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

Cryptoassets updates

Draft legislation on cryptoassets published

On 29 April 2025, the chancellor announced the publication of draft legislation for regulating cryptoassets – the Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025, bringing crypto exchanges, dealers and agents into the regulatory perimeter.

Crypto firms with UK customers will also have to meet clear standards on transparency, consumer protection and operational resilience. New specified activities (set out in the accompanying policy note) include safeguarding, stablecoin issuance and arranging deals in qualifying cryptoassets.

FCA publishes discussion paper on regulating cryptoasset activities

On 2 May 2025, the Financial Conduct Authority (FCA) published a discussion paper, seeking views on how it plans to regulate:

• Cryptoasset trading platforms: entities authorised to operate a qualifying cryptoasset trading platform.
• Cryptoasset intermediaries: including those authorised to deal in qualifying cryptoassets as principal or as agent and arrange deals in qualifying cryptoassets.
• Cryptoasset lending and borrowing: operating a cryptoasset lending platform and cryptoasset lending and borrowing will fall under the regulated activities of cryptoasset dealing as principal and arranging – as such, the FCA proposes specific rules for these business models.
• Restrictions on the use of credit to purchase cryptoassets: the FCA is exploring whether to impose restrictions on firms from accepting credit as a means for consumers to buy cryptoassets but potentially exempting qualifying stablecoins issued by an FCA-authorised stablecoin issuer.
• Staking (the process where cryptoassets are used and locked for blockchain validation): regulation will aim to address technological, customer understanding and safeguarding risks.
• Decentralised finance: these activities will be covered by the new regime where they involve cryptoasset regulated activities and there is a clear controlling person(s) carrying on an activity.

Comments are due by 13 June 2025, after which the FCA will consult on any proposals it intends to adopt as final rules.

BoE speech on proposed stablecoin regulatory framework

The Bank of England (BoE) has published a speech by Sarah Breeden, BoE Deputy Governor, Financial Stability, that, among other things, discusses the proposed framework for regulating stablecoins in the UK.

The BoE published a discussion paper proposing a regulatory regime for stablecoins in retail payments in November 2023 – see this Regulatory Outlook. The speech highlights three key themes arising from feedback:

• Existing business models: the proposed regime does not align with existing stablecoin business models whose revenues are based on interest income. In addition, the BoE's focus on "singleness of money" for stablecoins widely used for payments jars with existing use cases for stablecoins.
• FCA regime: the greater the divergence between the BoE's proposed regime for non-systematic stablecoins and the FCA's, the greater the challenge of transitioning into the regime.
• Cross-border challenges: there are concerns that if the UK's stablecoin regime differs from those being implemented in other countries, this will create challenges for cross-border business.

As it continues to develop its proposals, the BoE will maintain its focus on the singleness of money and financial stability.

Artificial intelligence

FCA summary and insights from AI Sprint

The FCA has published a summary of its January 2025 AI Sprint. Key discussions included:

• Regulatory clarity: participants highlighted the importance of firms' understanding how existing regulatory frameworks apply to AI and suggested areas where they could benefit from more clarity.
• Trust and risk awareness. Participants saw trust in AI as vital for its successful adoption – if firms and consumers felt able to trust AI, utilisation may increase.
• Collaboration and co-ordination: participants emphasised that all parties involved in AI, including regulators, government, financial services firms, academics, model developers and end users, needed to work together to develop solutions.
• Safe AI innovation through sandboxing: participants were grateful for a safe testing environment to encourage responsible innovation, suggesting that the FCA's sandboxes and innovation services could create such a space, as well as providing access to datasets for innovators to develop and improve AI solutions.

The FCA has also published a blog exploring how it is considering ways to enhance trust and clarify its rules.

FCA seeks views on new live AI testing service

On 29 April 2025, the FCA announced plans to launch a live AI testing service, as part of the FCA AI Lab, to run for 12-18 months from September 2025.

The testing service is designed to:

• Allow firms to collaborate with the FCA while they check that their new AI tools are ready to be used.
• Provide the FCA with intelligence to better understand how AI may impact UK financial markets.
• Provide regulatory support to firms who are ready to deploy consumer or market-facing AI models.

Before launching, the FCA is seeking views on how the service could help firms deploy safe and responsible AI. Feedback to the engagement paper can be submitted until 10 June 2025. An application process is expected to open in early summer 2025.

Other updates

FCA speech on tech positive approach to support growth

On 29 April 2025, the FCA published a speech delivered by Jessica Rusu, FCA Chief Data, Information and Intelligence Officer, on the FCA's commitment to being increasingly tech positive to support growth. Key points included:

Sandboxes:

• Independent studies have found that over 90% of firms that engaged with the FCA's Innovation direct support and advice services became authorised.
• While the success rate for FinTech firms can be mixed, 80% of Regulatory Sandbox firms are still in operation.
• FCA Sandbox firms are 50% more likely to raise funding than their peers and, on average, raise 15% more in investment.

