There is a clear trajectory towards higher regulatory expectations, lower thresholds for liability, and an increasingly proactive stance from enforcement bodies. In our seminar Collyer Bristow’s Employment and Financial Services experts examined how these changes will affect firms and offered practical steps to prepare for the evolving legal landscape.

Employment Rights Act Reforms and Non‑Financial Misconduct

Karen Mortenson, Partner

Unfair Dismissal: Current Framework and Forthcoming Changes

The law currently provides only limited protection for employees with less than two years’ service. Even if a long-serving employee is dismissed, compensation for ordinary unfair dismissal is generally capped at the lower of £118,223 or 52 weeks’ pay.

From 1 January 2027 the position will be very different: the qualifying period will reduce from two years to six months, and the compensation cap will be removed.

Employers should review their contracts, processes and procedures now. They should ensure probation review meetings take place after five (as opposed to six) months: even where an employee is paid in lieu of notice, their “effective date of termination” may be extended by one week to take account of their statutory minimum notice period – in practice employees will often accrue unfair dismissal rights one week and one day before their two year or, going forward, six-month, anniversary.

Disciplinary and capability procedures should be reviewed and followed. Failure to comply with the Acas Code of Practice can result in an uplift of up to 25% of any compensation awarded which, once the cap is lifted, may be substantial.

Evolving Harassment Duties

Since October 2024, employers have been under a duty to take reasonable steps to prevent the sexual harassment of staff in the course of employment, including harassment by third parties such as customers or suppliers.

From October 2026, employers will be required to take all reasonable steps to prevent sexual harassment. They will also be liable if their employees suffer harassment related to a relevant protected characteristic, such as age, race, or sexual orientation – again unless they took all reasonable steps to prevent the harassment.

Regulations, expected in 2027, will include examples of “reasonable steps” – but employers must act now, as the changes, which mark a significant widening of employer obligations, will take effect from October 2026.

Expansion of COCON and Non-Financial Misconduct

The FCA’s Code of Conduct Rules (COCON) apply to individuals working in FCA‑regulated firms that are subject to the Senior Managers & Certification Regime (SMCR). Currently, COCON is broadly applied to persons who work within banking firms. However, for non-banks, such as asset managers, brokers and advisers, COCON only applies when the individuals perform tasks connected to the firm’s regulated activities.

From 1 September 2026, COCON will apply to certain serious conduct regardless of whether it occurs in the context of regulated activity. The FCA will treat non‑financial misconduct (NFM) as a conduct issue where the behaviour violates an individual’s dignity, creates a hostile environment or involves violence.

Unlike harassment under the Equality Act, NFM is not limited to relevant protected characteristics. The new rules do, however, only apply to serious NFM, and the FCA will consider factors such as repetition, duration, seniority and any previous disciplinary action.

Although COCON does not apply to private life, assessments of fitness and propriety for senior managers and certification staff are not limited in the same way. Accordingly, firms should take conduct demonstrating dishonesty, lack of integrity or violent or sexual misconduct in a personal context into account when undertaking Fit and Proper assessments.

Employers should ensure their risk assessments and policies cover all forms of harassment (not just sexual harassment) and that they are taking all reasonable steps to prevent it. This is a high standard, but what is “reasonable” is likely to depend on the firm’s specific circumstances, and will be informed by the findings of its risk assessment. At a minimum such steps are, however, likely to include regular training, establishing reporting channels, and ensuring concerns are investigated and addressed.

Crypto Moves to a Full Authorisation Regime

Nigel Brahams, Partner

Since 10 January 2020, the FCA has supervised UK cryptoasset businesses for AML/CTF compliance under the Money Laundering Regulations 2017. From January 2021, both “cryptoasset exchange providers” and “custodian wallet providers” have been required to register with the FCA for these purposes.

Financial Promotion Regime Extension (2023)

On 8 October 2023, the Financial Promotion Order 2005 was extended to cover promotions of qualifying cryptoassets, including by overseas firms marketing to UK consumers. A financial promotion includes any invitation or inducement to engage in investment activity, and s.21 FSMA prohibits unauthorised promotions unless:

• issued or approved by an FCA‑authorised person, or
• covered by an FPO exemption (e.g.high‑net‑worth or sophisticated investors), or
• includes prescribed risk warnings and cooling‑off periods.

International Regulatory Context

The UK’s reforms sit within a rapidly evolving global landscape:

• EU MiCA (in force from December 2024) offers unified EU‑wide licensing and passporting.
• Singapore MAS (2023) has introduced strict frameworks for stablecoins.
• Dubai VARA provides a dedicated virtual‑asset regulator with a business‑friendly model.
• US “Genius Act” (stablecoin legislation) is built for a market worth over $300bn.

The UK has chosen to regulate cryptoassets using existing FSMA structures rather than creating a standalone regime.

The FSMA 2000 (Cryptoassets) Regulations 2025

The draft Statutory Instrument (SI), published 15 December 2025, grants the FCA significant powers to:

• make or approve rules,
• review applications for Part 4A permissions and variations,
• approve financial promotions, and
• supervise senior‑management functions (s.59 FSMA).

Under the expanded FSMA framework, firms will face additional requirements consistent with those applied to current FSMA authorised firms. This goes beyond the MLR registration requirements and includes:

• operational resilience,
• consumer duty and conduct,
• senior managers & certification regime (SMCR),
• governance and outsourcing,
• prudential (capital/liquidity) standards,
• market abuse obligations.

