New regulatory priorities for UK financial services

The UK Government’s Financial Services Growth and Competitiveness Strategy (Strategy), published on 15 July, targets changes to the regulatory framework that will reduce compliance costs, increase risk taking by investors and promote innovation and growth. Some of the changes will alter the competitive landscape for firms, including by creating new opportunities and challenges; others have the potential to affect the economics of certain activities. Compliance, risk and strategy teams should form an early view on which elements of the Strategy are material to their firm. This note sets out our views on where firms should focus their attention.

Key points

• The Strategy and a related set of initiatives form the Government’s “Leeds Reforms” package, designed to make the UK the “number one destination for financial services businesses by 2035”. The plan and actions that the Chancellor, the Bank of England (Bank) and the Financial Conduct Authority (FCA) have developed to achieve this resulted in the largest one-day drop of consultations and policy announcements we can remember.
• The Chancellor is clear that “In too many areas, regulation still acts as a boot on the neck of businesses…” and that this must change to support growth. The Strategy identifies several policy issues that the Government and regulators will pursue to promote growth. In this briefing, we highlight four themes:
  
  
  • Promoting investment and the attractiveness of the UK: the Government wants to redirect household wealth from savings to investments. For firms, this has implications for retail product offerings and pensions, and for funding strategies and the provision of advice.
  • Boosting innovation: while much work remains, several initiatives will create new opportunities for firms to launch innovative products and services, affecting firms’ digital assets strategies.
  • Reconfiguring the regulatory architecture: reforms to the Financial Ombudsman Service (FOS) and the Payment Systems Regulator (PSR), and a new HM Treasury (HMT) team that will challenge regulators are all material developments, although it is less clear that firms need to consider any immediate response.
  • Reducing the regulatory burden: revisiting the “how?”, not the “what?”: several initiatives aim to reduce the compliance burden for firms and, in some cases, increase lending capacity, including reforms to the Senior Managers & Certification Regime (SMCR); a review of the application of Consumer Duty to wholesale firms; and changes to capital and resolution policies for banks, including another ring-fencing review.
• By the time the package was published, it contained few surprises, not least because it builds on measures announced in the Chancellor’s 2024 Mansion House speech last November, and includes a number of initiatives that have been trailed or leaked in recent days (or weeks). But the package is nonetheless significant. Compliance, risk and strategy teams need to consider the various dimensions and their business implications.
• Taking a step back, the package's main impact on growth will likely be indirect. While some reforms support lending, investment and innovation – largely directly contributing to growth – most are aimed at streamlining processes, reducing friction, costs, and time-to-market.
• But firms should think carefully about the business strategy implications, even if the immediate set of available opportunities may not change radically. The increasing convergence of market dynamics (e.g., increased digital asset use, new payment methods, AI adoption) with increasing policy and regulatory clarity will accelerate the transformation of the financial services (FS) sector. This will create opportunities and inform decisions on where to focus efforts and investments.
• When judging how to respond to the package, firms also need to consider how long the changes will take to complete. There is a lot to do. But in most cases, implementation details and timelines are incomplete. Legislative changes need to compete for Parliamentary time with other Government business. Some changes may face opposition from consumer organisations. Moreover, where changes are intended to increase the predictability of regulatory decision-making, firms may need to wait until there is some lived practice before they can be confident that they can rely on them.
• Putting smarter risk-taking into practice will be difficult. Regulator risk tolerance needs to change. Firms will want to consider how supporting customers to switch from cash savings into investments affects reputational as well as conduct risk. And policymakers need to consider whether the cumulative effect of several simultaneous changes to risk taking across the policy framework results in an unintended overshooting of their own risk appetite.

The coming months are set to be a busy period for the FS regulatory agenda. For further insights from the Deloitte EMEA Centre for Regulatory Strategy:

• Click here to receive our Back-to-School note, published in early September, exploring the key regulatory themes from the summer and their implications.
• Click here to register for our Back-to-School webinar on 18 September, where we will explore the trends, and unpack the opportunities and challenges for firms with a panel of Deloitte experts from the UK and US.

Key themes: Unpacking the implications of the Strategy

When the Government published its Industrial Strategy in June, it highlighted FS as one of the growth-driving sectors it would prioritise. The Financial Services Growth and Competitiveness Strategy now sets out the specifics for the FS sector. We highlight four themes:

1. Promoting investment and the attractiveness of the UK

The Government wants to transform the UK investment landscape. Two policy levers that it will pull - aimed at boosting retail investment and facilitating investment in UK assets - require firms to review their product strategies.

