Money Covered: The Week That Was - 31 January 2025

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

The second episode of Season 4 of our podcast, Money Covered – The Month That Was, where the team discusses key developments and topical issues in the financial services area, is now available. This episode features Mel Redding, Matt Watson and Rachael Healey discussing their predicted trends and developments for 2025 in the pensions and D&O sectors.

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

The January edition of RPC's FOS complaints newsletter has now been published. This looks at recent developments that already have or are likely to impact, future developments and trends.

Headline development 

ICAEW challenges HMRC proposed powers

In October 2024, HMRC published a consultation on the current tax administration framework which looks at possible ways to reform and modernise the tax administration system. HMRC invited comments from organisations as to how best they can tackle non-compliance and become more efficient. 

On 21 January 2025 ICAEW responded setting out why it considers that HMRC's messaging is unclear. The ICAEW has said that in order to productively respond, HMRC needs to provide information relating to the nature, cause, and impact of the errors that they are seeing, and only then can potential resolutions be suggested. 

HMRC set out a number of consultation questions which looked at the possible introduction of additional information requirements, introducing mandatory requirements for evidence provisions, possible partial enquiry powers into specific issues and what limitations could be introduced on this, as well as the possible impact and burden of the increased suggested regulations.

The ICAEW "believes it would be more effective for HMRC to utilise the information that it already receives rather than introducing additional reporting requirements". They suggest that HMRC should look at aligning the current HMRC powers and procedures, streamlining the current compliance checking processes and creating one consolidated tax act before additional powers are introduced.

The ICAEW feels that the tax system could be simplified to allow for easier compliance. 

To read the ICAEW's full response please click here.

Auditors

The Financial Reporting Council launches a campaign to help small businesses with auditing and raising capital. 

The Financial Reporting Council (FRC) have launched a year-long campaign to help small and medium-sized enterprises (SME's) access audit services. The intention behind this campaign is to reduce reporting burdens which will in turn, promote growth by allowing businesses to improve access to capital and funding. 

Proportionate access to auditors is recognised as a key area for the FRC to focus on in helping to support SME's, which make up 99% of all private sector businesses. It is hoped that the campaign will open up engagement with the SME, capital providers and auditors. 

To read more, please click here. 

IFAs and wealth managers

Chancellor to amend non-dom tax crackdown plans

Chancellor Rachel Reeves has proposed amending Labour’s plan to abolish non-dom status, allowing for a more gradual phase-out of tax benefits. Speaking to The Wall Street Journal at Davos, she said the government has been “listening to concerns” from the non-dom community.

Labour’s manifesto pledged to scrap non-dom status, which allows UK residents to avoid tax on foreign income unless remitted to the UK. The policy, set for April 2025, is expected to raise £33.8bn over five years.

An amendment will make the temporary repatriation facility “more generous", potentially offering a 12% tax rate for the first two years and 15% for the third. Some experts warn this may discourage long term investment, with concerns it could lead to a “use-and-leave” approach rather than sustained economic growth.

The policy has been controversial, with critics arguing it could drive wealthy individuals out of the UK. The Adam Smith Institute, an investment think tank, claims millionaire departures in 2024 cost the UK tax revenue equivalent to over half a million average taxpayers.

To read more, please click here.

Brokers (including insurance)

The FCA finds gaps in brokers AML checks 

The FCA has released a report highlighting the need for brokers to keep better records, implement risk training and establish appropriate controls to prevent money laundering. The recent findings do show that wholesale brokers have made good progress since the 2019 thematic review which highlighted significant failings when it came to risk assessments, however there are still several areas where firms need to improve. 

The key areas of improvement are: 

• An understanding on the risks of money laundering 

• Over-reliance on others' due diligence in a chain transaction 

• Limited information sharing between firms; and 

• Insufficient awareness of money laundering through markets. 

These highlighted weaknesses can have a significant impact on industry, which may compromise both investors and consumer confidence. It is hoped that the FCA report acts as a wake up call for brokers to improve ahead of further reviews. 

To read the FCA report, please click here. 

Pensions

HMRC announces changes to tax codes

On 22 January 2025, HMRC published its Pensions Schemes Newsletter 166. Among the updates in the newsletter was an announcement that HMRC would be making changes to the way tax codes are applied for those who are newly in receipt of their pensions, with the aim of reducing incidences of overpayments and underpayments.  The changes are due to be introduced from April 2025.  HMRC says the changes should not cause any additional work for pensions administrators, as the changes to the tax codes will be made automatically and pension administrators and customers will be informed either by letter or email.  Furthermore, HMRC expect that the changes will reduce the number of queries they send to pensions administrators, thereby reducing overall burden on pensions administrators.  

HMRC also acknowledged the changes to the application of inheritance tax to pensions announced in the Autumn 2024 Budget and the subsequent consultation, which closed on 22 January 2025.  They have confirmed that they are now considering the responses to the consultation and intend to publish a formal response and draft regulations later this year.  

To read the full newsletter, click here.

Spring pensions review report

On 29 January 2025, Rachel Reeves, Chancellor of the Exchequer delivered a speech focusing on economic growth in the UK.

Many topics were covered including a third runway at Heathrow, increased reservoirs across the UK, redevelopments and new infrastructure rules.

