Fintech, digital assets, payments and consumer credit | UK Regulatory Outlook April 2025

Fintech

Financial stability risks of AI

The Bank of England (BoE) Financial Policy Committee (FPC) has published a Financial Stability in Focus report on artificial intelligence (AI) in the financial system, which considers the potential benefits of AI and its growing role in the financial system and the potential macro-prudential implications. The FPC warns about the following areas:

• Greater use of AI in banks' and insurers' core financial decision-making: the lack of explainability and potential autonomy of advanced AI models could – if deployed without appropriate testing, governance and risk controls – lead to a level of financial risk-taking that is not properly understood at the time.
• Greater use of AI in financial markets: greater use of AI to inform trading and investment decisions could lead market participants inadvertently to take actions collectively in such a way that reduces stability.
• Operational risks in relation to AI service providers: reliance on a small number of providers for a particular service could lead to systemic risks in the event of disruptions to them, especially if it is not feasible to migrate rapidly to alternative providers.
• The changing external cyber threat environment: AI could increase malicious actors' capabilities to carry out successful cyber attacks against the financial system and that financial institutions' own use of AI could create new vulnerabilities that could be exploited.

Payments

FSB launches forum on cross-border payments data

The Financial Stability Board (FSB) has announced the launch of the forum on cross-border payments data to:

• Take forward the FSB's recommendations to promote alignment and interoperability across data frameworks related to cross-border payments.
• Strengthen co-operation on data-related issues in cross-border payments, such as the way data is collected, stored and managed across borders.
• Serve as a platform for dialogue, information exchange, and research, helping to identify and address inconsistencies in global data frameworks.

The forum's first meeting will be held in May 2025.

BoE speech on innovating wholesale payments

The BoE has published a speech by its executive director for payments. In the speech, Victoria Cleland sets out details of the BoE's progress on issues addressed in its February 2024 discussion paper on Real-Time Gross Settlement (RTGS) access policies:

• Non-bank payment service providers (NBPSPs) seeking access to RTGS. Ms Cleland sets out details of changes that the BoE and the Financial Conduct Authority (FCA) have made to the framework for co-operation on assessing applications from NBPSPs to open an RTGS settlement account.
• RTGS access to foreign banks. The BoE will shortly update its website to make information about access to RTGS easier to navigate for industry stakeholders, including foreign banks.
• Requirements for financial market infrastructures (FMIs). Ms Cleland states that the BoE has published a revised access policy that introduces a "live-proving and mobilisation" stage for new and small FMIs allowing firms seeking access to RTGS. It has also published new RTGS rules on its expectations for RTGS participants, including FMIs.
• CHAPS value threshold. The BoE intends to engage further with industry in 2025 to better understand the benefits and costs to, and assess any financial stability implications of, further policy intervention to revise the CHAPS direct participation threshold.

Ms Cleland also states that the BoE will mandate the use of ISO 20022 enhanced data for certain CHAPS payments from 1 May 2025 to promote the use of enhanced data within the UK payments sector. This includes purpose codes for payments between financial institutions and property transactions, as well as the inclusion of legal entity identifiers for payments between financial institutions.

BoE response to discussion paper on reviewing access to RTGS accounts for settlement

The BoE has published its response to its discussion paper on reviewing access to RTGS accounts for settlement. In the discussion paper, it sought views on its priority areas to further improve access to settlement in central bank money, remove unwarranted barriers and realise the capabilities and benefits of the renewed RTGS service. The BoE states that respondents to the discussion paper were generally supportive of the RTGS access review and were in broad agreement with the BoE's priority areas. 

The BoE has also set out:

• An updated version of its guide for NBPSPs seeking direct access to UK payment systems.
• New rules on the BoE's expectations for RTGS participants.
• A revised version of its RTGS access policy.

The BoE has also introduced stage gates (as set out in the revised RTGS access policy) to enable applicants seeking access to RTGS, including new and small FMIs, to build internal capacity and confidence before launching their services externally. The aim is to allow applicants to test connectivity and grow their business in a controlled way subject to restrictions to mitigate risk.

The BoE also summarises its future work on providing safeguarding facilities directly to NBPSPs, supporting the FCA and HMT on reforming the broader NBPSP regulatory framework to facilitate direct access to RTGS and engaging further with industry on the CHAPS direct participation threshold review.

PSR consults on remedies to address issues identified in market review

On 2 April 2025, the Payment Systems Regulator (PSR) published a consultation paper on remedies to address issues identified in its market review of Mastercard's and Visa's scheme and processing fees, released in March 2025 (see this Regulatory Outlook).

The PSR proposes the following:

• Information transparency and complexity remedies: in order to address its finding that information received from Mastercard and Visa can be insufficient for acquirers to understand the fees they are charged, which is likely to impact information received by merchants.
• Regulatory financial reporting: to enable the PSR to effectively monitor and understand the schemes' financial performance in the UK.
• Pricing decisions: requiring the schemes to pay due regard to specified pricing principles.
• Publishing information to increase transparency and accountability: to include publishing (i) suitable financial and performance-based metrics relating to the schemes' UK businesses and (ii) information about the schemes' regulatory financial reporting and pricing governance.