Boosting retail investment

The Government wants to encourage retail customers to move funds from savings into investments and pensions. The FCA has already announced a new Targeted Support (TS) advice framework to enable firms to design product suggestions for specific retail customer segments, giving them an opportunity to rethink engagement and support strategies (Click here for further analysis on TS). In addition, from April 2026 the Government will now permit Long-Term Asset Funds (LTAFs) in Stocks & Shares ISAs, potentially increasing retail investment in private markets.

Many firms have already begun to assess the opportunities and challenges presented by TS, including through scenario analysis. Clearly, the implications will vary by sector and business model. This includes the readiness of firms to capture deposit outflows through other products or to reach customers previously excluded by advice cost thresholds, and implications for funding models. How inclusion of LTAFs in Stocks & Shares ISAs affects disclosures and the sales process is likely to be a consideration for investment managers in deciding whether to make them available to retail investors. Developing a response quickly is crucial for early movers – the FCA authorisation process for TS opens in March 2026.

Facilitating investment in UK assets

Although not the focus of the Strategy, forthcoming pension reforms are also designed to help channel greater investment into UK assets. The Pensions Bill will accelerate pension sector consolidation, making it easier for providers to achieve the scale necessary to invest in such assets. The proposed deadline for default Defined Contribution (DC) multi-employer workplace pensions to reach £25bn AuM by 2030 will likely drive consolidation in the DC market.¹ Capital markets reforms, including new rules streamlining prospectus requirements, accelerating IPOs, and introducing Public Offer Platforms may further increase the pipeline of UK assets available for investment. The new “Concierge service” supporting overseas investors and firms to establish or grow a UK presence, and the UK infrastructure pipeline may additionally help firms to identify investment opportunities.

Pension providers should also review their strategies and capabilities to increase investment in private markets. This is especially pressing for the 17 Mansion House Accord signatories, committed to allocating a portion of their DC investments to UK and private assets by 2030. It is also relevant for providers of pensions services to signatories of the City of London’s “employer pension pledge”. This necessitates a reassessment of asset allocation, balancing investment in riskier assets with consumer protection and reputational risk management. Firms with established expertise in illiquid investments may be well-positioned; others may need to develop or acquire this capability.

2. Boosting innovation

The Strategy includes several initiatives to boost innovation, presenting opportunities for firms to develop new products and services. Much work remains, but the Government’s ambition is starting to translate into regulatory initiatives and roadmaps to support innovation.

Digital assets: Regulatory momentum is building, with a draft FCA regime for stablecoins and unbacked digital assets expected by Q1 2026. The Wholesale Financial Markets Digital Strategy complements this with Government commitments to scale DLT infrastructure and digital assets. A maturing landscape may prompt firms to (re)assess their digital assets strategies, considering where to focus efforts and when to build and launch capabilities. But uncertainties persist, and firms’ strategies must remain agile. Stablecoins are a case-in-point. The Strategy recognises their “potential to transform retail and cross-border payments […] and wholesale settlement” but the Bank’s tone remains cautious, and details of its systemic regime remain unknown. The Prudential Regulation Authority (PRA)’s requirement that banks issue stablecoins from a separate legal entity adds complexity for banks. Meanwhile a payments forward plan (end-2025) will clarify the sequencing and prioritisation of payments initiatives, including digital assets, potentially affecting decisions.

AI: The regulators will continue to rely on existing regimes (e.g., Consumer Duty; operational resilience) to scrutinise AI adoption. Firms must assess and manage AI risks through the lenses of existing regulation and the business view of risk, rather than wait for prescriptive AI rules. Participation in recently announced FCA AI test environments, testing innovative use cases and receiving regulatory feedback, can inform use case prioritisation, adoption and scaling timelines, and risk management and governance capabilities.

3. Reconfiguring the regulatory architecture

The Government is working to increase regulatory predictability and streamline the regulatory architecture. Key measures include reforming the FOS, creating a new HMT unit to “challenge” unnecessary regulation, and abolishing the PSR – merging its functions into the FCA by end-2026. However, implementation will be lengthy, requiring legislative action in many cases, and significant details remain unclear.