Reeves also covered the Pensions Investment Review which has been ongoing since last year. The government published its interim report in November 2024 which set out the consultations which had taken place. These consultations have now been finalised and Reeves has set out that the final report for the first phase will be published in the spring.

The government plans to remove defined benefit pension scheme surplus restrictions amongst other reforms and continues to focus on investment in British companies.

Reeves also acknowledged the importance of balancing the growth plans and protecting pensions in the gilt market.

To read more please click here.

FOS Developments 

Financial Ombudsman Service complaints data for Q2 2024/2025 released

The Financial Ombudsman Service (FOS) has released the complaints data for July to September 2024 (Q2 2024/2025). The data shows that there have been 73,692 total new complaints in Q2 2024/2025, which is consistent with Q1 2024/2025 but significantly higher than Q2 2023/2024. The annual report for the year ended 31 March 2024 showed that overall complaints in 2023/2024 were up 21% on the previous year, whilst the number of resolved complaints dropped 9%. The most significant increase has been complaints about fraud, scams, credit cards and current accounts. 

In Q2 2024/2025, FOS noted a decrease in complaints about SIPPs and occupational pension transfers. However, complaints regarding the suitability of advice remain steady, although the uphold rate has increased significantly, whereas complaints surrounding residential mortgages have also remained steady, the uphold rate has decreased. Claims against claim management companies (CMCs) have continued to decline from 2019 onwards.

FOS has not published any data for complaints against CMCs for Q2 2024/2025, which typically happens when there are less than 30 complaints for a topic per quarter. 

To read RPC's FOS newsletter, please click here.  

Regulatory developments for FCA regulated entities

FCA publishes its 2025 "Dear CEO" letter regarding supervision of wholesale broker firms

On 24 January 2025, the Financial Conduct Authority (FCA) published its 2025 "Dear CEO" letter to the Chief Executives of wholesale broker firms, which sets out its supervision strategy for the next two years.

Wholesale brokers provide their clients with access to the financial market, including connecting buyers and sellers, and facilitating trade. A wholesale broker that is doing its job well helps improve outcomes for clients and contributes towards upholding market standards. The FCA has emphasised that generally, wholesale brokers are performing strongly.

Over the last two years, the FCA has been working with firms on issues such as liquidity risk management, financial crime, culture and non-financial misconduct. The FCA has found that while generally firms are improving in these areas, there is more work to be done. The FCA's observations over the previous two years include: (1) clearing brokers are generally becoming stronger prudentially, however there remains room for improvement in terms of risk management, so this will be an area of continued focus; (2) the FCA undertook a multi-firm assessment of Money Laundering Through the Markets which looks at financial crime within the sector, and encourages firms to read their findings in full; and (3) the Remuneration Code (for remuneration at wholesale broker firms) is being inconsistently applied. Failure to have an appropriate remuneration policy in place and comply with the Remuneration Code may result in the FCA using its regulatory tools, such as imposing additional capital requirements.

For the next two years, the FCA will be focussing on (1) broker conduct, specifically the processes firms have in place to identify and manage misconduct of their brokers; (2) healthy workplace culture within wholesale broker firms; (3) business oversight, in particular the importance of having effective and comprehensive risk and control supervision frameworks to detect and prevent harm and deter and penalise bad behaviour; and (4) financial resilience, namely ensuring that brokers maintain adequate levels of capital and liquidity. 

The FCA expects all CEOs to have discussed the FCA's letter with their directors/Board by 31 March 2025 and to have established next steps and actions.

You can read the FCA's full letter here and RPC's blog here.

FCA call for government to define 'an acceptable level of consumer harm'

Before Christmas, Nikhil Rathi of the FCA called on the government to define what constituted an acceptable level of consumer harm in response to the government's call for proposals for reduced regulation. 

The government's call comes as part of the mission to increase growth, but he FCA is concerned that such an approach will come with risk that the government must be alive to.

To read RPC's blog, please click here.

FCA contingent charging ban on DB transfers update 

In the five years following the FCA's decision to ban a contingent charging model for defined benefit transfers, the FCA have reported that the intervention had a bigger but significantly different impact than expected. 

The ban required firms to charge the same fee for defined benefit (DB) advice, whether or not the recommendation was to transfer, or if the consumer proceeds. However, the fees charged for this advice did not decline as expected, and instead appeared to level off after the ban was introduced. 

The FCA reported that the intervention had a bigger impact on the volume of DB transfers overall, which has now declined. 

To read the FCA's report, please click here. 

Relevant case law updates 

Permission to appeal granted in FOS motor finance case

Barclays Partner Finance has been granted permission to appeal against the Administrative Court’s decision in R (Clydesdale Financial Services Ltd) v Financial Ombudsman Service Ltd [2024] EWHC 3237 (Admin), which dismissed its judicial review challenge over a motor finance discretionary commission arrangement.

The Court of Appeal has added the case (CA-2025-000102) to its tracker, confirming that permission was granted by Kerr J on 24 December 2024. The appeal is set to be heard by 8 December 2025.

The initial ruling upheld the Financial Ombudsman Service’s decision to uphold a consumer complaint regarding the commission arrangement.

To read the appeal Judgment, please click here.

With thanks to this week's contributors: Heather Buttifant, Hattie Hill, Melanie Redding, Alison Thomas, Kristin Smith, and Kerone Thomas.