9 January 2025

Ten things to watch in 2025

1. EU, UK choose similar long-term paths

This year, the freshly-installed European Commission (EC) intend to hit the ground running.

On 15 January, they are expected to publish a ‘Competitiveness Compass’ to frame their new plan for the Single Market.

This seeks to “make business easier and faster” by simplifying legislation, boosting innovation, while hastening the EU transition to a sustainable economy. The EC’s 2025 Annual Work Programme will follow in mid-February.

Over in the UK, HM Treasury are set to tread very similar ground in their ‘Financial Services Growth and Competitiveness Strategy’, to be published in Spring 2025.

2. FCA rapidly deploy UK-CCI rules

The UK recently revoked the EU-PRIIPs regime, after “prescriptive format requirements” were said to be “overly burdensome, have not improved consumer understanding, and have led to misleading information being presented.”

In 2025, the replacement Consumer Composite Investments (CCIs) disclosure regime will quickly unfold.

The Financial Conduct Authority’s new “more flexible, simpler approach” is closely aligned with the Consumer Duty. It aims to enable “good quality product information that helps retail consumers make effective decisions”.

The FCA’s main CCI consultation remains open until 20 March.

Key proposals cover the future roles of Manufacturers and Distributors, including supply of a new ‘Product Summary’ document (based on simplified risk, performance and costs & charges disclosure rules).

Additional underlying ‘Core Information’ data must also be made available.

The proposed CCI Transaction Costs calculation method will soon be detailed in a separate FCA paper.

The FCA intend their CCI regime to legally apply “as soon as the Policy Statement is published…later in 2025”.

Although they will also shortly consult on transition arrangements, it is proposed that UCITS and NURS firms may opt for an early CCI switchover before the overall 31 December 2026 deadline.

3. More UK-SDR disclosures pending

The Sustainability Disclosure Requirements (SDR) and investment labels regime will continue to find its feet.

Following a stressful initial application period, over 40 funds have been approved to adopt SDR labels (with ‘Sustainability Focus’ the clear winner) so far. However, this is well below the initial 280 labelled funds forecast. The FCA recently cited an “enormous pipeline” of applicants being processed.

Key SDR milestones this year include:

2 April: Pre-contractual disclosures: apply to funds using ‘Sustainable’/’Impact’ related naming terms
31 July: Ongoing product-level disclosures – rules begin to apply for SDR fund label early-adopters
2 December: Ongoing product-level disclosures – client “on-demand” rules apply to SDR labelled funds
2 December: Ongoing product-level disclosures – rules apply for non-labelled ‘sustainable’ products
2 December: Entity-level disclosure rules apply – rules apply for firms with total AUM > £50 bn.

In Q2-2025, the FCA will also publish its delayed policy statement to apply the SDR regime to Portfolio Managers.

Separately, we will learn the fate of the UK Government’s long-overdue Green Taxonomy.

4. UK-OFR migration continues

The UK must make up lost ground in applying SDR to EU firms within their new Overseas Fund Regime (OFR).

The intended Q3-2024 consultation on this matter did not occur, with a re-schedule date still unannounced.

In the meantime, more OFR ‘landing slots’ will become available to Fund Operators named ‘B’ to ‘N’.

Firms impacted will have 3 months to submit their application (and retain their ‘UK-recognised’ scheme status).

NB: Once transit from the Temporary Marketing Permissions Regime is secured, EU-equivalent UCITS products will fall into scope of the new CCI disclosure framework.

5. SFDR II legal regime unveiled (eventually)

Over in the EU: both the EC President and the European Council recently pledged to swiftly “reduce red-tape”.

An ‘Omnibus simplification package’ is now set to emerge on 26 February.

This is expected to “reduce bureaucracy and reporting burdens” arising from the combined obligations of the Taxonomy Regulation (TR), Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD). To achieve this will require a huge effort from the EU lawmakers.

The Sustainable Finance Disclosure Regulation (SFDR) is not be part of this “legal triangle”; however, the shifting EU-ESG legal priorities will likely further delay completion of the prolonged SFDR ‘Level 1’ review.

Hence, the EC’s new ‘SFDR II’ proposals may not appear until Q3/Q4-2025.

NB: Any future SFDR II regime must be approved by both the EU Parliament and Council, per ‘trilogue’ protocol. This makes official publication of final EU ‘sustainable’ product categories and amended SFDR entity/product disclosures (with agreed application dates) unlikely to happen this year.

