A new phase of regulatory transformation - the year ahead

This year the impact of key reforms, such as targeted support, have the potential to start making a real difference, through tangible changes to products, processes and expectations. Clarity will be provided on important ongoing policy developments, such as the UK’s digital assets framework. The commitments made in the Government’s long-term strategy for financial services and the Leeds reforms - as well as the outcome of a number of ongoing reviews - mean that the reform agenda will remain busy throughout the year and beyond. 

While growth and competitiveness will undoubtedly remain a key focus for the Government and regulators, they will remain acutely aware of the risk environment that financial services firms are navigating, and the challenges consumers face. This will be reflected in the policy and supervisory focus on topics such as operational and cyber risks, use of AI, and consumer outcomes. 

Meanwhile, the accelerating pace of technological change - amid other macro trends - means 2026 will be a pivotal year for the transformation of risk and compliance functions. Firms are accelerating their exploration of AI and advanced data capabilities, across areas such as customer journeys, monitoring, surveillance, prudential modelling and regulatory reporting. The next 12 months will be critical for setting strategic direction: determining where AI can safely and effectively enhance compliance and control frameworks, how new models will be governed, and how data quality and resilience will support both innovation and regulatory expectations. 

The breadth of regulatory change, increased global fragmentation, and the unpredictability of the risk environment means deployment of these tools is increasingly becoming a prerequisite for success. 

FCA streamlining and consumer-focused reform

A shifting supervisory approach

The FCA’s 2025–2030 strategy outlined a new supervisory approach, which firms are likely to see take shape in 2026. As part of its drive to be a “more efficient and effective regulator”, the FCA said it will take a less intensive supervisory approach for firms “demonstrably seeking to do the right thing”, and provide more firms with a direct FCA contact. The regulator also plans to “streamline” its supervisory priorities, and replace Dear CEO portfolio letters with annual market reports. 

These changes will reshape how firms interact with the FCA. Firms seeking lighter supervision will need to show they are “doing the right thing” in practice, while many smaller but significant firms will encounter a new level of direct supervisory engagement. With this increased scrutiny likely to surface more issues, firms should take a more strategic approach to how they organise, prepare for and respond to regulatory interactions.

Mortgage reform: Greater flexibility and sharper strategic choices 

The mortgage market enters 2026 with greater regulatory flexibility already in play and more on the horizon. Over the past year, the FCA and PRA have implemented targeted changes (such as a clarification of interest rate stress tests), which have enabled lenders to take a more nuanced approach to risk appetite. The FCA’s consultation on responsible lending rules following DP25/2, expected in the first half of 2026, will mark the next major milestone. The FCA's feedback statement (FS25/6) highlighted areas for potential rule change such as interest-only lending, and further policy developments in this space could give lenders greater certainty to invest in more innovative products.

As existing reforms bed in and policy development continues, strategic considerations will sharpen. Firms have already begun adjusting criteria in selected segments, and the FCA’s upcoming proposals will add further momentum to reassess whether - and how far - they want to expand into higher-risk segments such as high loan-to-value or high loan-to-income lending, or interest-only. Last year’s changes under PS25/11, enabling lighter-touch affordability for remortgages and more flexible execution-only interactions, create further scope to compete on retention and customer experience. For firms, the challenge will be navigating intensifying competition while maintaining sustainable growth and strong risk management as the regulatory landscape continues to evolve. 

The evolving retail investment landscape

2026 is a pivotal year for retail participation in capital markets. December 2025 saw the publication of near-final rules to establish a targeted support regime. This new service for pre-defined segments of similar consumers has the potential to improve outcomes for those who don’t feel able to self-serve, but can’t afford full advice. Accompanying this is an advertising campaign, led by the Investment Association, as Government and industry work together to improve the UK’s investment culture. 

Alongside the regime, this year will see further FCA consultation to clarify the boundaries and scope of simplified advice, in addition to broader work on client categorisation for HNW individuals. Firms will also need to engage with the new Consumer Composite Investments disclosure regime, with final rules confirmed in late 2025 and an implementation date of mid-2027.

Together, these changes stand to significantly alter the ‘advice’ landscape. While holistic advice firms may not choose to engage with targeted support, the broader landscape of platforms, technology-enabled new entrants, retail banking businesses and those with substantial legacy backbooks are all engaging with the new regimes and embracing flexibility in how they engage with customers. With the FCA’s open discussion paper on Expanding Access to Consumer Investments, further change is on the horizon, including potential reforms to fractional investments, the treatment of managed portfolio services, and a broader rebalancing of risk.

