Chancellor sets out ambitious financial services reforms package

What does this mean?

The Government set out a ten-year vision for the industry in its Financial Services Growth & Competitiveness Strategy, following a call for input in November 2024. Financial services is one of the eight sectors in its new modern Industrial Strategy. The Government wants to build on the sector’s success, with a goal to make the UK the global location of choice for financial services firms to invest, innovate, grow and sell services, by 2035.

The Strategy has a number of focus areas including: delivering a competitive regulatory environment; embracing innovation and leveraging FinTech; and building an investment culture. This will drive a range of existing and new initiatives such as reforming and simplifying aspects of the regulatory regime, embracing innovation and technology (both in regulators and firms) and changing the cultural approach and risk appetite of consumers in the UK.

Underpinning this, the Government will reform aspects of the regulators’ obligations, including reducing the time it takes to authorise a new firm, or vary a permission, with stretching non-statutory targets for certain types of applications.  

It will also legislate to rationalise the regulators’ “have regards” obligations (various principles they are required to consider, including under FSMA 2000 and remit letters from HM Treasury (HMT)). Regulators would no longer be required to consider each “have regard” when making policy decisions; instead, they would consider these only when producing their strategies. 

Prudential reform

The Government announced plans to review the ring-fencing regime, committing to make ‘meaningful reforms’ to support the growth agenda. It will undertake a short review to assess options to allow ring-fenced banks to provide more products and services to UK businesses, to reduce inefficiencies in the regime’s application to banking groups, and explore how resources and services can be shared more flexibly across the ring fence. The review will report by early 2026. 

The PRA also issued an update on its implementation of Basel 3.1, including the Fundamental Review of the Trading Book (FRTB), setting out proposed adjustments to its implementation timeline. The consultation proposes to delay FRTB internal model approach (IMA) by another year to 1 January 2028. All other elements of the FRTB, including the trading book boundary, the Simplified Standardised Approach and Advanced Standardised Approach, would be implemented on 1 January 2027 along with the other parts of Basel 3.1. The Strong & Simple regime would also be implemented on 1 January 2027. 

In addition, the PRA issued a series of publications on the UK’s resolution framework. The changes include raising the indicative thresholds for the minimum requirement for own funds and eligible liabilities (MREL) from £15-25bn in total assets to £25-40bn. This threshold will be updated every three years to reflect changes in nominal economic growth. Additional consultations include proposals to update the Resolution Assessment threshold from firms with £50bn of retail deposits to £100bn, and revised MREL reporting and disclosure requirements.

Capital markets

The FCA confirmed final rules for its Public Offers and Admissions to Trading Regime (POATRs) and Public Offer Platform (POP) regime, bringing about changes to make it easier for firms to list and raise capital in the UK. 

The new POATR will maintain the majority of prospectus requirements for the admission of securities at IPO, but will introduce changes to reduce costs for companies, make it easier to raise capital, and encourage retail participation. 

The FCA’s POP regime final rules aim to provide greater flexibility for smaller and scaling companies to raise capital from a broader investor base. The final rules are taken forward broadly as consulted on and will establish tailored requirements for POP operators, including on information gathering, due diligence, and investor disclosures. The POATR and POP regime rules will take effect on 19 January 2026.

The Government will also continue to review and reform the MiFID framework and Benchmarks Regulation to reduce the burden on UK firms. The Government will also prioritise reforms to over-the-counter derivatives through EMIR. These reforms will follow the publication of draft reforms to the UK’s regulatory regime for central counterparties this week. The FCA will also publish an engagement paper on reforms to the market risk framework under the Investment Firms’ Prudential Regime.

Financial Ombudsman Service (FOS)

The Government concluded its review of the FOS, proposing a number of major reforms:

• adapting the ‘fair and reasonable test’

• referral mechanisms to the FCA; requiring the FOS to consult the FCA when rules are ambiguous; firms and consumers would also be able to request a referral

• the FOS would refer cases with broader market implications to the FCA

• introduce a ten-year absolute limit on consumers bringing complaints, although the FCA will subsequently prescribe exceptions for some longer-term products through DISP 
• legal responsibility for complaint determinations to rest with the Chief Ombudsman, ensuring consistency.

The FCA and FOS also published a consultation following their previous call for input, which sets out further detail on how these reforms will be taken forward. 

Senior Managers and Certification Regime (SM&CR)

HMT is consulting on legislative changes to the SM&CR regime, with the PRA and FCA also consulting on more immediate proposals which do not require legislative changes.

