Welcome to the latest edition of the Financial Services SpeedRead, a collection of bite-sized updates designed to help you keep on top of key regulatory developments in financial services over the preceding fortnight. Please get in touch if you want to explore any of the topics covered in this fortnight's edition of Financial Services SpeedRead in more detail.
Financial Markets
1. FCA publishes multi-firm review on credit rating agencies' surveillance, methodologies and internal controls
On 15 May 2026, the FCA published a multi-firm review of UK-registered credit rating agencies (CRAs). The review examined how CRAs maintain robust arrangements for ratings surveillance, the consistent application and review of methodologies, and the effectiveness of internal controls. It is intended to reinforce existing regulatory expectations rather than introduce new obligations, highlighting good practices and areas for improvement.
The good practices observed in the review include where CRAs:
- conduct regular monitoring across the rating lifecycle using top-down and bottom-up information flows;
- fulfil the UK Credit Rating Agencies Regulation annual review requirement by conducting a full rating committee review for all existing ratings, mirroring the rigour of the initial rating process; and
- foster a positive self-reporting culture, with performance frameworks that incentivise first-line analysts to identify errors promptly.
Key areas for improvement identified by the review include:
- some CRAs lacked detailed surveillance policies, defined responsibilities and structured frameworks for ongoing monitoring, leading to inconsistent depth of analysis and delayed surveillance;
- annual reviews were not always equivalent in quality and transparency to initial rating assignments, with some firms relying on light-touch portfolio or thematic reviews rather than reviews by a full rating committee; and
- error frameworks were sometimes narrow, fragmented or subjective, with materiality thresholds potentially preventing full reporting and escalation to boards.
The FCA expects CRAs to reflect on the findings, adopt relevant good practices and address areas for improvement. The FCA will continue to engage with firms and may undertake spot checks, including targeted reviews of rating actions, methodologies or internal control outputs.
2. ESMA publishes opinion on the MiFID II trading venue perimeter
On 12 May 2026, ESMA published an opinion addressed to national competent authorities (NCAs) on the trading venue perimeter under MiFID II, seeking to promote consistent supervisory practices across Member States.
The opinion addresses inconsistent approaches among Member States in determining when systems and facilities qualify as multilateral systems requiring authorisation as trading venues. ESMA set out four cumulative criteria for identifying a multilateral system and provided guidance on three specific cases.
Key points addressed in the opinion include:
- the functioning of a system, not its form or self-classification, determines whether it requires trading venue authorisation;
- technology providers with embedded rules governing the interaction of trading interests may themselves be operating multilateral systems requiring authorisation;
- systems that only aggregate and broadcast trading interests without enabling negotiation between parties are not considered multilateral systems; and
- pre-arranging transactions multilaterally without trading venue authorisation is only permissible where all transactions are formalised on an EU trading venue.
ESMA expects NCAs to assess whether firms in their jurisdictions are operating outside the regulatory perimeter and to require those firms to apply for authorisation where appropriate.
3. ESMA publishes guidelines on internal controls for benchmark administrators, credit rating agencies and market transparency infrastructures
On 5 May 2026, ESMA published guidelines setting out its expectations regarding the components and characteristics of an effective internal control framework for entities under its direct supervision. The guidelines will consolidate and replace the previous guidelines on internal control for credit rating agencies (ESMA33-9-371) and extend requirements to benchmark administrators (BMAs), data reporting services providers, securitisation repositories and trade repositories (collectively, the supervised entities). Key points addressed in the guidelines include:
- supervised entities must demonstrate that their policies, procedures and working practices ensure an effective internal control framework, with the management body accountable for overseeing and approving all framework components;
- ESMA applies a proportionality principle, calibrating its expectations based on the nature, scale, complexity and overall risk profile of each supervised entity; and
- internal control functions, including compliance, risk management, internal audit and information security management, must be organisationally separate from the functions they monitor and must have unfettered access and reporting lines to the management body.
The guidelines apply from 1 October 2026, at which point the previous guidelines for credit rating agencies will be repealed.
4. ESMA publishes reports on simplification of EU reporting frameworks for funds and transactions
On 4 May 2026, ESMA published two reports advancing the simplification of EU regulatory reporting: a final report on integrated collection of funds' data and an interim report on the holistic review of transaction reporting.
