Mansion House: Government advances innovation agenda

What does this mean?

Artificial intelligence (AI) Adoption Plan

HM Treasury (HMT) published the AI Adoption Plan, an independent report developed by the AI Champions for financial services: Harriet Rees, Group Chief Information Officer at Starling Bank, and Dr Rohit Dhawan, Head of AI and Advanced Analytics at Lloyds Banking Group.

The Plan identifies five key themes that need to be addressed to enable safe and responsible AI transformation across UK financial services: regulatory clarity, the regulatory perimeter, AI sovereignty and resilience, skills and talent, and readiness for agentic payments.

It sets out ten recommendations for industry, Government and the financial services regulators. These focus on clarifying regulatory expectations; reviewing the perimeter for AI-generated advice-like outputs; strengthening resilience in relation to AI and cloud dependencies; improving AI incident and near-miss sharing and third-party assurance; building sector-wide AI skills; and preparing a trust framework for agentic payments.

The Government has accepted the recommendations and said it will work with regulators and industry on next steps, including considering the recommendations of the Mills Review, published by the FCA on 6 July 2026. 

The Mills Review sets out a seven-point agenda for the FCA to prepare retail financial services for AI-enabled, agentic finance. Its priority recommendations align with the AI Adoption Plan in several areas, including reviewing the regulatory perimeter, particularly in relation to general-purpose AI tools.

Payments and digital assets

The Government set out the next phase of its payments and digital assets agenda across domestic reform, wholesale market development and international cooperation.

It issued a consultation on modernising payment services regulation, seeking views on updating the UK framework to accommodate new payment models, including tokenised payments, Open Banking and agentic payments. The consultation closes on 6 October 2026. The Government intends to use the consultation to inform future legislative reform of the UK payments framework. 

The UK and US have agreed an initial programme of work to strengthen cooperation on digital assets and capital markets through the recommendations of the Transatlantic Taskforce for Markets of the Future, convened by HMT and the US Department of the Treasury. The recommendations include industry testing of cross-border tokenisation use cases, work to identify common regulatory approaches for tokenised assets, support for greater interoperability between UK and US markets, and collaboration on the international prudential treatment of cryptoassets. Progress will be reported through the UK-US Financial Regulatory Working Group.

The accompanying UK-US joint statement from the Taskforce sets out a shared approach to stablecoins. Both Governments state that they intend to support the use of stablecoins in cross-border finance and promote a multi-money ecosystem alongside tokenised deposits and other forms of digital money. They also commit to continued dialogue on their respective regulatory frameworks to support greater convergence where appropriate, while making clear that the statement does not pre-empt either jurisdiction's domestic legislative or regulatory processes.

The Wholesale Digital Markets Champion's first report sets out a 12-month delivery roadmap for wholesale market tokenisation. Nine industry Taskforce Action Groups will develop proposals across digital money, market infrastructure, collateral, legal and regulatory frameworks, interoperability and international coordination. Industry has been invited to provide feedback on the programme by 4 September 2026. The Action Groups are expected to make meaningful progress by the end of 2026, with an initial focus on fixed income. The programme also aims to establish a repo use case and, where possible, conduct a live trial by spring 2027.

Ring-fencing reform

The Government consulted on the next stage of ring-fencing reform, setting out how it plans to implement the legislative elements of the package announced following its review of the regime. The consultation builds on the review findings, published in May 2026. 

HMT is proposing a number of changes to the regime. These include a ‘New Growth Allowance’ which will allow ring fenced banks (RFBs) to undertake activities otherwise prohibited within the ring-fence up to 10% of Pillar 1 credit risk RWAs. The allowance will apply at the RFB sub-group level. HMT is also proposing a number of other amendments to the regime including: expanding the set of derivatives the RFB can provide (those not in scope of the Basel 3.1 ‘residual risk add-on' subject to some additional safeguards), providing more flexibility on which entities the RFB can have as counterparts (including UCITS funds, certain Structured Finance Vehicles and Public Financial Institutions). The consultation closes on 8 September 2026. 

