2025 Regulatory Shifts: What UK Asset Managers Need to Know

Another year, another round of regulatory pressures in which asset managers must juggle escalating compliance demands without compromising operational resilience. For small and mid-sized managers, the challenges can be disproportionate, as they contend with said pressures without the resources of their larger peers (note: there may be some light at the end of the tunnel in this respect…read on…). 

Our latest Transformation Survey found that 40% of UK firms saw regulation as a key driver behind their strategic initiatives slated for 2025. But the reality is broader—regulatory changes don’t just shape long-term agendas, they permeate the daily workflows of firms, often requiring agile responses as well as cultural change across the business. 

Compliance, operational control, risk management, data management—the cornerstones of middle office oversight—will be on the frontline of these challenges, this year more than ever, as operational resilience is rolled out, focus should be on the themes of control, oversight, monitoring, and testing. 

A Note on the UK’s Regulatory Environment 

The UK/EU financial regulatory environment is often likened to a labyrinth, and for good reason. Untangling and navigating the layers of complexity can be extremely challenging, especially for smaller and mid-sized firms due to resource constraints. 

In December 2024, the UK’s prime minister, the chancellor, and the business secretary wrote to the UK's core regulators, including the Financial Conduct Authority (FCA), to solicit suggestions for regulatory reform which could help facilitate the economic growth ambitions of the government. 

This was nothing new, in fact. Since Brexit, the FCA has been exploring numerous options as to how to redefine the UK’s position on the global stage. The delicate balancing act on the FCA’s hands has been how to a) optimise the UK’s global attractiveness, whilst also, b) maintaining the UK’s ‘equivalent’ alignment with the robust (and sometimes heavy-handed) EU/ESMA framework. Not unlike the proverbial Goldilocks dilemma—not too much, not too little—on one hand, firms and investors seek comfort in robust and safe markets, on the other, they are invariably drawn to flexibility, innovation, simplicity, and choice. 

The Financial Services and Markets Act 2023 (FSMA23) and the forthcoming Smarter Regulatory Framework (SRF) represent earlier efforts to streamline regulation while promoting flexibility and innovation. In November 2024, Emily Shepperd, FCA Chief Operating Officer, delivered a speech outlining the FCA’s revised five-year strategy which will focus on four themes and have a significant bearing on key areas of middle office oversight: 

1. Support Economic Growth and Innovation: Reduce costs of regulation whilst supporting innovation, facilitating a more productive and competitive sector 
2. Tackle Financial Crime: Slow the growth of fraud and re-enforce international partnerships by sharing data to seek further prosecutions and stem the prevalence of financial crime.
3. Build Consumer Resilience: ensure access and build trust with consumers, place onus on firms to ensure consumers are empowered with the necessary knowledge
4. Become a More Efficient and Effective Regulator: increase value for money by reducing costs and streamlining processes  

For asset managers, regulatory shifts present both challenges and opportunities. Speaking at the 2023 Investment Association Annual Dinner, FCA Chair Ashley Alder underscored this while emphasizing future initiatives, including refining the Alternative Investment Fund Manager (AIFM) regime, simplifying retail fund regulations (UCITS and NURS) with smaller asset managers in mind, and promoting technological innovation such as fund tokenisation. The FCA have been at pains to underline the aspiration of ‘proportionality’ in these initiatives, both at the regulator, as well as the firm, -level, and the effect of the government’s recent request for further reform has on this remains to be seen. 

Current Reegulations and Common Pitfalls Among Mid-Sized Asset Managers 

A recurring issue we see with firms navigating existing regulatory frameworks is that, nearly seven years after it came into force, many are still wrestling with MiFID II transaction reporting. These struggles are far from isolated, as evidenced by significant fines imposed by the FCA over the years, such as UBS (£27.6m) and Goldman Sachs (£34.3m). More recently, the FCA noted that while data quality has improved since 2018, they “continue to identify incomplete and inaccurate transaction reports.”

