data, such as carbon emissions. But some firms found it more challenging to provide quantitative data to support forward-looking disclosures, such as scenario analysis.
• Proportionality: Firms, particularly asset managers, noted that they are required to report under multiple sustainability disclosure regimes and considered the TCFD rules too granular. Managers suggested that sustainability disclosures could be simplified and streamlined.
• Regulatory clarity: Firms were aware of the broader direction of travel towards the International Sustainability Board ("ISSB") standards, globally and in the UK. Requests have been made by the asset management sector to clarify the future of the FCA's climate disclosure rules to ensure consistency with international frameworks.

What are next steps?

The FCA has updated its sustainability reporting requirements webpage to clarify how firms in scope of both its TCFD rules and other FCA sustainability disclosure requirements ("SDR") rules can report efficiently under both regimes. The FCA will now consider sustainability reporting as a whole, this includes its sustainable disclosure regime, the ongoing endorsement of the ISSB standards (now known as UK Sustainability Reporting Standards) and developments on climate transition plans.

FCA and HMT consult on changes to the UK appointed representative regime

What are the key drivers for reform?

The existing appointed representative ("AR") regime allows an unauthorised firm (acting as the AR) to carry on regulated activities in the UK under the responsibility of an authorised FCA regulated firm. A FCA authorised firm which appoints ARs in this way is referred to as a "principal". The AR regime is an important part of the UK regulatory framework as it supports innovation and competition by allowing unauthorised firms to access the financial markets without the regulatory burden and cost of becoming authorised and supervised by the FCA. Many overseas asset management firms use the AR regime as an entry point to provide regulated activities in the UK.

The background to reform includes recent concerns from the FCA around poor oversight and supervision of ARs putting consumers and others at risk. The purpose of the reforms is to prevent further misconduct involving ARs by ensuring that principals seek the FCA's permission before they can participate in the AR regime.

Secondly, the UK Financial Ombudsman Regime ("FOS") will be extended to cover conduct by ARs. Under the existing FCA regime, the principal has a responsibility to ensure that the AR does not conduct regulated activities that fall outside of the business for which the principal firm has agreed to take responsibility. However, an AR's conduct, which is the cause of a FOS complaint, may relate to activity for which the principal is not responsible. In these circumstances, FOS has no jurisdiction to deal with the complaint as the FOS' jurisdiction applies to authorised firms only, there is nothing the FOS can currently do to further assess and decide a complaint against an AR only. The proposed reform will correct this anomaly.

Who is impacted by these regulatory reforms?

ARs and FCA authorised firms that act (or propose to act) as principals of ARs.

What are the proposed regulatory requirements?

On 11 August 2025, HMT issued a policy statement setting out its proposed reforms to the AR regime, these include:

• A FCA permission to act as principal: Prior to acting as a principal of an AR, approval will be required from the FCA. Amendments to FSMA would provide direct powers to the FCA to scrutinise a firm's fitness to act as a principal before the firm is able to appoint ARs. As with existing FSMA Part 4A permissions, the FCA would be able to impose conditions on the permission to ensure the principal is only able to engage ARs to carry on the type and scale of business approved by the FCA. The FCA would also have the ability to vary or withdraw any permission in prescribed circumstances.
• Treatment of existing ARs and principals: HMT has stated it will try to design a legislative approach which (a) will not require existing principals to apply for the new permission and (b) embeds the principal permission in any new firm's FCA authorisation process so that there will be no separate application process for new firms to follow.
• FOS coverage of ARs: FOS' jurisdiction will be extended to include complaints and disputes against the conduct of an AR, even if the principal initially denied responsibility for that activity. This should give consumers and others more access to redress measures and lead to greater oversight by the principal of the regulated activities performed by the ARs. It is important to note that this extension of the FOS' jurisdiction will only apply in circumstances where a principal is not held liable by the FOS for the actions of its AR. The proposed reform will not in any way diminish the ongoing high level of responsibility and oversight that principals will be required to provide for their ARs and for which they will remain liable.

What are next steps?

HMT will work with the FCA and FOS to develop detailed proposals for the implementation of the above reforms. The extension of the FOS' jurisdiction to include ARs will form part of the wider review of the FOS regime.

Minor amendments proposed by FCA to Sustainability Disclosure Requirements (SDR)

What are the drivers to reform?

The FCA is proposing to make amendments to the Environmental, Social and Governance sourcebook ("ESG") for the purposes of giving proper effect to existing sustainability reporting requirements at the fund/product level.

• The FCA currently provides that the qualifying criteria for sustainability labels was designed to accommodate both active and passive strategies, including where a product (e.g. a fund) tracks an index. ESG 4.2.4R(2)(b) states that for a fund using a label, it must "select" assets with reference to a robust, evidence-based standard that is an absolute measure of environmental and/or social sustainability. The FCA notes it has received feedback that this rule is challenging for index-tracking funds to meet as the fund manager does not necessarily select the assets in an index-tracking fund.
• ESG 5.4.3R(1) currently requires asset managers who use either a sustainability label or other ESG terms to produce Part B of a public product-level sustainability report annually. The report must cover a reporting period of 12 months, and the first report must be published within 16 months after the manager first uses a sustainability label or other ESG terms. The FCA has received feedback from some managers that restricting the sustainability product report to a 12-month reporting period is challenging. Managers have requested the flexibility to align their product reporting (with other requirements such as TCFD) to reduce administrative burdens.

Who is impacted by the reforms?

All asset managers and other FCA regulated firms subject to the ESG Sourcebook.

What are the proposed regulatory reforms?

These amendments are set out in the FCA's quarterly consultation issued on 10 September 2025.

• Guidance for index trading funds: To clarify the policy intention, the FCA proposes to add guidance on ESG 4.2.4R(2)(b) to clarify that a manager of an index-tracking fund may meet this rule by investing in assets that meet this criteria, as opposed to selecting assets.
• Flexibility for sustainability reporting: The FCA is proposing to give asset managers the option not to cover a 12-month reporting period so that they can align sustainability product reports with other relevant ESG reporting requirements if they choose to. A new FCA rule will allow a manager to prepare and publish a sustainability product level report which either covers a reporting period of less than 12 months or which includes a period of time during which neither a sustainability label nor the ESG terms were used. The manager will need meet certain conditions to change its annual reporting obligations:
  • it must make clear in the sustainability product report which reporting period is being covered;
  • it must provide contextual information to explain why the relevant reporting period has been chosen; and
  • it must publish the sustainability product report no later than 4 months after the end of the chosen reporting period.

This new rule will be particularly relevant for newly launched funds or funds that started using sustainability labels or other ESG terms part-way through another annual reporting cycle with which the manager is seeking to align the publication of its sustainability product reports.

What are the next steps?

The consultation period expires on 15 October 2025.