FOS reforms are a case-in-point. Proposals, including giving the FCA final decision-making responsibility for Mass Redress Events and Wider Implications Issues, and a 10-year claims limit on FOS complaints, should increase predictability for firms and reduce market disruption. However, the legislative change process may prove controversial, particularly for those who see the proposals as reducing consumer protection. Furthermore, all parties to a complaint – including consumers and consumer organisations – can request the FOS to refer the issue of rule interpretation to the FCA, potentially resulting in lingering uncertainty for firms. The detailed grounds for FCA referral have yet to be set. Some firms may opt to delay product launches until greater clarity emerges, particularly for novel and untested offerings.

Meanwhile the impact of the new HMT unit is unclear. Challenging regulation does not equate to overruling, which would require legislative change (and has been proposed – and ultimately rejected – in the past). The abolition of the PSR is expected to have a limited overall impact on the FS industry, with its direct supervisory portfolio limited to eight payment systems.

4. Reducing the regulatory burden – revisiting the “how?”, not the “what?”

The UK authorities are reviewing the practical application of several regulations, acknowledging that some, while important regulatory pillars, need recalibrating. The SMCR, Consumer Duty, Alternative Investment Fund Managers Regulations (UK AIFMD), bank capital and resolution policies and the UK green taxonomy are all under the microscope in some way. Firms can expect their costs to reduce, but by how much and when are unclear.

SMCR: Although the reform process was launched in 2023, no substantial changes have been implemented yet. The Government’s target is to reduce the regime's regulatory burden by 50%. Phase 1 proposals, focusing primarily on improving approval processes, are unlikely to move the dial significantly. Furthermore, the PRA is proposing to extend SMF7 to controllers, expanding the scope of individuals covered under the regime. Phase 2 changes, such as replacing the Certification Regime (CR) and exploring ways to reduce SMF roles, may reduce compliance burdens more significantly. However, the Government’s decision to delegate the replacement of CR and adjustments to SMF roles to the FCA/PRA may limit the extent of change. Moreover, Phase 2 depends on legislative amendments, the timeline for which remains uncertain.

Consumer Duty: A report on the Consumer Duty’s application to wholesale firms and asset managers not directly dealing with retail clients is expected in September, coinciding with ongoing efforts to streamline the FCA rulebook in light of the Duty. A fuller assessment of the overall FCA compliance burden will be possible from September.

UK AIFMD: Ongoing reforms, including a tiered framework to remove regulatory cliff-edges resulting from market fluctuations, may incentivise fund managers to expand their offering and encourage new entrants. Further details are expected in Spring 2026.

Bank capital and resolution policy: Clarity around finalising Basel 3.1 and the transfer of prudential matters from statute to the PRA rulebook will complete the post-Brexit transition to a UK model of rulemaking. Consensus on some Basel 3.1 policy choices might be fragile, but moving forward on transferring responsibilities to the PRA provides the foundation for meaningful discussions on broader growth-enabling initiatives. The proposal to delay FRTB-IMA implementation by a further year increases the likelihood of the UK being able to align with the US approach, at least in terms of timing, and gives banks more time to prepare for adopting IMA (for which currently take-up is very low). However, implementation of the Standardised Approach has not been delayed and some banks still have a lot to do to be ready for 1 January 2027. Other issues, including Minimum Requirement for Own Funds and Eligible Liabilities (MREL) threshold adjustments and post-Brexit Capital Requirements Regulation (CRR) amendments (e.g. for covered bonds), have been addressed or identified for future fixes, further freeing resources for medium-term challenges.

Several early-stage initiatives aimed at addressing long-standing regulatory constraints are potentially significant – including an FPC review of capital levels (December 2025), more responsive and agile credit risk model approvals (July 2025 discussion paper) and ring-fencing (report in early 2026). These show positive intent, but the impact on lending capacity and incentives remains uncertain. The success of the PRA’s model approval changes will also hinge on sufficient resources to process applications and a reassessment of the PRA's risk appetite concerning model approval criteria (e.g., reliance on historical loss data).

Green taxonomy: Notwithstanding the decision not to proceed with a UK green taxonomy, sustainable finance is one of five priority growth opportunities identified in the Strategy. The existing regulatory programme to support net zero and tackle greenwashing remains substantial.

Final reflections

While many areas require further development, it is already clear that the Strategy will catalyse an extensive package of regulatory reforms. There is much for firms to examine, including the implications for the competitive landscape, the economics of certain activities, new opportunities, and potential cost savings.

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References:

1. Schemes reaching £10bn by 2030 with a “clear plan” to reach £25bn will get a five-year extension to reach the target state.