The FCA has published its new Regulatory Priorities Report for Wholesale Markets, setting out the key areas of supervisory focus for sell‑side firms in the 2026–27 business year. This report replaces the historic Portfolio Letters and instead offers a single, consolidated articulation of the FCA’s forward‑looking expectations across the wholesale sector.
The FCA emphasizes that these priorities serve not merely as guidance, but as clear expectations against which firms should assess their governance, systems, controls and risk management. The report also reflects the regulator’s shift toward a more agile, outcomes‑focused supervisory model, with less intensive oversight of firms demonstrating strong controls and a more assertive approach where the FCA identifies heightened risk or harm.
Key Regulatory Themes
Although priorities vary by business model and permissions (e.g., wholesale banks, brokers, trading venues, principal trading firms, benchmark administrators, CRAs and DRSPs), the FCA’s overarching focus is on market integrity, resilience, transparency, competition, innovation and robust governance.
Resilience of Firms and Markets
The FCA expects sell‑side firms to strengthen operational, financial and trading resilience, noting that weaknesses can rapidly propagate across the system.
The FCA will focus on:
- Operational resilience, including effective scenario testing, impact tolerances, recovery plans and embedding resilience into change management
- Third‑party outsourcing and technology risk, ensuring robust due diligence and monitoring of material dependencies
- Trading controls at brokers, trading venues and principal trading firms to prevent market disorder, including controls for volatility, automated trading and stress‑testing frameworks
- Liquidity and financial resilience, including reviews of contingency funding, wind‑down planning and firms’ ICARA processes
- Enhanced monitoring of firms with significant exposure to commodity trading and positions that may pose market risk
What the FCA will do this year:
- Introduce new operational incident and critical third‑party reporting rules
- Assess the cyber and operational resilience of firms using CQUEST and ORQUEST questionnaires
- Undertake CBEST penetration testing of wholesale banks and trading venues
- Review the operational resilience self-assessments of some wholesale banks
- Assess insider‑risk management maturity across firms and awareness of firms of the National Protective Security Authority guidance
- Consult on guidance to strengthen market resilience during 2026
- Review and test contingency funding and wind-down plans of some wholesale brokers
- Consult on market risk capital requirements in Q4 2026
- Continue monitoring principal trading firms specializing in commodity markets to identify emerging risks
Making Markets Competitive, Innovative and Efficient
The FCA is progressing a major package of reforms across primary and secondary markets with a focus on transparency, settlement, post‑trade processes and reporting. This aims to foster competition, support innovation and promote growth.
The FCA will focus on:
- Changes to listing rules, public offer regimes, prospectus regime and securitization standards
- Data and transparency improvements, including the introduction of bond and equity-consolidated tapes, and reforms to transaction reporting to make it more proportionate
- Settlement and digitization: Preparations for T+1 settlement, dematerialization of shares and more digital market infrastructure
- Reforms to commodities regulation, including a new position limit regime and strengthened control frameworks at trading venues
- Client categorization reforms intended to balance investor protection and market access
- Continued focus on innovation, with the Digital Securities Sandbox and PISCES sandboxes continuing to be operational
What the FCA will do this year:
- Publish final rules on securitization and short‑selling reforms, these are expected in H2 2026
- Finalize the equity consolidated tape framework by end of H1 2026; a procurement process for the future operator of the tape will be underway in 2026
- Publish final rules following consultation on client categorization and conflicts of interest
- Reform the commodity derivatives regulatory framework, expected in July 2026
- Review wholesale conduct rules and remuneration rules for solo‑regulated firms
- Publish final rules on ESG ratings in Q4 2026
- Commence a post-implementation review of the IFPR rules to consider whether these remain fit for purpose
Promoting the Safe and Responsible Adoption of New Technology
The FCA highlights the rapid evolution of market technologies, including AI, DLT/digital assets and quantum computing, and expects firms to treat technology adoption as a major governance and risk‑management priority.
The FCA expects:
- Clear accountability and governance for AI, DLT and other emerging technologies
- Thorough testing and validation, particularly where technology is used for trading, surveillance or risk management
- Robust oversight of third‑party technology providers and data‑related risks
- Proactive engagement with FCA innovation pathways, including sandboxes and the Digital Securities Sandbox
What the FCA will do this year:
- Operate the Digital Securities Sandbox jointly with the Bank of England, including the Digital Gilt Instrument pilot
- Finalize the UK cryptoasset regulatory regime in 2026
- Gather intelligence on sell‑side firms’ use of AI and associated controls
- Continue cross‑authority work on AI, including through the FCA/BoE AI consortium
- Launch the fourth survey on AI and Machine Learning usage within the industry in 2026
Prevention of Financial Crime and Market Abuse
The FCA stresses that clean markets are a foundational priority, citing persistent weaknesses in AML and market abuse frameworks, surveillance architecture and governance standards across parts of the market.