According to the FCA, the common root causes are weaknesses in: 

• Change management 
• Reporting process and logic design 
• Data governance 
• Control framework 
• Governance, oversight and resourcing 

Figure 1: FCA Market Watch 81, reporting issues are often caused by weaknesses across the following areas.

In broader terms, while the ‘project’ phase—encompassing design, build, and development—forms the foundation of a successful solution, integration and BAU set up are often overlooked by comparison. The success of a solution hinges on how effectively it is integrated with existing systems, embedded into processes and culture, aligned with overall business objectives, and monitored and controlled in a live environment. For instance, in the context of MiFID II transaction reporting, regular quality testing and three-way reconciliations are essential to avoid potential failures. 

The following outlines some common issues with existing regulations, many of which come back to that ‘control, oversight, monitoring, and testing’ theme. 

Consumer Duty

Objective and key deliverables 

Firms required to “act to deliver good outcomes for retail customers”; that is, enable and equip clients to make effective decisions which benefit them.

1. governance of products and services 
2. price and value 
3. consumer understanding  
4. consumer support. 

Common pitfalls among mid-sized asset managers

• Ownership, driven by risk and compliance, rather than at board level 
• Lack of proactivity, waiting to see if the FCA gets involved before tackling issues 
• Insufficient data monitoring strategies 
• Cyber protection, better protection required against fraud or cyber attacks 
• Evidencing compliance and controls 

MiFID II

Objective and key deliverables 

Wide ranging overhaul of MiFID. The stated overarching objectives were: 

1. making financial markets more efficient, resilient and transparent 
2. investor protection 
3. improving the organisational controls of investment firms. 

Common pitfalls among mid-sized asset managers

• Accuracy and completeness of transaction reports 
• Integration and alignment of solutions with incumbent systems 
• Costs, charges, and product governance hampered by lack of third-party data  
• Insufficient oversight/controls  

EMIR Refit

Objective and key deliverables 

EU & UK established counterparties to report details of OTC & ETD derivative contracts, as well as subsequent modifications or terminations. 

1. New report standards 
2. New reconciliation and verification requirements 
3. New notification requirement. 

Common pitfalls among mid-sized asset managers

• Reporting complexity, with an additional 97 data fields 
• Data standardisation, ISO 20022 standards for data exchange and reconciliation 
• Backloading, identifying and correcting historical reporting breaches 
• Insufficient reconciliations 

Senior Managers and Certification Regime (SMCR)

Objective and key deliverables 

Increase investor protection and strengthen market integrity by ensuring  senior management are ultimately accountable for both their conduct and the firm’s actions. 

Common pitfalls among mid-sized asset managers

• Establishing a robust governance structure 
• Changing the firm’s culture 
• Financial advisor certification process 
• Demonstrating adherence to rules 

SDR (ESG)

Objective and key deliverables 

Sustainability risk transparency requirements. Prescriptive and standardised disclosures on how ESG factors are integrated at both firm and product level. Phased rollout, only “anti-greenwashing” is currently live. 

Common pitfalls among mid-sized asset managers

• Interpretation of scope of “reference to sustainability of product” 
• Implementing robust compliance and oversight controls 
• Culture, promoting a business wide ethos of sustainability, accountability, and ownership 

Operational Resilience

Objective and key deliverables 

The ability of a firm to withstand disruptions and continue to deliver critical operations. Phased implementation, firms should have; 

1. identified important business services 
2. set impact disruption tolerances
3. carried out mapping and testing  
4. identified any vulnerabilities in operational resilience. 

Common pitfalls among mid-sized asset managers

• Identifying critical business operations 
• Demonstrating operational resilience 
• Defining impact tolerances and scenario testing 
• Establishing robust oversight and controls 

Key Regulatory Changes to Watch Out for in 2025

So that brings us to 2025. The UK focus aligns with developments in Europe and APAC—i.e., ‘ESG’ and operational resilience—however, keep an eye out as the FCA ponders opportunities to facilitate the government’s growth request as well. 

