Financial institutions

Written by Rebecca D'Silva, Associate 

Key developments in 2024 

As we predicted last year, ESG continues to be a source of risk for financial institutions. On 31 May 2024, the Financial Conduct Authority's anti greenwashing rule came into effect. The rule applies to all FCA-authorised firms, including UK asset managers, who make sustainability related claims about financial products and services. Under the rule, sustainability related claims must be fair, clear, and not misleading. In addition, the FCA has introduced naming and marketing requirements for asset managers, differentiating between products that have sustainability objectives and use a label, and products that have sustainability characteristics but do not use or qualify for a label. Following consultation in 2024, the rule looks set to be extended to portfolio managers in Q2 2025. 

But, it isn't just regulators clamping down on greenwashing; international environmental law organisations also have ESG in their sights. In late 2024, ClientEarth submitted a claim against BlackRock, the world's largest asset management company, to the Autorité des Marchés Financiers, in respect of its sustainable funds. ClientEarth has indicated its intention to notify the European Securities and Markets Authority, the European financial regulator. 

With anti greenwashing rules and guidelines coming into effect, we expect environmental claims against financial institutions will only increase further. 

What to look out for in 2025 

Further to our 2024 update, Authorised Push Payment (APP) fraud reimbursement protections commenced on 7 October 2024. The scheme administered by the Payment Systems Regulator applies to payments made on or after this date. All types of payment firms (from big banks to building societies and beyond), both sender and recipient, are brought under the scheme. Although the scheme is capped at £85,000, where more is lost and not reimbursed, a complaint can be made to the Financial Ombudsman Service, which has a £430,000 compensation limit. The impact of the cap may result in difficult issues as to the distribution of liability between the sending and receiving payment firms.

In 2025, we also anticipate significant vehicle finance exposures to lenders coming down the line, subsequent to several pending reviews/decisions. The FCA banned discretionary commission arrangements (DCAs) in 2021. There have been a large number of subsequent complaints from customers against motor finance lenders claiming compensation for commission arrangements prior to the ban. The FCA reports firms were rejecting most complaints as firms did not consider they had acted unfairly or caused customers loss given the applicable legal and regulatory requirements. The FCA is currently using its powers under section 166 of the Financial Services and Markets Act 2000 to review historical motor finance commission arrangements and sales across several firms.

The Financial Ombudsman Service (FOS) has considered some complaints rejected by firms. It has found in favour of complainants in at least two published decisions so far, which is likely to prompt an increase in complaints to firms and the FOS. However, in October 2024, Barclays Partner Finance judicially reviewed the FOS' decision against it. The awaited High Court decision will affect future complaints to lenders and the FOS, as well as the FCA's potential consumer redress scheme. Also relevant is whether the Court of Appeal's recent decision against FirstRand Bank Ltd and Close Brothers Ltd, finding it was unlawful for brokers to receive a commission (i.e. wider than just DCAs) from the lender without getting the customer's informed consent to the payment – will be successfully appealed to the Supreme Court. The outcome of all of these actions will have a significant bearing on how big the exposure will be for financial institutions with vehicle finance exposure and their FI insurers.

Explore Annual Insurance Review 2025