Advice guidance boundary review: using a six-week Tech Sprint, the FCA has worked with firms to test a future set of rules relating to a simplified advice service and targeted support (in advance of launching a consultation). This approach helps firms develop new ways to support consumers, while ensuring that the FCA develops a data-driven and effective policy framework.

Open finance: tech sprints are playing a role in developing the open finance regulatory framework – outputs will inform policy testing, leveraging experimentation to accelerate towards the future of open finance.

AI policy: the FCA does not consider that new rules are necessary for AI – rather, it considers its existing frameworks, particularly the Senior Managers and Certification Regime and the consumer duty, provide sufficient "regulatory bite".

Live AI testing: the FCA is launching a live AI testing service as part of its AI Lab (see above).

The Treasury Committee launches new finfluencer inquiry

The Treasury Select Committee has updated its current inquiries webpage to reflect the launch of a new inquiry on finfluencers.

In October 2024, the FCA announced the targeted action it was taking against finfluencers who were potentially promoting financial services products illegally. See this Regulatory Outlook.

The FCA set out its expectations of firms and others (including finfluencers) in its March 2024 social media guidance. See this Insight.

Payments

Draft Payment Services and Payment Accounts (Contract Termination) (Amendment) Regulations 2025

On 28 April 2025, HM Treasury published draft Payment Services and Payment Accounts (Contract Termination) (Amendment) Regulations 2025, which:

• Aim to strengthen protections against debanking, providing customers with more time to challenge decisions and find alternative payment service providers (PSPs) if their account is closed or their payment service terminated.
• Amend regulation 51 of the Payment Services Regulations 2017 and introduce new regulations 51A to 51D.

Proposed changes would apply to framework contracts for payment services concluded for an indefinite period and entered into on or after 28 April 2026 (when the legislation is expected to come into force), and include:

• Extending the minimum notice period for contract terminations from two months to 90 days.
• Requiring PSPs to provide sufficiently detailed and specific explanation for contract termination.

Certain exceptions are provided for (for example, to enable PSPs to comply with financial crime obligations). The FCA will update guidance relating to contract terminations in its payment services and electronic money approach document to reflect legislative changes. The draft regulations are awaiting Parliamentary approval.

FCA review of international payment pricing transparency under consumer duty

On 1 May 2025, the FCA published its findings following a review into how firms communicate the cost of international payments, having noticed differences in firms' transparency on the cost of international money remittance and cross-border payments.

In the light of these concerns, and the consumer duty coming into force from 31 July 2023, the FCA reviewed a sample of firms to assess whether their communications gave clear pricing information before a transfer was initiated. The FCA found that:

• Transaction fees were not always clearly displayed.
• Additional fees, such as those charged by intermediary banks, were often not displayed up front.
• It was not always clear that fees could vary.
• Relevant information for consumers was not always easy to find.

Following its review, the FCA has shared examples of good and poor practice, so firms can improve their communications and deliver better outcomes for retail customers. Future work in this area to understand what improvements have been made is likely.

PSR policy statement on decision to revoke Specific Direction 3 and consultation on revoking Specific Direction 2

The Payment Systems Regulator (PSR) has published a policy statement and consultation paper setting out its decision to revoke Specific Direction 3 (SD3) on competitive procurement of central infrastructure (FPS) and Specific Direction 3a (SD3a) (which varies SD3), and consulting on revoking Specific Direction 2 (SD2), which relates to BACS.

The PSR believes that revoking SD3 and the legal obligations it imposes will provide the necessary space and certainty to progress the task given to it and the BoE by the National Payments Vision of reassessing the requirements for retail payments infrastructure and strengthening the governance and funding arrangements needed to deliver this.

The consultation closes on 5 June 2025.

The PSR has published the Specific Direction it has given to FPS revoking SD3 and SD3a. It came into force on 21 May 2025.

Consumer Finance

FCA policy statement on new regulatory reporting return for consumer credit firms

The FCA has published a policy statement setting out its final rules relating to a new regulatory reporting return for consumer credit firms who engage in one, or more, of the regulated activities of credit broking, debt adjusting, debt counselling and providing credit information services.

The new return aims to make the FCA's expectations of firms clearer, using common industry terminology to help understanding. The FCA consulted on the rules in September 2024. Overall, the feedback was positive with most comments pertaining to the scope of the data elements and clarifying the FCA's expectations. In response to feedback, the FCA has reduced the number of questions asked in the return by 27%. It has also made changes to make its rules clearer and more effective.

The new return has five mandatory sections for firms to complete followed by tailored questions specific to their permissions. These will ask for data about:

•    Permissions.
•    Business model.
•    Marketing.
•    Revenue.
•    Staff.

The statement confirms the changes to the Senior Management Arrangements, Systems and Controls sourcebook (SYSC), Client Assets sourcebook (CASS) and Supervision manual (SUP), which are set out in the Consumer Credit (Regulatory Reporting) (Amendment) (No 2) Instrument 2025. It came into force with immediate effect on 7 May 2025.