International competitiveness and growth (new section): This section reflects the FCA’s secondary objective, introduced in August 2023, to facilitate the UK economy’s international competitiveness and growth in the medium to long term. This objective complements the FCA’s primary operational objectives and requires close cooperation with government, other regulators and industry. 

The Report highlights examples where broader initiatives align with this goal, such as the Smart Data powers in the Data (Use and Access) Bill, which aim to accelerate Open Finance, and advancements in identity authentication to support productivity while maintaining consumer protection. 

The government has been actively engaging with the FCA on this objective. In November 2024, the Chancellor issued a letter to the FCA emphasising the government’s priority to promote growth and international competitiveness within the financial services sector. The Financial Services Regulation Committee reopened its inquiry into the FCA and PRA’s secondary competitiveness and growth objective in August 2024 with oral evidence set to continue in January. 

Investment trust cost disclosure (new section): The FCA reiterates its commitment to replacing EU-inherited consumer cost disclosure rules with a tailored UK framework. The Report notes recent developments, including the exclusion of closed-ended UK-listed investment funds from PRIIPs and MiFID Org Regulations. However, these funds remain subject to the Consumer Duty and COBS 4 requirements to communicate in a manner that is fair, clear and not misleading.

In December 2024, the FCA launched a consultation on the proposed Consumer Composite Investments (CCI) framework, with final rules expected in the first half of 2025. The framework aims to enhance retail investors’ understanding of investment products while enabling firms to adopt more flexible, tailored approaches to disclosures. 

Exclusions to regulated activities (new section): This short section focuses on the article 66 of the Regulated Activities Order which enables trustees to avoid regulated activities such as discretionary management and safeguarding and administration, subject to satisfying various conditions.

As the FCA has identified a number of instances where consumers have lost money when their trusts have been invested in opaque, high-risk investments which have subsequently failed through a trust structure, the FCA welcomes wider consideration about the circumstances when exclusions (including for unregulated trustees) could be disapplied.

Cryptoassets: The Report outlines the FCA’s evolving regulatory approach to cryptoassets. Some of the key takeaways are:

• Authorisation regime: The Treasury has confirmed plans to bring certain cryptoasset activities, including issuance, custody, and exchange, within the FCA’s regulatory perimeter via the FSMA authorisation regime. The legislation is expected to focus on activities rather than directly regulating the cryptoassets themselves. 
  
  
• Non-Fungible Token (NFT) risks: Although NFTs are excluded from the Financial Promotion Order’s definition of ‘qualifying cryptoasset’, the FCA highlights risks associated with their speculative use, such as misleading promotions and fraud. If an NFT were used in a way that resembles a financial services activity, it would potentially be in scope of Treasury’s future regulatory regime.
  
  
• Regulatory powers: While the FCA currently oversees certain cryptoasset activities (e.g. derivatives, collective investment schemes and e-money), many remain outside its regulatory perimeter. The FCA has published a blog and a Cryptoassets Roadmap detailing future regulatory discussions, starting with DP24/4 Regulating cryptoasset; Admissions & Disclosures and Market Abuse Regime for Cryptoassets (published in December). 
  
  
• AML and the Travel Rule: Under the Money Laundering, Terrorist Financing and Transfer of Funds (information on the Payer) Regulations 2017, certain cryptoasset firms are already required to register with the FCA. Since September 2023, cryptoasset firms executing transfers of funds must comply with the FATF Travel Rule, collecting and submitting information on transactions to combat money laundering and terrorist financing. 

Environmental, Social and Governance (ESG): The Report highlights significant developments in the regulation of ESG ratings providers. The Government’s consultation response in November 2024 and draft legislation confirmed plans for bringing ESG ratings providers within the FCA’s regulatory perimeter. 

The FCA welcomes proposals to standardise methodologies and improve transparency. A consultation on this framework is expected in 2025, focusing on governance, conflict of interest management, and robust controls for ESG ratings. In the interim, the FCA continues to support a voluntary industry-led Code of Conduct for ESG ratings providers, which was finalised in December 2023.  

Outsourcing / third party service providers: The Report addresses the systemic risks posed by firms’ reliance on unregulated third-party providers, particularly in areas like cloud computing. Failures in critical third-party services could have widespread consequences for the financial system. 

Under the Financial Services and Markets Act 2023, the FCA, PRA and Bank of England now have powers to oversee designated Critical Third Parties (CTPs). This includes rule-making authority, resilience testing, incident notification requirements, and investigatory powers, as outlined in the November 2024 Policy Statement setting out final rules for CTPs (PS16/24 – Operational resilience: Critical third parties to the UK financial sector). While the FCA cannot impose fines on CTPs, it can issue public censures or prohibit specific arrangements. 

The Report stresses that firms remain responsible for mitigating risks associated with outsourcing and must not delegate their regulatory obligations to third parties. 

The FCA raises concerns in respect of the following insurance matters:

• Two areas where they believe relevant products should be categorised as insurance (and are considering consulting on guidance):  firstly, in contracts where the provider claims to have absolute discretion not to pay out, but the FCA believes the discretion to have no real content or to be an unfair term. Secondly, where the firms claim that their warranties are mainly service contracts providing repair services, with a minor indemnity element that pays benefits if the product is lost or damaged. The FCA believes many of these contracts artificially describe the repair services and, on more detailed analysis, are really contracts of insurance.
  
  
• The use of group insurance policies and considering if it should consult on guidance in this area. The FCA explains their concerns that it has seen examples of general insurance policies being used by commercial entities to provide the benefit of the insurance cover for liabilities their clients may suffer.  However, these unregulated firms are the sole policyholder who then sell to their clients an interest in the policy to share in proceeds of any claim.