Separately, the PRA consulted on deletion of the ‘shared service rules’ which prevent the RFB relying on services from the wider group. The PRA is of the view that other elements of the regulatory framework mitigate the risks of removing the shared services rules, namely the Operational Continuity in Resolution, the operational resilience framework and the requirement that intragroup transactions and exposures have the same degree of management transactions and exposures to third parties. The consultation closes on 14 October 2026.

UK AIFM regime package

HMT and the FCA published a consultation package on the UK Alternative Investment Fund Manager (AIFM) regime. It would replace key assimilated AIFMD legislation, with HMT setting the legislative perimeter and the FCA consulting on detailed operating rules through a new Alternative Investment Funds sourcebook, ALTS.

The package includes proposed NAV-based AIFM categories, perimeter changes, removal of most of the registered AIFM regime, and changes to areas including valuation, risk management, liquidity, delegation, reporting and depositaries.

The main deadline for feedback is 14 October 2026, with an earlier 18 September 2026 deadline for certain FCA discussion chapters.

Proposed captive insurers regime

The PRA and FCA are consulting on a new tailored UK regime for single-parent captive insurers, intended to make the UK a more attractive captive domicile. The proposals include a bespoke prudential framework outside Solvency UK, with lower capital and reporting requirements, more flexible capital resources, and a faster four-to-six week authorisation process.

The regime would be deliberately limited in scope, excluding protected cell companies, group captives and association captives initially, and restricting direct exposure to consumers, relevant SMEs and certain policy stakeholders.

Implementation of final rules is expected in mid-2027. 

Digitising share ownership

The Government accepted the Dematerialisation Market Action Taskforce’s implementation plan for the first stage of digitising UK share ownership. It will legislate before the end of 2027 to require publicly traded UK companies to keep digital share registers and provide that paper share certificates will no longer be evidence of ownership. Further reforms are planned beyond this first phase, to support a move towards a fully intermediated holding model.

Financial Services Skills Compact

The Government launched the Financial Services Skills Compact, a voluntary industry-Government pledge first announced in the 2025 Financial Services Growth and Competitiveness Strategy. Signatories commit to upskill their UK workforce in AI and other critical skills, and report on progress. 

What do firms need to do?

The Mansion House 2026 package shows the Government and regulators continue to respond to technological developments impacting the sector, while seeking to reduce regulatory burdens on firms. For firms, the key will be to identify where the wide-ranging reform agenda creates commercial, strategic or operational opportunities.

For those banks subject to the ring-fencing regime, the proposals represent an opportunity to reflect on their model. The proposals create scope for greater optionality in services provided from the ring-fence and significant scope to drive efficiencies in operating models from the removal of the share service rules. 

Given the increased policy and regulatory focus on AI, firms should establish a clear view of current and planned AI use, map deployments to existing regulatory requirements, assess dependencies on third-party AI and cloud providers, and ensure governance, controls and assurance remain effective across the AI lifecycle, including as systems become more complex and autonomous. Firms should also monitor and engage on developments relating to regulatory clarity, the perimeter, assurance, incident sharing, agentic AI and customer outcomes, as these are likely to become priority areas for future supervisory and policy focus.

The Government has made clear that it wants the UK to be a leading location for payments innovation and wholesale digital markets. Many of the announced initiatives will rely on active industry participation over the next 12 months. Firms should consider where they can help shape market infrastructure, technical standards and use cases through the various consultations, industry Action Groups and international initiatives. The level of industry engagement is likely to influence not only individual firms' competitive position, but also the UK's ability to attract investment and remain internationally competitive as digital markets evolve.

Next steps

With multiple consultations and implementation workstreams running to different timeframes, firms should maintain a clear regulatory change plan, prioritising engagement according to strategic and operational impact.