Consumer Duty: heightened scrutiny and clarified expectations 

Supervisory scrutiny of the Consumer Duty is set to intensify during 2026, with the FCA embarking on a series of cross-sector and sector-specific reviews that are likely to generate firm-specific feedback and wider findings requiring follow-up action. Reviews to watch early in the year include the FCA’s premium finance market study final report, and pure protection market study interim report.  

The regulator also plans to progress work to clarify the Duty’s scope and application, and to advance its programme of rulebook streamlining.

Firms will need robust MI, governance and outcomes monitoring to navigate the coming wave of reviews and to capitalise on opportunities created by rulebook streamlining. As they accelerate investment in customer-facing AI, firms must also ensure these models meet Duty expectations. Used well, AI can enhance vulnerability detection, outcomes monitoring and customer support - but only where strong governance and safeguards are in place.

Modernising consumer credit regulation

The FCA will confirm its approach to regulating buy-now-pay-later lending in early 2026, ahead of the regime going live in July 2026. Meanwhile, HM Treasury and the FCA are advancing broader reform of the Consumer Credit Act, moving towards a more principles-based, modern regime. 

Consumer credit lenders should prepare for a more flexible regime, especially in relation to customer communications, and factor the reforms into their ongoing efforts to enhance customer journeys and invest in digital platforms that support more dynamic, personalised interactions and product offerings.

FOS reform: greater certainty ahead, but timing remains crucial

The Government’s Leeds Reforms package in July 2025 set out a significant modernisation of the Financial Ombudsman Service (FOS). The FCA and FOS issued a joint consultation on the elements that can be taken forward without legislative change, with a policy statement expected in the first half of 2026. Further detail from the Government is also expected, including the timetable for legislative changes.

Reform of the FOS will be an important underpinning for many of the wider regulatory changes taking shape in 2026. While the promised greater clarity and predictability of the future redress framework should ultimately help firms innovatee with confidence, the timescales will be crucial. With legislative reform still required for the most material changes, these may not be in place in time to support product innovation and more flexible approaches during 2026. The FCA and FOS are aware of this challenge, as reflected in their recent joint statement outlining how they will work together in relation to targeted support. 

Motor finance redress: a major operational challenge

The FCA’s policy statement on motor finance redress, expected in February or March 2026, is expected to mark the launch of a proposed formal redress scheme, under which consumers would begin to receive compensation later in the year. For affected lenders, this would be a major operational undertaking, requiring rapid mobilisation of data, systems and controls, customer outreach, and complaints handling. Where the FCA ultimately lands in its policy statement will be closely watched as an indicator of how it intends to approach future mass-redress events, and how it balances consumer protection with its secondary objective to support growth and competitiveness.

Operational resilience, ICT and cyber: Raising the bar

The cyber and technology risk landscape is becoming more intense and interconnected, with technological change and dependencies, as well as geopolitical tensions amplifying the threats firms face. Ransomware and data-extortion attacks are increasing in scale and sophistication, while high-profile outages are raising fresh concerns about firms’ resilience and their reliance on third parties. 

Regulatory expectations are rising in response. Supervisors are engaging with firms on how they’re embedding the operational resilience regime in practice, including whether they can remain within impact tolerances for important business services. Operational risk and wider non-financial risk are increasingly high on the supervisory agenda. The new Cyber Bill - currently progressing through Parliament - will create expanded cyber security duties for operators of essential services and key digital providers, signalling a more interventionist approach to technology risk.  

We expect the first designation of critical third parties by HMT in 2026. This will bring designated providers into direct financial services regulatory oversight and resilience requirements, while financial services firms remain fully responsible for meeting their own operational resilience and third-party risk management obligations in respect of these providers.

The PRA, FCA and BoE are expected to issue final rules in H1 2026 on incident, outsourcing and third-party reporting, standardising the information firms must submit following operational incidents and data collected on outsourcing and third-party arrangements. The PRA and BoE also plan to consult on policy relating to the management of information and communication technology and cyber risks in the first half of the year. 

Together, these changes will require firms to adopt a more strategic, agile and continuously updated approach to cyber, operational risk and resilience, and wider technology risks. Resilience frameworks, testing programmes and third-party risk management will need to evolve in line with the changing threat landscape and enhanced regulatory expectations. 

Technology, data and digital market reform

Digital assets: landing the new regime 

2026 is the year digital assets regulation stops circling and starts landing. By mid-2026, the FCA is expected to publish the cryptoasset policy statements which will define the UK regime, giving firms clarity to design products, controls and governance. The regulator has also confirmed that stablecoin payments are a priority for 2026, with a focus on enabling UK-issued stablecoins to support faster and more convenient payments. The BoE will set out the framework for systemic sterling stablecoins and the PRA may consult on its expectations on prudential cryptoasset requirements for banks. Firms that adapt capital, liquidity, risk and booking models early will be positioned to operate confidently once the regime goes live from early 2027.