Both reports form part of ESMA's broader Simplification and Burden Reduction agenda, launched in 2025. The final report proposes a common EU reporting framework for investment funds, while the interim report identifies preferred options for streamlining transaction reporting across the European Market Infrastructure Regulation (EMIR), Markets in Financial Instruments Regulation (MiFIR) and Securities Financing Transactions Regulation (SFTR). Key points addressed in the reports include:
- a single, modular reporting template for funds based on a "report once" principle, replacing fragmented national frameworks;
- a hybrid operational model combining national data collection with centralised EU-level validation and data sharing;
- identification of overlapping requirements across transaction reporting frameworks as key cost drivers; and
- a preferred long-term option for rationalising reporting channels across EMIR, MiFIR and SFTR.
ESMA will begin work on developing implementing technical standards for the funds reporting framework. A final report on transaction reporting is expected by mid-2026.
Banking and Prudential
5. Government publishes the Capital Requirements Regulation (Market Risk Transitional Provision) Regulations 2026
On 5 May 2026, the Government published the Capital Requirements Regulation (Market Risk Transitional Provision) Regulations 2026 (SI 2026/491) (having been made on 29 April 2026), together with an explanatory memorandum.
The Regulations insert a new Article 465A into the UK Capital Requirements Regulation, providing that credit institutions and designated investment firms must not apply the PRA's market risk rules on updated internal model requirements between 1 January 2027 and 31 December 2027. Instead, such institutions will be able to continue to use their existing models during this period.
The delay is designed to align with international timelines for Basel 3.1 implementation, given that neither the US nor the EU has yet implemented equivalent market risk requirements and proceeding ahead of those jurisdictions would create additional operational burdens for UK firms.
The PRA's new internal model market risk requirements will be implemented on 1 January 2028. The Regulations come into force on 30 December 2026.
Fund Management
6. Government and FCA announce plans to reform UK Money Market Fund Regulations
On 14 May 2026, the Government and the FCA announced plans to reform the UK Money Market Fund Regulations (MMFR). The reforms follow recent market stress events that exposed resilience weaknesses in money market funds (MMFs), despite their importance for cash management. The Government and FCA worked with international partners, including the Financial Stability Board and the European Commission, to develop proposals to enhance MMF resilience.
The key elements of the planned MMFR reforms include:
- legislation that will establish a new regulatory framework, with most detailed requirements set out in FCA rules and guidance;
- an expectation that UK MMFs hold higher levels of liquidity; and
- the Government's intention to extend the Temporary Marketing Permissions Regime.
The new regime is expected to be in place by Q4 2026.
7. ESMA publishes final report on compliance and internal audit functions in the funds sector
On 11 May 2026, ESMA published the results of its 2025 Common Supervisory Action (CSA) on the compliance and internal audit functions of fund managers under the AIFMD and UCITS frameworks. The CSA was conducted with all 27 EU and three EEA national competent authorities (NCAs) and assessed whether supervised entities adhere to requirements on establishing effective compliance and internal audit functions. The report identifies areas for further supervisory convergence and includes examples of good and poor practices.
The report sets out the following key findings and areas for improvement:
- the majority of NCAs assessed the overall level of compliance as satisfactory, though quality and practical implementation varied significantly depending on the size, nature and complexity of entities;
- 18 out of 30 NCAs identified vulnerabilities in more than 20% of supervised entities (for example, missing or incomplete internal audit documentation, insufficiently robust compliance risk assessments, or lack of a structured risk-based approach to assessing and addressing compliance risks); and
- ESMA encouraged NCAs to verify that compliance and internal audit functions operate independently from operational functions and have adequate resources, authority and escalation procedures.
ESMA further encouraged NCAs to follow up on breaches and vulnerabilities identified during the CSA exercise and ensure entities take effective remedial action in a timely manner.
8. ESMA consults on a simplified approach to updating MMF stress test parameters
On 5 May 2026, ESMA published a consultation paper proposing a new simplified approach to the annual update of stress test parameters under the Money Market Funds Regulation (MMFR). Currently, ESMA updates the calibration parameters through annual amendments to Section 5 of its stress testing guidelines, a process that requires translation into all EU languages and is subject to the comply-or-explain mechanism. The consultation forms part of ESMA's Simplification and Burden Reduction initiative.
The consultation paper proposes the following key changes:
- replacing the annual amendment of Section 5 of the stress testing guidelines with an annual publication of calibration parameters on a dedicated ESMA webpage;
- providing a single point of access for all managers of MMFs in the EU to obtain the latest stress test parameters;
- enabling the updated parameters to be immediately applicable upon their approval and online publication, without delay for translation of the guidelines (as is currently the case); and
- retaining the guidelines themselves to define the overall stress testing framework and methodology.