HMT commits to removing the existing Certification regime, replacing it with a ‘more proportionate’ regime to be designed by the regulators. It also seeks to reduce the number of SMF roles, and reduce the number of SM functions requiring pre-approval. The FCA is consulting on streamlining the approval process and ‘improving the efficiency’ of the 12-week cover rule, which HMT feels will also benefit international talent. Both HMT and the regulators are also seeking to increase flexibility and reduce reporting with respect to Statements of Responsibility. 

Wholesale Financial Markets Digital Strategy

The Government published its ten-year Wholesale Financial Markets Digital Strategy. The strategy targets three priorities: optimising outdated systems and processes, transforming markets through new technologies, and positioning the UK as a global digital leader.

Immediate priorities include eliminating paper-based processes and manual interventions. The Government says it will act on the Digitisation Taskforce’s recommendations to dematerialise securities and promote wider automation across asset classes. 

The strategy is centred on the adoption of technologies such as distributed ledger, AI and quantum. Through initiatives such as the Digital Securities Sandbox and the launch of a Digital Gilt Instrument, the UK is enabling live market experimentation and creating the legal and regulatory conditions for scale. Stablecoins and tokenised deposits will also be tested as part of a wider rethink of digital settlement.

To drive momentum, the government will appoint a Digital Markets Champion to lead collaboration across industry.

National Payments Vision

Following the National Payments Vision published in November 2024, the BoE and the Payments Vision Delivery Committee announced a reset of the UK’s retail payments infrastructure. A new Retail Payments Infrastructure Board will lead system design, while a new industry-led Delivery Company will build the next-generation infrastructure. Pay.UK will continue operating and enhancing current services. The model aims to support innovation, security and competition, and is closely aligned with the digital pound programme. A full strategy will be published in autumn 2025.

Targeted support

Following the FCA’s recent consultation to introduce a new form of consumer support - targeted support - for pensions and investments, the Government confirmed its desire for targeted support to be operational by the 2026 ISA season. The Chancellor also confirmed her intention to allow Long Term Asset Funds to be held in stocks and shares ISAs from 2026. She announced an industry-led campaign to promote the importance and value of investment, and support industry-led action to move towards informing, rather than warning, consumers about the benefits and risks of investing.

Insurance reforms

The Government confirmed it intends to introduce a framework for captive insurance, in response to an earlier consultation. The PRA and FCA will consult on the details of a tailored regime in summer 2026, which the Government envisages will include proportionately lower capital and reporting requirements and faster authorisations.

The Government also issued a consultation on proposals to improve the UK’s insurance linked securities offer. The consultation seeks views on how the Government can improve the wider regulatory framework for risk transformation, including the future role of Protected Cell Companies and how they can be established to facilitate captive insurance business instead of risk transformation. The Government expects that legislative changes will be necessary for this. 

Concierge service

The Chancellor confirmed the launch of a “concierge service” to smooth the way for international financial services companies moving to and expanding in the UK. The service - first announced in the Government’s Regulatory Action Plan in March 2025 - will launch this autumn. 

Mortgage reform

The Chancellor also welcomed last week’s announcement by the PRA to relax loan-to-income lending restrictions, as an example of how the reforms are benefiting consumers. 

Reeves confirmed the launch of a permanent Government-backed guarantee scheme to cover banks’ losses on 95% mortgages (replacing the previous scheme which expired on 30 June 2025). 

Sustainable finance

The Government’s strategy demonstrates its commitment to maintaining the UK’s position as a global leader. Of note, following a consultation issued last year, the Government confirmed it is not taking forward a UK green taxonomy. It will, however, aim to lay legislation to bring ESG ratings providers into the scope of regulation by the end of year, and is consulting on how to take forward the next steps for UK Sustainability Reporting Standards.

What do firms need to do?

The breadth and depth of the reforms reinforces the Government’s desire to move the regulatory debate into a new phase and rebalance the level of risk in the system. This has significant implications for firms’ strategies, business models, risk appetite and risk management. 

Firms should carefully reflect on how they engage with regulators and policymakers as the various policy reforms develop, including prioritisation of key initiatives. 

With the complexity of both Government legislation and regulators’ rules often under simultaneous consultation, firms must manage the complexity of the regulatory change process, deploying relevant technology.  

The most important consideration for firms will be to assess the strategic implications of this ambitious reform agenda - whether capitalising on new opportunities, understanding changes to the competitive landscape, or the potential scope and use of technology.

Next steps

There are a number of upcoming developments across the various reforms. The Financial Services Growth & Competitiveness Strategy sets out an ambitious action plan through to 2027, with key milestones including HMT’s report on the ring-fencing regime by early 2026, the targeted support regime to go live in spring 2026, and creating digitised share registers to replace paper share certificates by the end of 2027.