Cross-border momentum will also accelerate. The US-UK taskforce is expected to foster innovation and growth in cryptoassets, while the US GENIUS Act will introduce federal standards which reshape global issuance, reserve structures and disclosure norms. UK firms will need to map their business models against this emerging transatlantic baseline, and scenario test how product design and liquidity flows could shift. 

Meanwhile, tokenisation will continue to mature, supported by the digital securities sandbox, with the stablecoin sandbox running in parallel to test new settlement models. These frameworks give firms a path into regulated activity, but only those that industrialise workflows, strengthen custody and settlement resilience, and embed robust governance from day one will capture first-mover advantage.

Regulatory clarity is arriving at last. Firms that start aligning to the emerging framework now, rather than wait for complete certainty, will set the pace for the next phase of digital assets growth in the UK.

AI, Open Finance and digital ID take centre stage

In 2026, more firms are likely to scale AI – including GenAI – into material use cases. This will require stronger governance, model oversight and control frameworks. With no AI-specific regulation expected in the UK in the short to medium term, firms will need to apply the PRA and FCA’s principles and outcomes-based regime confidently to their AI deployments. That means evidencing how existing requirements – including the Consumer Duty, SM&CR, operational resilience and third-party oversight – are met in an AI-enabled environment. Engagement with initiatives such as the FCA’s AI Lab can help firms test approaches and build regulatory confidence.

The UK authorities also plan to move Open Banking from transitional arrangements onto a more long-term, legislated footing, while laying the foundations for Open Finance. Building on rising adoption in 2025, regulators will oversee the market rollout of commercial variable recurring payments (supported by the establishment of the UK Payments Initiative), and the FCA will progress the future standards entity for Open Banking APIs and publish an Open Finance roadmap by March 2026. These steps have the potential to reshape competition in payments and create new opportunities for secure, consent-based innovation using customer data. 

Digital identity will remain a major area of policy focus. With the UK Digital Identity and Attributes Trust Framework now on a statutory footing, the phased rollout of the GOV.UK Wallet, and a new digital ID scheme planned, adoption is expected to grow. This creates opportunities to streamline onboarding, improve financial inclusion and strengthen financial crime defences. Additionally, as fraud techniques evolve (such as AI-enabled deepfakes and manipulated evidence), firms will need to continually update security, detection and response measures. 

Sustainable finance and climate risk: new obligations in an evolving landscape

The sustainable finance framework will progress in 2026 as the UK prepares to introduce the UK Sustainability Reporting Standards (UK SRS), which will adopt the International Sustainability Standards Board (ISSB) framework into UK law. Once endorsed, with final standards expected to be published in February, the FCA will be able to consult on updated disclosure requirements for listed issuers. The UK SRS are also expected to shape future reporting requirements for UK registered companies, pending Government consultation. The transition from the Task Force on Climate Related Financial Disclosures (TCFD) to the UK SRS will require firms to uplift their reporting to assess and disclose against a broader range of financially material sustainability risks and opportunities. 

More broadly, firms will need to monitor ongoing shifts in the UK sustainable and corporate reporting landscape, including the UK Government’s yet-to-be-confirmed position on transition plans and sustainability assurance oversight. Additionally, companies with EU operations will need to assess the implications of the EU’s Omnibus proposals, which will change the scope and obligations of EU corporate sustainability reporting and due diligence requirements.

Climate risk management will also rise in importance in 2026 as banks and insurers respond to the PRA’s updated supervisory expectations (confirmed in December 2025). Firms will need to complete the required internal review by June 2026, including a gap analysis, action plan and materiality assessment that will shape the depth of work needed across governance, risk management, scenario analysis and capital processes.

Asset managers in scope of the FCA’s Sustainability Disclosure Requirements (SDR) and investment labelling regime will move into the disclosure phase, with the largest firms having published their first entity-level reports in December 2025. Asset managers should decide how to strategically approach their SDR and TCFD reporting obligations, as well as engage with the FCA on its strategic review of sustainability reporting requirements.  

Prudential reform: delivering resilience while supporting growth

Preparing for a pivotal year of delivery in banking

2026 will be a critical year for UK banks, as larger firms prepare for the final implementation of Basel 3.1, and smaller firms progress towards the Strong & Simple regime ahead of the 1 January 2027 deadline. Banks will be expected to demonstrate early readiness for Basel 3.1; the next year is likely to be dominated by parallel reporting, data quality uplift, model remediation and comprehensive ICAAP reviews. 