The consultation closes on 6 August 2026. ESMA expects to publish the final report in H2 2026, with the new procedure applying from the next parameter update, expected at the end of 2026.
Senior Managers and Governance
No recent updates.
Financial Crime
No recent updates.
Retail Services
9. FCA reviews whether investment firms are doing enough to support bereaved customers
On 13 May 2026, the FCA announced a review examining whether consumer investment firms are doing enough to support bereaved customers. The review will cover the customer experience from the point at which a firm is first notified of a bereavement through to the final settlement or transfer of investments, and follows research which found that fewer than half of bereaved customers felt they received the support they needed from their firms.
The FCA considers the support of bereaved customers a priority under its Consumer Investments Regulatory Priorities, with this review forming part of its broader Consumer Duty work. Key areas the review will examine include:
- how firms communicate with bereaved customers;
- how firms support vulnerable customers;
- firms' service standards during the bereavement process; and
- how fees are handled on bereaved accounts.
From May 2026, the FCA will contact selected firms as part of the review and will publish its findings later this year.
10. FCA publishes statement on legal challenges to motor finance compensation scheme
On 8 May 2026, the FCA published an update setting out advice for firms and consumers following four legal challenges it has received to its motor finance compensation scheme. The grounds for the challenges are that the rules governing the scheme are unlawful, either in whole or in part, and the Upper Tribunal has been asked to invalidate them.
Complaints have been paused since 11 January 2024. The FCA states it will defend the scheme robustly but notes the case is unlikely to be heard before October 2026, and it is advising all parties to undertake contingency planning.
The statement sets out the following key points:
- the FCA will not insist on formal attestations by 12 May and will not require firms to communicate with customers as required by the scheme timetable;
- firms should continue preparatory work, including identifying relevant complaints and gathering data on commission arrangements and disclosure practices;
- if the scheme, or parts of it, were invalidated such that further consultation, rules or guidance were required, the FCA's central planning assumption would be to supervise lenders on the basis that there would be no scheme. Therefore, all lenders should prepare on a precautionary basis for a complaint-led and supervisory approach to resolve historic liabilities.
The FCA expects all lenders to ensure appropriate provisions are in place and to engage with their auditors accordingly.
11. FCA to review claims management practices
On 6 May 2026, the FCA published a statement announcing a review of claims management practices, following concerns that consumers are being failed by some claims management companies and law firms. The review will examine poor practices across the market, including aggressive marketing, misleading advertising and unfair exit fees, as well as consumers being signed up without their consent. The FCA will work in close collaboration with the Solicitors Regulation Authority and other regulatory partners.
Key areas of focus for the review include:
- whether consumers receive fair value, including whether existing price caps remain fit for purpose;
- financial incentives, including fee structures and funding arrangements, and whether these create conflicts of interest or lead to poor conduct;
- whether the end-to-end consumer journey, including lead generation and marketing, delivers good consumer outcomes; and
- whether different regulatory regimes affect firm behaviour, and if some firms are failing to secure appropriate permissions.
Where the FCA believes legislative change is needed, it will make recommendations to Government. The FCA is expected to publish further information on the review soon.
Digital Finance and Fintech
12. BoE, FCA and HMT publish joint statement on frontier AI models and cyber resilience
On 15 May 2026, the BoE, FCA and HMT published a joint statement highlighting the cyber resilience implications of frontier AI. The statement places particular focus on the way frontier AI may amplify cyber threats, including by increasing the speed, scale and sophistication of attacks. It also underlines that firms that have underinvested in core cyber security fundamentals are likely to become progressively more exposed.
To mitigate these risks, the statement makes clear that boards and senior management will need to understand these risks, strengthen vulnerability management, address third-party and supply chain exposures, and consider AI-enabled defensive capabilities.
In doing so, financial services firms should also consider the 2025 BoE, PRA and FCA joint guidance on effective cyber resilience practices. Please see our previous Financial Services SpeedRead here.
13. EBA publishes new MiCAR Q&As
On 11 May 2026, the EBA published three Single Rulebook Q&As clarifying certain aspects of the application of the Markets in Crypto-assets Regulation (MiCAR).
- White papers for exempted ART issuers: Article 28 of MiCAR on the publication of white papers applies equally to asset‑referenced token (ART) issuers exempted from authorisation under Article 16(2). Exempted entities that merely notify, rather than seek approval of, their white papers must still publish them in accordance with Article 28, ensuring customers and investors of exempted issuers have the same access to white paper information as those dealing with authorised issuers (Q&A 2024_7166).