FCA focus areas:
- Strengthening AML controls, including the quality of business‑wide risk assessments, customer due diligence and oversight of appointed representatives
- Improving surveillance, including data completeness, alert calibration, testing and model governance the FCA has noted that some firms continue to have gaps in market abuse surveillance processes
- Ensuring robust insider‑information controls and accurate transaction reporting
- Enhancing the STOR regime and addressing weaknesses in firms’ reporting quality
- Reducing duplication and compliance burden for lower risk activities by leveraging technology to improve overall efficiency whilst also aiming to apply KYC/AML regimes more proportionately
What the FCA will do this year:
- Conduct further assessments on sanctions, terrorist financing and proliferation financing
- Continue its STOR supervision programme
- Engage with firms following findings in corporate finance AML reviews to understand what remedial actions have been taken
- Collect data from banks and trading venues on insider‑risk management maturity
Conflicts of Interest Management and Conduct Oversight
The FCA flags conflicts of interest as a major source of potential harm, undermining trust and distorting markets if not properly managed.
FCA focus areas:
- Conflicts within wholesale banks’ trading, execution and origination activities (e.g., market soundings, primary issuance, share buybacks)
- Remuneration structures misaligned with prudent risk management
- Conflicts in benchmark administration, credit rating assignment and market data provision. Especially in regard to ‘issuer pays’ credit ratings
- Weak conduct oversight in wholesale brokers
What the FCA will do this year:
- Multi‑firm reviews across trading desks, prime services and quantitative investment strategies to address conflicts and inadequate conduct in trading and originating activities of wholesale banks
- Governance reviews of benchmark administrators
- Assess compliance functions within corporate finance firms
- Assess and test the controls wholesale brokers have in place to prevent non-financial misconduct
- Ongoing review of the Consumer Duty as it applies to wholesale firms, consultation expected in H1 2026
Other Areas of Focus
The FCA highlights several additional priorities, including an assessment of financial resilience, especially at wholesale brokers and principal trading firms, including reviews of contingency funding and capital adequacy. The regulator will also look to assess governance standards at trading venues, CRAs, benchmark administrators and brokers, with specific reviews planned across 2026. Notably overseas branches and subsidiaries of brokers which were previously identified as having poor oversight will be reviewed to ensure remediation has taken place. Data quality and transparency, including controls around benchmark methodologies, ratings quality, DRSP reporting accuracy and trade repository processes will also be an additional focus, with the FCA planning to engage with at least 4 benchmark administrators to test their compliance in these areas.
What Sell‑Side Firms Should Do Now
Sell‑side boards, senior management and control functions should undertake an internal review of the Wholesale Markets Regulatory Priorities Report, assessing how the expectations impact their business model, trading infrastructure, risk management, financial resilience and governance structures. This should include:
- Mapping existing controls against FCA expectations
- Reviewing operational and trading resilience frameworks, including dependency risk
- Testing the robustness of surveillance, AML and insider‑information frameworks
- Assessing conduct oversight, conflicts management and remuneration alignment
- Evaluating technology governance, particularly for AI, automated trading systems and third‑party providers
Firms should ensure these assessments are escalated to executive committees and boards and that actions are documented, tracked and prioritized.
As with the buy‑side, some firms may be required to complete the RegData return for their sector confirming that the report has been reviewed by appropriate senior stakeholders; failure to submit may incur a £250 administrative fee. If you need support from Kroll with the submission of this return, please ensure they are given the correct permissions on RegData.
How Kroll Can Help
Kroll’s Compliance and Regulatory Consulting practice can support sell‑side firms in meeting the FCA’s evolving expectations by providing targeted assistance across the FCA’s priority areas, including:
- Mapping control frameworks against the FCA’s sell‑side priorities and developing a remediation plan
- Assessing trading, operational and cyber‑resilience frameworks, including governance, scenario testing, impact tolerances, technology‑risk oversight and third‑party dependency management
- Reviewing surveillance systems, including data completeness, alert calibration, model governance, testing and the effectiveness of insider‑risk and market‑abuse controls
- Evaluating firms’ liquidity, ICARA, recovery and wind‑down arrangements
- Reviewing conflicts of interest and conduct oversight frameworks across trading, origination and client‑facing functions
- Assisting with governance, testing and oversight frameworks for new technologies, including AI‑enabled tools, digital assets, automated trading systems and broader digital‑market infrastructure
- Financial‑crime control enhancement, including business‑wide risk assessments, CDD/EDD improvements and remediation of AML/CTF governance weaknesses
- Governance reviews, including board‑effectiveness assessments at trading venues, benchmark administrators, brokers and CRAs
- Supporting preparations for major structural reforms such as consolidated tape implementation, T+1, dematerialization and changes to transparency and reporting regimes
If you require any assistance with any of the items mentioned above or would like to learn more about how Kroll can support you, please reach out to your usual contact at Kroll or any of the contacts listed below.