Alongside this, the PRA is advancing its Strong & Simple framework, with the remaining components expected to be finalised in 2026. The regime aims to reduce complexity and compliance burden for non-systemic firms, supporting a more proportionate prudential environment. A related development is the withdrawal of the building societies sourcebook: through PS26/25 (published in December 2025), the PRA removed SS20/15, which previously set prescriptive expectations on building societies’ treasury and lending activities. This creates a more level playing field, and gives societies greater flexibility to evolve their business models. Over 2026, societies will need to assess the strategic opportunities this creates - for example, in product diversification, funding flexibility, and broader customer segment reach -while preparing for more rigorous PRA scrutiny of governance, controls and risk management in a less prescriptive environment.

Policymakers will also progress work on structural and model-related reforms. The Government’s review of the ring-fencing regime (announced as part of the Leeds Reforms) is due in early 2026, with potential implications for thresholds and permitted activities. Firms should also monitor the Financial Policy Committee (FPC) and PRA’s next steps following the FPC’s bank capital review, which set up a programme of further work for 2026. These reviews may lead to adjustments to buffer design, the leverage framework and prudential thresholds, with implications for capital planning and business model strategy.

Many of these developments reflect the PRA’s increased focus on delivering its growth and competitiveness objective. 2026 is also the year when several of these reforms begin to translate into practical opportunities for firms - from simplifying prudential processes to optimising capital structures and evolving business models. The year ahead also brings significant technical demands, from recalibrating models, to upgrading data and reporting infrastructure. Firms that prepare early and integrate prudential planning with strategic decision-making will be best placed to capture the benefits of a more flexible prudential framework.

Across both banking and insurance, the PRA will continue to place strong emphasis on firms maintaining robust risk management, governance and controls. Supervisory focus is likely to remain high as the regulator expects firms to demonstrate proactive identification and mitigation of emerging risks, clear accountability, and well-evidenced decision-making - particularly amid ongoing economic and geopolitical volatility, and  as innovation and business model change accelerate.

Insurance prudential: targeted interventions and selective reform

The PRA’s agenda for insurers in 2026 is narrower, but still material in several areas. The regulator remains concerned about the risks associated with funded reinsurance, and scrutiny will continue this year following the findings of the Life Insurance Stress Test.

A major implementation priority for insurers will be meeting the new solvent exit planning requirements, which come into force on 30 June 2026. In-scope insurers must produce a Solvent Exit Analysis (identifying triggers, barriers, resources, actions and governance required for an orderly exit) and, if a solvent exit becomes a reasonable prospect, a more detailed Solvent Exit Execution Plan. The PRA expects solvent exit readiness to be fully embedded into governance, monitoring and risk management frameworks, supported by credible data, scenario analysis and evidence-based assumptions.

Alongside this, the PRA will progress initiatives aimed at improving the sector’s competitiveness. These include a joint consultation with the FCA and HMT in summer 2026 on creating a more effective and competitive UK captive insurance regime, intended to streamline authorisations and broaden firms’ access to capital-efficient risk management solutions.

Private markets: deeper integration, sharper scrutiny

The rapid expansion of private credit (PC) and private equity (PE) has been one of the defining financial trends of recent years, and its growing scale and interconnectedness mean regulatory scrutiny will intensify in 2026. 

The Bank of England’s 2023 System-Wide Exploratory Scenario (SWES) highlighted vulnerabilities within the PC ecosystem, such as leverage build-up, valuation opacity, and funding linkages with banks and insurers. Building on this, the BoE will run a focused SWES exercise in 2026 covering PC, PE and related markets. This will require richer data on exposures and liquidity and is likely to drive more intrusive supervision, particularly around risk management, valuation practices and stress testing.

The implications extend beyond PC and PE firms. Other firms in scope will also need to assess how PC exposures affect their balance sheets and risk appetite, while all participants should expect more rigorous, system-aligned stress testing and closer supervisory engagement.

Capital markets reform: Building a more competitive UK regime

The FCA’s work on wholesale market reforms was one of the early priorities in the drive to support growth. In 2026, further milestones are expected, including greater clarity on how the Consumer Duty applies to wholesale market participants, reform of the UK AIFM rules, and embedding of research rules and reporting simplification.

Several new initiatives will come into force, including the UK public offers and admissions regime in January 2026, followed by the launch of the UK bond consolidated tape in June 2026. Meanwhile, firms will need to make significant progress on changes to policies and procedures in preparation for T+1 settlement (which goes live in October 2027). 

Elsewhere, work will continue on the onshored Benchmarks Regulation, with the focus on implementation and refinement rather than wholesale change. Following its consultation on critical benchmarks, the FCA is also expected to publish updated guidance during 2026.