- EMT exchange services: The exchange of electronic money tokens (EMTs) for other crypto‑assets should be treated as an exchange of crypto‑assets for crypto‑assets, which is relevant to whether intermediaries require separate authorisation under PSD2 (Q&A 2024_7084). Although EMTs are deemed electronic money (and therefore "funds"), they are also defined as a type of crypto‑asset.
- Passporting for token issuance: Credit institutions (CIs) and electronic money institutions (EMIs) issuing ARTs or EMTs on a cross‑border basis must follow the passporting procedures under the Capital Requirements Directive (for CIs) or the Electronic Money Directive (for EMIs) (Q&A 2024_7168).
Payments
14. FCA publishes updated approach to payment services and electronic money
On 7 May 2026, the FCA published version 8 of its Approach Document on payment services and electronic money. The document sets out the FCA's role under the Payment Services Regulations 2017 and the Electronic Money Regulations 2011, providing guidance for payment institutions (PIs) and e-money institutions (EMIs). This update reflects new FCA Handbook rules on safeguarding, resolution packs and account termination.
Specifically, the updated Approach Document includes the following key changes:
- new guidance reflecting rules on safeguarding relevant funds under CASS 15, and resolution packs under CASS 10A, which require firms to maintain information to assist insolvency practitioners in achieving a timely return of customer funds; and
- alignment with new rules on terminating framework contracts, requiring payment service providers to give at least 90 days' notice of termination for contracts entered into on or after 28 April 2026.
ESG
15. EU Commission publishes Q&A on value chain cap under sustainability reporting standards
On 7 May 2026, the EU Commission published a Q&A entitled "Feedback on sustainability reporting standards: additional explanatory information regarding the value chain cap". The Q&A provides further explanation of the value chain cap agreed by co-legislators as part of the Omnibus I Directive, which limits the sustainability information that companies subject to the Corporate Sustainability Reporting Directive (CSRD) can require from smaller companies within their value chains.
Key points addressed in the Q&A include the following:
- the cap prohibits CSRD companies from requiring companies with 1,000 employees or fewer to provide more sustainability information than is specified in the voluntary sustainability reporting standard;
- for companies with 10 employees or fewer, the cap provides additional protection by including fewer disclosure requirements than for those with 11 to 1,000 employees; and
- CSRD companies may still request information beyond the cap, but must inform the value chain company of its statutory right to decline.
CSRD companies should exercise proportionality when requesting value chain information, seeking only what is necessary for their reporting obligations.
Other
16. King's Speech 2026 sets out financial services legislative programme
On 13 May 2026, the King's Speech was delivered and published, setting out the Government's legislative programme for the second session of Parliament and confirming key financial services reform priorities. The speech identifies two Bills of significance for financial services: the Enhancing Financial Services Bill (EFS Bill) and the Regulating for Growth Bill (RFG Bill). The following key measures were announced:
- the Payment Systems Regulator will be abolished and its functions consolidated within the FCA (EFS Bill);
- the Financial Ombudsman Service will be reformed, including an overhaul of the "fair and reasonable" test and extended complaint-dismissal grounds (EFS Bill);
- the Senior Managers and Certification Regime will be overhauled, with the aim of reducing its overall burden by 50 per cent (EFS Bill); and
- the RFG Bill will introduce cross-economy "sandboxing powers" and a strengthened "growth duty" for leading regulators.
For more detail, please see our LinkedIn post here.
17. HMT publishes consultation response on cross-cutting reforms to the financial services regulatory environment
On 12 May 2026, HMT published its consultation response on cross-cutting reforms to the UK financial services regulatory environment, forming part of the Financial Services Growth and Competitiveness Strategy. The response follows HMT's July 2025 consultation, in which HMT noted that respondents were broadly supportive of the reforms. For further detail on the consultation, please see our previous Financial Services SpeedRead here.
HMT confirmed it intends to legislate to deliver the following reforms:
- setting new, shorter statutory deadlines for determining applications for firm authorisations, variations of permissions and senior manager approvals;
- requiring the FCA and PRA to produce long-term strategies at least once every five years;
- requiring regulators to have regard to regulatory principles and remit letters when producing long-term strategies, while removing this requirement for day-to-day decisions; and
- removing a range of procedural and reporting requirements on regulators that are of lower value to stakeholders.
The Government will bring forward primary legislation when Parliamentary time allows.