6. Interim SFDR technical changes?

Another long-running SFDR puzzle may be resolved sooner.

Over a year ago, in response to an official EC mandate, the European Supervisory Authorities (ESAs) delivered 127-pages of draft revised SFDR ‘Level 2’ technical rules. The EC is yet to confirm if they will adopt these high-impact changes to the current SFDR regime, ahead of EU Parliament and Council co-approval.

This decision rests with the new Financial Services Commissioner, whose CEO was recently tasked to make “concrete proposals on reducing reporting requirements by at least 25% in the first half of 2025”.

Bearing this in mind: will the EC choose to accept interim, extensive changes to a complex EU disclosure regime (i.e. ahead of a major ‘Level 1’ re-configuration) in the same year? Or will the draft ‘Level 2’ RTS be set aside?

We will shortly learn the answer. Meanwhile, this item remains absent from one notable timeline.

NB: a reminder the pending European Single Access Point (ESAP) will require SFDR output from 10 January 2028. The lengthy EU endorsement process will create major logistical challenges for any attempt to apply multiple sets of SFDR ‘Level 2’ disclosure rules (i.e. including additional ‘SFDR II’ transition), within the remaining time.

7. Deadline looms for EU fund name assessments

Last year, Morningstar estimated that over 1,600 EU products were in potential breach of the ‘Fund names using ESG-related terms’ guidelines, published by the European Securities & Markets Authority (ESMA) last November.

EU fund firms now have until 21 May to ensure pre-existing product names do not contain misleading terms (i.e. to avoid any charge of ‘greenwashing’). New funds launched must immediately meet ESMA’s guidelines, which are now reflected in the latest European ESG template [EET V1.1.3].

ESMA recently provided ‘Q&A’ advice to clarify certain ambiguous areas, including what exactly represents a ‘meaningful’ sustainable investment.

8. EU-RIS: ‘Value for Money’ consensus emerges?

Later this month, the European Parliament and Council of the EU are expected to begin negotiations to agree details of the EU Commission’s ambitious Retail Investment Strategy (RIS).

However, the complexity of the draft RIS legal amendments (covering UCITS, AIFMD, MiFID, IDD and PRIIPs regimes) means any quick agreement is very unlikely.Experts reckon at least 12 months of talks are needed.

In one key instance, EU legal bodies strongly disagree on the proposed ‘Value for Money’ concept (which will continue to unsettle the industry this year).

However, there seems closer alignment over the ‘modernised’ PRIIPs key information document (to be simplified and adapted for the digital age). The future ESAP platform now depends on machine-readable PRIIPs-KID information being made available by January 2028.

9. ESMA wade through UCITS/AIFMD checklist

The ‘AIFMD II’ / ‘UCITS VI’ Directive enacted last March contains a very long to-do list for ESMA.

Items required for delivery this year include:

16 April: Draft RTS, Guidelines for liquidity management tools available to AIFMs, UCITS firms;
16 April: Draft RTS for loan-origination funds AIFs [LOFs];
16 October: A report summarising Costs charged by fund firms.

To facilitate their 2025 Fund Costs report, ESMA recently launched a data collection exercise, which relies on EU regulators obtaining information from local manufacturers and distributors. ESMA will also provide advice on the notion of ‘undue costs’ (i.e. a key Retail Investment Strategy factor).

In addition, ESMA are likely to consult on ‘integrated’ UCITS/AIF supervisory reporting proposals (e.g. future data collection) during 2025.

10. Fintech motors ahead

Finally, the industry will remain wary of fast-evolving Fintech events across Europe:

a) Operational Resilience (UK, EU)

1 January: FCA’s Critical Third Party policy takes effect;
17 January: EU Digital Operational Resilience Act (DORA) will legally

b) EU Artificial Intelligence (AI) Act

2 February: General provisions, Prohibitions for ‘AI systems with unacceptable risks’ start to apply;
2 May: European Artificial Intelligence Office (AI Office) complete EU codes of practice.

c) Crypto-assets (UK, EU)

14 March: FCA consultation closes (UK crypto-assets admissions, disclosures, market abuse regime);
30 June: EC interim report on Markets in Crypto-Assets regulation (incl. tokenised fund shares);
1 May–31 December: varying EU member state transition periods end for MiCA service providers.

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Article written by Mark Kilbride.

Feel free to contact me at [email protected].