The consultation is open until 28 May 2025, after which the PSR is expected to consult on a specific proposed remedy package.

PSR updates timings for APP scams claims management consultation

The PSR has published an update on its consultation on an authorised push payment (APP) scams reimbursement claims management system (RCMS).

The PSR initially planned to consult in April 2025 to enable the PSR to take account of the broad direction of travel of the National Payments Vision. It now anticipates being able to consult within three to six months.

The consultation will not propose placing a regulatory mandate on PSPs to use a particular system for managing claims or for meeting the "reporting standard B" requirements.

Pay.UK's RCMS has been designed specifically to facilitate Faster Payments (FPS) APP scams claims management and to automate data reporting. The PSR does not consider that it is necessary or proportionate to use its regulatory powers to require PSPs to use the RCMS, or any other particular system. In its view, it is for PSPs, working with Pay.UK, to determine the best approach to meeting their regulatory obligations.

The consultation will request feedback on:

• A deadline for adopting reporting standard B by no later than December 2026.
• Placing any additional regulatory obligations on Pay.UK that may be necessary to enable it to most effectively meet its compliance monitoring obligations in Specific Direction 19.

In the interim, Pay.UK will continue to monitor compliance with the FPS reimbursement rules and the PSR will monitor compliance with its legal directions using the reporting standard A data.

The PSR is also considering the impact of this change on the timing and collection of sending and receiving firm data for its APP fraud performance data work beyond 2025.

As the PSR explains, effective claims management and receipt of quality compliance data are key elements of its APP scams reimbursement policy. It wants to see a consistent approach to claims management that is led and implemented by Pay.UK.

Consumer finance

FCA feedback statement on consumer duty rule review

On 25 March 2025, the FCA published a feedback statement (FS25/2) on immediate areas for action and further plans for reviewing retail conduct requirements, following the introduction of the consumer duty. The FCA plans to simplify its requirements of firms, covering commitments for immediate action and proposals for longer-term work, including:

• Streamlining requirements: the FCA will make it easier to navigate regulations for consumer finance, investment and mortgage firms by retiring over 100 pages of outdated guidance.
• Future-proofing disclosure: the FCA will review current prescriptive disclosure rules to give firms more flexibility to tailor communications to customers' needs and preferences.
• Reviewing the foundations: the FCA will revisit rules for businesses with customers outside the UK.
• Reducing the administrative burden: firms will be given more flexibility in applying requirements to help ensure that the regulatory regime is more outcomes-focused.

The FCA intends to set out further detail on next steps in September 2025.

FCA written submissions in motor finance appeal

On 1 April 2025, the FCA published its written submissions to the Supreme Court in the appeal of the Court of Appeal decision in Johnson v FirstRand Bank Ltd (London Branch) t/a Motonovo Finance [2024] EWCA Civ 1282, which was heard over three days from 1 to 3 April 2025.

In its submissions, the FCA states that "the sweeping approach of the Court of Appeal in (effectively) treating motor dealer brokers as owing fiduciary duties to consumers in the generality of cases goes too far". The submissions outline the regulatory framework, including section 140A of the Consumer Credit Act 1974, the Regulated Activities Order 2001, and the FCA's rules and guidance (in particular, the Consumer Credit Sourcebook). The FCA concludes by submitting that the court should "have regard to the careful balance that has been struck in the applicable regulatory scheme when determining the appeals".

The Supreme Court will consider five key issues:

1. When acting as credit brokers, do car dealers owe consumers a "disinterested" and/or fiduciary duty to provide information, advice or recommendation?
2. If so, were the payments of commissions by the lenders to the car dealers secret such that the lenders become primary wrongdoers?
3. Can the lenders be liable in the tort of bribery? If so, what is the correct approach to remedies?
4. If there was sufficient disclosure of the commission to negate secrecy, was there insufficient disclosure to procure the consumers' fully informed consent to the payment such that the lenders are liable as accessories for procuring the credit brokers' breach of duty?
5. Can insufficient disclosure also suffice to make the relationship between lender and consumer "unfair" for the purposes of the Consumer Credit Act 1974?

The outcome of the appeal is expected to be known by the summer 2025. For more, see our Insight.

FCA review of banks' bereavement and power of attorney policies

On 12 April 2025, the FCA published its findings following a multi-firm review into the bereavement and power of attorney policies in retail banks and building societies (collectively banks), as part of their review into firms' treatment of customers in vulnerable circumstances.

Although most banks displayed good practices, there were also many areas for improvement, with findings divided into four areas:

• Policies and procedures: guidance for staff should be easily accessible and understandable, and make clear that staff should adapt their style to customers' needs – recognising when matters should be escalated.
• Identifying and responding to customer needs: firms should actively identify information that could indicate vulnerability and, where relevant, seek further information from consumers in order to respond to their needs.
• Outcomes testing and monitoring: the FCA noted that there is scope for improvement in outcomes testing and monitoring across most of the banks reviewed – management information did not consistently give a clear picture of customer outcomes.
• Customer journeys: firms are encouraged to continue to design their customer journeys with vulnerable customers in mind, particularly for critical services such as bereavement and power of attorney.

The FCA has written to all banks in its review, highlighting findings and expected next steps.