Future Developments in Regulatory Change

Looking ahead, firms should remain vigilant as the government and FCA ponder how to evolve and reshape the landscape this year. Close attention should be paid to pre-advised areas of change, including fund and asset tokenisation, enhanced valuation standards for private assets, depositary oversight overhaul, and the Smarter Regulatory Framework (SRF), designed to streamline oversight. 

UK firms should also keep an eye out for updates to AIFMD, UCITS/NURS, MiFID, EMIR and Money Market Fund rules, all of which reflect efforts to simplify the market especially for smaller and mid-sized asset managers.7 The introduction of a new core advisory and guidance boundary regime and advancements in consumer-focused disclosures (i.e. PRIIPs) such as Consumer Composite Investments (CCIs), further emphasize the need for robust, adaptable operating models – ‘operational resilience’ will dovetail all of this. 

Regulatory Change Implications for UK Asset Managers 

Regulatory change is seldom straightforward, and for smaller and mid-sized asset managers especially, it often presents disproportionate challenges. Key issues include resource constraints, operational fragmentation and performance reporting pressures;  

1. Resource Constraints:
   Cross-functional operations teams often juggle competing priorities, leading to split focus. 
   Limited resources make it difficult to adapt quickly to new regulatory mandates. 
   
   
2. Operational Fragmentation:
   Heavy reliance on spreadsheets, siloed systems, and tactical solutions creates inefficiencies.
   A lack of alignment between middle-office control functions exacerbates operational complexity. 
   
   
3. ESG and Performance Reporting Pressures: 
   Projects in these areas increasingly demand seamless data integration, automated processes, and connectivity to industry platforms or standards. 
   For mid-sized asset managers, these investments can be challenging to prioritise without a clear return on investment.  

Strategic Recommendations for Adapting Operations 

Proactive compliance is essential for all asset managers, regardless of resource constraints. Regulatory challenges should be viewed as opportunities to optimise and future-proof their incumbent environment. Key strategies include: 

Awareness/ Buy in

• Develop robust processes to monitor prospective and pipeline initiatives.
• Identify needs, understand both internal and external requirements, and evaluate business impact.
• Champion the critical importance of regulatory initiatives to executive committees. 
• Take the time to fully apprise senior stakeholders. 

Change Management 

• Establish appropriate and proportionate project governance and monitoring frameworks. 
• Ensure sponsors are fully empowered, invested, and actively involved. 
• Tailor project structure to reflect the organisation’s unique business realities. 

Solutions 

• Promote technology-driven solutions wherever possible. 
• Prioritise data quality. 
• Employ proportionate, realistic approaches and replace outdated tactical solutions. 

Integration 

• Fully integrate solutions with existing processes and, where applicable, the incumbent tech stack.
• Embed regulatory changes and associated solutions into the organisation’s culture. 

BAU Oversight

• Foster alignment and collaboration between compliance, risk management, operational control and data management.
• Develop a strategic and collaborative testing vision.
• Employ robust risk-management frameworks.
• Implement comprehensive but proportionate control and monitoring structure. 

Regulation as an Opportunity to Promote Continuous Improvement 

As regulations continue to evolve, asset managers face both a challenge and an opportunity to enhance control and efficiency in these critical areas. Those that proactively address their operational gaps—particularly in data integration, process oversight, and system resilience—will not only meet compliance standards but also unlock new efficiencies and insights. Whilst this may require upfront investment, the benefits of a robust, future-proofed operating model far outweigh the initial costs and effort. Short-term pain, long-term gain.

It’s never a one-size-fits-all proposition. Solutions that larger asset managers typically employ are often unrealistic and unworkable for those with more modest resources, so aligning actions to your firm’s unique situation and needs is key. That said, appropriate controls, considered oversight, resilient monitoring, and robust testing are universal best practices. Truly workable, compliant solutions are all about proportionality and tailoring to the resources of your firm, ensuring both operational efficiencies and regulatory confidence.