The new authorisation regime will apply to:

• cryptoasset trading platforms (CATPs),
• crypto lending platforms,
• custody providers,
• arranging or dealing in cryptoassets,
• staking services,
• public offerings and admissions to trading via the Designated Activities Regime (DAR).

An Appointed Representative regime will not be available.

Market Abuse & MLR Amendments

The SI empowers the FCA to introduce rules mirroring MAR‑style prohibitions covering:

• inside information,
• market manipulation,
• reporting of infringements.

The MLRs will be amended to reflect the shift from registration to full authorisation.

FCA Consultations (2025–2026)

There are currently 4 active FCA consultations covering:

• crypto lending, staking, DeFi conduct and governance (CP 25/40);
• disclosures and DAR‑based market‑abuse rules (CP 25/41);
• prudential requirements for CATPs and stablecoin firms (CP 25/42);
• extending consumer‑duty and redress frameworks to cryptoassets (CP 26/4).

Authorisation Timelines (“Gateway”)

Key dates include:

• 1 July 2026 – Pre‑application Support Service (PASS) and application forms open;
• 30 September 2026 – 28 February 2027 – application submission window;
• 25 October 2027 – FSMA crypto regime commences;
• 2027–2029 – transitional arrangements for on‑time applicants.

There is no automatic transition for MLR‑registered firms or existing FSMA‑authorised firms: all must apply afresh.

The UK’s Strategic Position

Although a late mover, the UK will become one of the few G7 jurisdictions with a comprehensive securities‑style framework for token issuance, custody, staking and trading. While this offers institutional‑grade certainty, and the FCA has indicated that it will take a proportionate approach to smaller firms, it remains to be seen whether smaller firms will embrace the new regime or move abroad.

Collective Investment Schemes

Luke Naylor, Associate

Understanding the CIS Definition

Collective Investment Schemes (each a “CIS”) are defined broadly under s.235 FSMA. The concept applies to virtually any arrangement involving a collective investment in “property of any kind”, ranging from shares to real estate to alternative assets. Key requirements are that participants share income or profits, lack day‑to‑day control, and where contributions and that assets are pooled or managed as a whole.

Cases such as FCA v Capital Alternatives (Court of Appeal) and FCA v Asset Land (Supreme Court) underline that the courts look at the substance and real-life operation of the arrangement, rather than the labels used in documentation, and are prepared to interpreted Section 235 expansively. Firms need to ensure that investors retain sufficient genuine day-to-day control, rather than anything cosmetic, to prevent an investment structure becoming a CIS.

Regulatory Framework and Key Restrictions

Operating or promoting a CIS is a regulated activity requiring FCA authorisation. Doing so without authorisation exposes firms to criminal offences, fines, imprisonment, and unenforceable contracts. CISs fall into two categories:

• Regulated schemes (e.g. authorised unit trusts, OEICs) that can be marketed widely.
• Unregulated schemes (UCIS), which must not be marketed to the general public due to their high‑risk nature.

Financial promotion rules add further constraints: invitations or inducements to engage in investment activity cannot be communicated unless the communicator is authorised, the communication is approved, or an exemption applies. Exemptions require specific investor declarations and mandatory risk warnings.

Challenges in Avoiding CIS Status

Seeking to avoid CIS status requires genuine investor control over day‑to‑day decisions. Superficial control mechanisms will not suffice. Pooling is a central trigger: if investor funds or returns are combined, CIS classification becomes likely in the absence of day-to-day control. Firms must conduct early perimeter analysis with a view to reducing risk prior to promoting to prospective investors.

Investor Protection

Abbie Coleman, Associate

Investor recourse depends on whether the CIS is regulated or unregulated. For regulated CIS, the FSCS will compensate eligible losses up to the recently increased investment protection limit of £120,000, with the Financial Ombudsman Service available for individual complaints if the dispute cannot be resolved directly with the firm at fault.
The FSCS will not cover direct investment losses arising from a UCIS, but investors may still be protected where a regulated adviser or promoter carried out a regulated activity, such as giving unsuitable advice or issuing misleading marketing concerning investment into a UCIS.

Enforcement Case Studies

The FCA can prosecute persons unlawfully operating or promoting a CIS. The recent Harlequin Property case saw thousands of investors exposed to significant losses following advice by regulated firms to invest in high‑risk overseas property developments housed in a UCIS. Regulatory action included prohibitions, fines and substantial FSCS recovery efforts (where the regulated advising firms had dissolved), alongside criminal enforcement by the Serious Fraud Office.

In the Argento Wealth case, the operator promoted and ran a UCIS without FCA authorisation, taking millions from investors and breaching both the regulated‑activity and financial‑promotion restrictions. Civil proceedings followed as Argento Wealth was still trading, culminating in a court‑approved settlement for the repayment of funds, with further hearings required to determine distribution.

Civil Claims by Investors

Alongside regulatory action, investors may pursue civil claims such as breach of contract (e.g. acting outside an investment mandate), negligence (failure to exercise reasonable skill and care when recommending CIS investments), and misrepresentation (false or misleading information about the scheme at the point of sale).

Practical Considerations for Investors

Taking advice from a regulated professional offers significantly more protection. Investors should ask whether the scheme is regulated, understand its risk profile and confirm what due‑diligence the adviser has carried out. FSCS and Ombudsman routes depend on whether the firm is still trading or is “in default”, so careful checks are essential.