Money Covered: The Week That Was - 11 July 2025

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

The fourth episode of Season 4 of our podcast, Money Covered – The Month That Was – is now available.  In the latest episode the team discusses the intersection between Employment Practices Liability and Directors & Officers insurance is now available.

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

Headline Developments

FRC publishes landmark guidance on the uses of AI for audit

The Financial Reporting Council (FRC) has issued its first guidance on the use of artificial intelligence (AI) in audit, aiming to provide regulatory clarity and support innovation whilst maintaining appropriate standards.

This non-prescriptive guidance focuses on supporting auditors and central teams at audit firms as they develop and use AI tools, whilst also providing third-party technology providers with regulatory expectations for their customer base. 

The key features of the guidance include: (1) providing a two-part structure, setting out an example of AI use in audits and principles for documenting AI tools effectively; (2) recognising the importance of appropriate explainability; (3) aligning with the UK government's five AI principles; and (4) providing materials clarifying how expectations apply when tools are sourced from third parties.

Together with the guidance, the FRC has also published a thematic review of the six largest firms' processes to certify new technology used in audits. It includes examples of good practice in these processes.

The guidance has been welcomed by the audit industry, as it brings much-needed clarity.

To read the FRC's guidance, please click here; to read the thematic review, please click here. 

FCA reviewing client categorisation rules to clearly distinguish retail investors from professional investors

The Financial Conduct Authority (FCA) is reviewing its client categorisation rules to better distinguish retail from professional investors. The aim is to protect retail clients without imposing undue restriction on professionals.

By modernising the client classification regime, the FCA seeks to provide greater clarity on the rules and protections applicable to different customer groups. This review is designed to boost confidence and encourage investment in capital markets, thereby enhancing the UK's competitiveness in financial services—a key focus for the FCA.

Building on 10 initiatives already delivered since January, the reforms form part of a broader programme, with around 50 initiatives expected to be completed by year-end.

These initiatives include more flexible regulation to improve access to mortgages and a pioneering new private stock market named the Private Intermittent Securities and Capital Exchange System (PISCES), through which investors can invest in high-growth private companies that are not usually available for investment until they are listed.

To read further, please click here.

 Accountants

Accountancy firms' interest in private equity and ESG

An ICAEW survey has revealed that a quarter of mid-tier accountancy firms are considering private equity investment and new ESG service lines. However, skills remain a potential barrier to growth, with securing the right people a potential obstacle.

This research confirmed that almost all the independent surveyed firms have been approached by private equity investors, with a quarter expressing an interest in pursuing such an investment and a quarter saying they have already secured such investment in the past. The trend of private equity investment is expected to continue. However, the attitude towards private equity investment varies. Some firms welcome the resources, which provide an opportunity for growth; others are more reluctant, citing concerns around cultural changes and client relationships.

Almost half the responding firms also state that they plan on starting to offer ESG services within the next three years. The skills gap remains a concern in entering the market to provide ESG services, with a shortage of suitable candidates and competitive remuneration being key issues. In anticipation, a number of firms are already investing in upskilling staff and forming partnerships with ESG experts.

To read more, please click here.

ICAEW discusses key challenges with AI foundation models to assurance professional 

On 7 July 2025, the ICAEW published details from a recent panel discussion which considered the main hurdles faced by assurance professionals in evaluating large-scale, artificial intelligence foundation models.

Looking at operational risks, key areas of AI models that professionals should evaluate include accuracy, reliability, and robustness. Concerns were also raised about overreliance on such products and a lack of competition if there are only a few players in the market. Another risk identified was the fact that the complexity of AI models can make traceability and explainability particularly difficult to evaluate.

It was also highlighted that the energy usage associated with foundation models poses clear concerns about environmental sustainability, and that this will increasingly pose reputational risks.

To read further, please click here.

Tax Practitioners

HMRC encourages companies to review their loan relationships

HMRC is asking companies, to consider their position in cases where it has opened an enquiry into the application of the 'unallowable purpose' rule. This follows recent court decisions that considered the application of the unallowable purpose rule. Special rules apply to prevent a company from claiming tax relief for interest paid and other debits relating to loans entered into for an unallowable purpose.

HMRC has written to the companies which  it believes the principles derived from the cases are relevant to (and where an enquiry has been opened). HMRC expects to issue further letters later in the year.

HMRC invites these companies to consider their position in light of those decisions and to discuss the matter with HMRC, including on a 'without prejudice' basis, so that it can be resolved. HMRC has also updated its guidance following the court decisions.

To read more, please click here.

Regulatory developments for FCA regulated entities

Harnessing AI and technology to deliver the FCA's 2025 strategic priorities

The FCA has highlighted AI and innovation as key drivers of its 2025–2030 strategy. In a recent speech, Chief Data, Information and Intelligence Officer Jessica Rusu outlined plans to support AI adoption across financial services - including a new, 'supercharged sandbox' (launching in October) and AI Live Testing (with applications for AI Live Testing going live this month). The FCA is also expanding its internal use of AI and reaffirming that existing regulations are fit for purpose.

To read the full speech, please click here.

FCA responds to the Cost Benefit Analysis Panel's Interim Annual Report

The Cost Benefit Analysis (CBA) Panel, in its Interim Annual Report, provided recommendations on the FCA's CBAs for changes to the safeguarding regime for payments and e-money firms and regulating stablecoins. 

The Panel's recommendations focus on 3 specific strategic areas where it recommends that the FCA's CBA policy and practice should be developed. These include: 

1. The FCA's use of CBA.
2. Using CBA at earlier and later stages of policy development.
3. Expanding the scope of CBA in the FCA's appraisal of proposed policy.

Overall, the FCA welcomes the recommendations made by the Panel which the FCA considers provide for a clear ambition for the FCA to develop a "best-practice approach to CBA". 

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

Relevant case law updates

Civil Procedure Rules Committee reviews service by email 

In an effort to modernise the service, the Civil Procedure Rules Committee has proposed that solicitors be barred from unreasonably refusing to accept service by email. In particular, it is proposed that solicitors who have confirmed they are authorised to accept service electronically on their client's behalf will be deemed to have accepted such service on an ongoing basis without the need for further confirmation of their consent.

As it currently stands, consent needs to be provided by the party being served and the unreasonable refusal to accept service by email can lead to additional expense and delay. However, adopting a blanket permission approach is not straightforward and could result in an imbalance where unrepresented parties may have limited digital access or are unable to download large documents.

In a bid to remove outdated parts of the Civil Procedure Rules, it is also proposed that fax be removed as a primary method of electronic communication. 

To read more, please click here.

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