Money Covered: The Week That Was – 28 March 2025

Welcome to The Week That Was, a round-up of key events in the financial services sector over the last seven days.

The third episode of Season 4 of our podcast, Money Covered – The Month That Was, where the team discusses developments that we expect to see in 2025 in relation to Financial Services and Accountants is now available.

To listen to this and all previous episodes, please click here.

Headline Development

FCA investigate pure protection product commission 

The FCA have launched an official market study into commission structures associated with protection products. The study comes after the FCA noted concerns on the distribution of protection products not being fully effective for consumers. 

The FCA want the distribution of protection products to meet consumer needs, provide fair value and support consumers in making well-informed decisions. Protection products are traditionally sold by insurers through third party intermediaries such as independent financial advisers or mortgage brokers (who will then receive commission). The FCA's specific concerns are set out below:  

• Unnecessary switching of products driven by third party intermediaries (to maximise commission).

• Commission practices that may not represent fair value (i.e. higher premiums to pay higher commission).

• Fair value of certain products. 

The study seeks to ensure that firms are complying with their obligations under the Consumer Duty. The FCA will consider the key areas of improvement required by the industry, if they find that the distribution of protection products are not effective for consumers.   

The FCA aim to publish an interim report by the end of 2025. The FCA's terms of reference for the market study can be found here.

Accountants

Regulator updates audit firms on capital restructuring 

The CEO of the Financial Reporting Counsel (FRC) has published an updated letter to audit firms, confirming the FRC's position on firms considering capital restructure: While ownership structures remain a matter for the firms themselves, the regulator is not opposed in principle to capital restructuring in the UK audit market.

The FRC initially published a letter in September 2024, addressing external private capital entering the UK audit market. Audit firms are under a legislative obligation to undertake audit work controlled by qualified professionals, who are independent.  This has led to concerns that external private capital may diminish the independence of audit work. 

The FRC is not against external private capital entering the audit market, on the basis that audit firms deliver high quality audits and uphold their professional conduct obligations. The FRC also recognises that external private capital could drive further investment within the market and enhance audit work resulting in growth within the sector.

Whilst the FRC recognises the benefits of private capital entering the market, they have issued a warning to firms considering ownership structures changing via capital restructuring that they must "maintain and enhance over time the important public interest dimension of audit" and "protect independence as required by law". Therefore, the FRC is encouraging audit firms considering capital restructuring to engage with them as soon as possible so that they can help "explain the regulatory framework and expectations". 

A copy of the updated letter can be found here. 

FRC fines PwC £2.9m for "serious failings" over audit

PwC has been fined by the Financial Reporting Council (FRC) for its "serious failings" in the 2019 audit of Wyelands Bank and the audit partner responsible was personally fined £33,412 and received a reprimand. Both PwC and the partner had their fines reduced considerably as a result of their cooperation with the investigation.

The FRC found that PwC failed to assess significant risks relating to Wyelands' exposure to the GFG Alliance which was an industrial group under investigation by the Serious Fraud Office and "failed to properly understand the bank's lending activities and adequately consider the risks posed by its actual and potential exposure to related parties in the GFG Alliance".

PwC also ignored warnings from the Prudential Regulation Authority which had identified issues concerning Wyelands' lending and the concentration of risk. 

The action against PwC forms part of FRC's recent scrutiny of audit firms involved in high risk companies and we expect that further examples will be made.

The article can be read here.

FRC to Back Growth in a New Three-Year Plan

The FRC has published its Strategy for 2025-2028 and its Annual Business Plan and Budget for 2025-2026. The key areas of focus most relevant to the accounting profession are:

• The future of enforcement action. The FRC is reviewing its investigation process to consider developing a broader and more graduated set of options for resolution.

• Assisting smaller firms to conduct audits to ensure a consistent quality (however, the paper notes that recent assessments suggest the quality gap between the largest firms and others has widened).

• Key developments on the horizon include a focus on economic growth, AI, sustainability reporting standards, the growing interest of private capital in the UK audit markets and the resilience of the audit professions.

The FRC has set out new principal risks (as they relate to the industry) and planned activities in 2025 to 2026 to overcome those risks. For example, A lack of proactivity and consideration of stakeholders can cause delays and a loss of trust in corporate governance, reporting and audit quality. The FRC says it wants to embed its growth duty in all work, reduce unnecessary burdens and clarify monitoring processes. In addition, a lack of an effective supervisory model can create a failure to drive audit quality improvements or build capability and market resilience. The FRC mentions a desire to implement changes to the supervision of smaller audit firms to create more proportionate inspections and use the Scalebox initiative to share best practice and develop capability.

The overall tone of the Strategy, Plan and Budge is one of growth, with the FRC's Chief Executive expressing his support for "responsible risk taking".

To read more, please read our blog here.

Tax Practitioners

Court of Appeal accepts "exceptional circumstances" exemption argument 

On 13 February 2025, the Court of Appeal handed down judgement on the very first case heard in relation to the "exceptional circumstances" test in A Taxpayer v HMRC [2025] EWCA Cid 106. The case was in relation to a taxpayer's UK tax residency status.  

In the April 2016 tax year, the taxpayer received £8 million in dividends and was therefore liable to pay £3m of income tax to HMRC if she was deemed to be a UK resident. Under the Statutory Residency Test (SRT), the taxpayer would be considered a UK tax resident if she spent more than 45 days in the UK. The taxpayer moved to Ireland in April 2015 but had spent 50 days in the UK during the April 2016 tax year. 

The taxpayer argued that 6 of the days she spent in the UK should be discounted under the "exceptional circumstances" exemption, on the basis that she had spent those 6 days visiting her sister who was suffering from mental health and alcohol issues. The taxpayer, therefore, argued that she had to come to the UK to look after her sister and children to ensure that they were all safe. 

The case was subject to numerous appeals and was first heard in the First Tier Tribunal. The First Tier Tribunal accepted the taxpayer's position, as they considered her circumstances to be "exceptional" on the basis that she was under a moral obligation to travel to the UK to look after her sister, and her children.

On appeal, the Upper Tribunal's position was that serious illness, or death of a relative would not constitute exceptional circumstances and argued that the taxpayer was not prevented from leaving the UK. The Upper Tribunal also raised concerns on the evidence presented by the taxpayer. 

The Upper Tribunal's decision was ultimately dismissed by the Court of Appeal, who agreed with the First Tier Tribunal that moral obligations could prevent someone from leaving the UK, especially in the taxpayer's circumstances. The Court of Appeal therefore, reinstated the original judgement of the First Tier Tribunal. 

To read RPC's commentary on the decision, please click here.

Judicial Review in Tax Disputes – An Overview

Judicial review remains a powerful tool for taxpayers seeking to challenge HMRC's decisions on public law grounds. It is therefore essential that tax practitioners have a firm understanding of the general principles of judicial review and the practical aspects of advancing a judicial review claim.

Our full blog on this topic can be read here. 

High Court permits recission in EBT case enabling taxpayers to avoid IHT liability

The High Court has allowed the recission of deeds relating to Employee Benefit Trusts (EBTs) in the case of JTC Employer Solutions Trustee Ltd v Garnett [2024] EWHC 3128 (Ch), enabling taxpayers to avoid Inheritance Tax (IHT) liability. The EBTs were originally set up for employees, former employees (and their families) of Janus Henderson to provide benefits, but the sub-trusts have attracted IHT due to a mistake in understanding their tax status. The claimants argued they had mistakenly believed the sub-trusts would benefit from IHT exemptions, but HMRC objected.

The Court ruled that the mistake was significant enough to make it unjust to leave the dispositions uncorrected, as it could result in a potential £7m IHT liability. The Court criticised HMRC's objections and clarified that it could not oppose recission on public policy grounds without being formally part of the case. This ruling highlights the potential for taxpayers involved in similar complex EBT arrangements to seek recission in the High Court.

To read the in-depth analysis from RPC, please click here.

Pensions

The Pension Ombudsman rejects complaint regarding a misstatement on pension benefits

The Complainant's wife passed away in 2018 leaving a defined benefit pension which was administered by Aptia UK Limited (Aptia). The pension was payable to the Complainant and Aptia confirmed to him that he could receive the proceeds as a lump sum of £9,296.85. One month later, Aptia wrote to the Complainant confirming that there had been an error and that the lump sum amount was in fact £5,370.76. The Complainant made a complaint to the Pension Ombudsman (TPO) that he was due the original amount quoted to him and the situation had caused him considerable stress.

In their decision, TPO concluded that the initial letter sent to the Complainant did not form a legally binding agreement and that the Complainant had not relied on the misstatement to his detriment. Therefore, Aptia did not have to pay the benefits set out in their first letter. However, TPO accepted that Aptia's actions had caused the Complainant significant distress and inconvenience and awarded him £500.

To read the TPO decision, please click here.

Pensions Regulator stresses the importance of pension administration

On 24 March 2025, David Walmsley, the director of supervision of The Pensions Regulator (TPR), stated that pension administration is critical to the whole of the pensions ecosystem. Speaking at the annual Pensions Administration Standards Association conference, Walmsley explained that pension administrators had repeatedly told TPR that the current landscape is really challenging, with growing compliance demands, recruitment and staff retention issues, and new technologies to integrate, as well as resource concerns.

He suggested that new technologies, such as artificial intelligence and the digitalisation of administration offer a solution to these challenges. Indeed, he has urged pension schemes to embrace innovation and the data revolution. This comes as TPR has highlighted that a quarter of pensions schemes still hold data in non-digital forms, with just over one month before the first schemes are connected to the dashboard ecosystem.

To read the full speech, please click here.

Regulatory developments for FCA regulated entities

FCA announces its 5-year strategy

The 5-year strategy, announced on 25 March 2025, sets out the regulator's four main priorities: (1) becoming a smarter regulator; (2) supporting growth; (3) helping consumers; and (4) fighting crime.

There is also a key focus on the provision of support and information for individuals who do not have the benefit of financial advice with regard to their pensions. The FCA says that it intends to work with the industry to ensure that individuals are equipped with sufficient knowledge to make decisions about their retirement.

The FCA chair, Ashley Alder, stated that “too often the focus has been on the risks of a decision taken rather than the lost opportunity of taking none. We want to change that so we can spur growth and improve lives.”

To read more please click here and here.

Relevant case law updates

Hearing Fixed: on 1 July 2025 the Court of Appeal will hear the judicial review application on FOS 'decision in vehicle finance 

Regular readers will know that the Administrative Court dismissed Clydesdale's (trades as Barclays Partner Finance) claim for judicial review of a Financial Ombudsman Service (FOS) decision, which upheld a complaint about a discretionary commission arrangement in a vehicle finance agreement.

Barclays Partner Finance has since been granted permission to appeal against the Administrative Court's judgment. 

The case reference for the appeal is CA-2025-000102 and the Court has fixed a 4.30-hours hearing on 1 July 2025. This will almost certainly, have an impact on the tens of thousands of complaints already sat with FOS. 

To follow the Court of Appeal's tracker on this case, please click here. 

To read RPC's commentary on the Vehicle Finance Redress scheme, please click here.

With thanks to this week's contributors: Haiying Li, Rebekah Bayliss, Damien O'Malley, Nitin Mathias, Faheem Pervez, Daniel Parkin, Shauna Giddens and Joe Towse.