The Leeds Reforms

July 2025

In the run up to her second Mansion House speech as Chancellor of the Exchequer, Rachel Reeves launched the ‘Leeds Reforms’, outlining several measures to simplify regulation, broaden access to financial advice, and boost the growth of the UK financial services industry.

Nearly nine months on from the November 2024 speech in which she coined the phrase ‘regulating for growth’, several eye-catching developments have been packaged together. Many of these measures have already been discussed with the industry. Ahead of the speech, KPMG in the UK’s recent survey found that over 80% of financial services leaders are confident that the government’s plans will boost sector growth, attract foreign investment and position the UK as a leader in sustainable finance and fintech.

However, how quickly these reforms will deliver on the government’s goal to reduce the administrative cost of regulation by 25% and promote economic growth remains to be seen. Firms will need to digest and understand these changes in the near term as they seek to fully take advantage of them.

This article explores the key announcements and their implications.

Following consultation, and the launch of its modern industrial strategy, the government has finalised its strategy for financial services. Its ambition is ‘by 2035, the UK will once again be the global location of choice for financial services firms to invest, innovate, grow, and sell their services throughout the UK and to the world.’

The strategy has five areas of focus – you can read more on the underlying detail throughout this summary: 

The strategy also identifies 11 financial service clusters across the UK and the government sets out how it is concentrating efforts to support city regions across the UK — cross referring to the previously published Industrial Strategy — as it recognises that improved infrastructure is essential to grow these financial service clusters.

Having sought industry feedback in March 2023, the UK authorities are consulting on streamlining the SM&CR. Industry is likely to welcome these reforms that aim to improve how the regime works, rather than fundamentally restructuring it.

HMT is consulting on changes to primary legislation. It is gathering views on removing the Certification Regime from legislation (allowing it to be replaced by a more proportionate approach), reforming the approach to specifying Senior Management Functions (SMF) and the requirement for regulatory pre-approval for certain roles, and on wider measures – for example, in relation to Statements of Responsibilities.

In parallel, the FCA and PRA’s ‘Phase 1’ consultations aim to reduce burdens and provide more clarity in the short term. Proposals include simplification (e.g. the SMF approval process), greater proportionality (raising thresholds for ‘enhanced’ firms by 30 percent), more flexibility (e.g. allowing firms more time to make certain updates), removing duplication, clarifying the scope, and new tools to help firms navigate the regime (e.g. the creation of a PRA ‘policy index’). Policy statements with updated rules are expected in mid-2026. Both regulators will also work with HMT on the more transformational ‘Phase 2’ changes.

Following an HMT review into the FOS, and a joint FCA and FOS call for input, next steps on changes to the redress system have been announced.

HMT is consulting on reforms to the legislative framework governing the FOS with the aim that the FOS delivers its role as a simple, impartial dispute resolution service without straying into a role of regulator. Proposals include an adapted ‘fair and reasonable’ test, greater FCA flexibility to manage mass redress events, a formal referral mechanism in cases of regulatory uncertainty, and introducing a 10-year time limit for complaints.

In parallel, the FCA and FOS are jointly consulting on the framework to enact the legislative changes and ensure the redress system supports firms to identify and resolve issues earlier, to give greater predictability. Alongside details of the approach to ensuring consistency in regulatory interpretation, proposals include a ‘lead complaint’ process to address novel or significant issues and the provision of additional guidance and good practice examples.

In another change, the FOS has confirmed the compensatory interest rate will be changed to track the Bank of England’s base (average) rate +1% for complaints referred on or after 1 January 2026. These are positive changes, bringing awards more in line with market conditions. However, the adoption of a tracking rate introduces more complex operational considerations when calculating awards. 

The proposals are likely to be welcomed by the industry as they address several longstanding industry concerns, including the FOS’ interpretation of the FCA’s rules, and complaints time limits. Proposals to simplify the legal test for a Section 404 redress scheme may be received more cautiously if not adequately safeguarded to prevent its overuse.  

The government continues to progress efforts to boost retail investment:

• Targeted support (TS): the government is consulting on a draft statutory instrument (SI) to amend the Regulated Activities Order (RAO) to operationalise the FCA’s proposed regime for TS. You can read a summary of the FCA’s proposals here.
  The SI will establish a new, distinct regulated activity for providing TS, and will clarify that when a firm provides TS, it is not also ‘advising on investments’. The SI will also subject firms to specific conduct standards (proposed by the FCA) and will require firms to seek FCA or PRA authorisation to provide TS. HMT intends to finalise the legislation later this year, and for TS to be rolled out in time for the 2026 ISA season.
• ISAs: despite speculation, no fundamental changes to ISAs or their limits were announced. However, the FS strategy (above) revealed that the government will move Long-Term Asset Funds from the Innovative Finance ISA to the Stocks and Shares ISA to facilitate better access to longer-term investment options, effective April 2026. Reeves stated the government will continue to consider further changes and will engage with industry in the coming months.
• Risk warnings review: A review will look at the current approach to risk warnings – hoping to promote a shift from warning to informing investors – and will report back in January 2026.
• Launch of an industry-led campaign: the government will support an industry-led campaign to be launched in April 2026 that aims to promote the benefits of retail investment to consumers.

The government continues to pursue its goal of modernising the UK’s wholesale financial markets by adopting emerging technology where possible. A new Wholesale Financial Markets Digital Strategy has been published, outlining the proposed steps to achieve this: 

• Market optimisation: making progressive improvements to drive efficiency and remove frictions – including eradicating paper, increasing automation and utilising smart data.
  As part of this, the Digitisation Taskforce has delivered its final recommendations for updating the UK shareholding framework, predominantly by replacing existing paper-based share registers with digitised versions. The government has accepted all recommendations and supports the staged approach set out in the report.
• Market transformation: applying technologies (e.g., DLT, AI) to fundamentally transform wholesale markets – including supporting the use of stablecoins and tokenised deposits in payments, exploring the use of stablecoins and the issuance of a digital gilt (DIGIT) within the Digital Securities Sandbox and facilitating testing and access to AI products through the FCA’s Supercharged Sandbox.
  The government has published a specific update on the design features of the DIGIT pilot. It is looking to appoint suppliers later this year.
• Market leadership: working domestically and in conjunction with other jurisdictions to develop a global approach to digitalisation.
  Overall, it appears that the risk appetite of both government and regulators has evolved, with these technologies now being squarely viewed as a tool to support UK growth and competitiveness. 

Ring-fencing

HMT will undertake a short review of the ring-fencing regime, working with the BoE and reporting by early 2026. It will assess options to amend legislation and PRA rules to:

• Allow ring-fenced banks to provide more products and services to UK businesses. Address inefficiencies in how ring-fencing is applied to banking groups.
• Examine the case for allowing banks to share resource and services more flexibly across the ring-fence.

The BoE/PRA has also announced a package of measures designed to maintain stability in the financial sector while offering new growth opportunities for mid-sized banks and building societies:

Basel 3.1 market risk rules – FRTB

The PRA is consulting (CP17/25) until 5 September on four key proposals in relation to the market risk framework, specifically the Fundamental Review of the Trading Book (FRTB) to:

• Delay introduction of the new internal model approach (IMA) by one year to 1 January 2028, with firms able to continue using existing internal model permission until 31 December 2027. The market risk standardised approach (SA) and all other aspects of Basel 3.1 will proceed on 1 January 2027 as planned.
• Implement operational simplifications to the treatment of Collective Investment Undertaking (CIUs) under the Advanced Standardised Approach (ASA).
• Introduce a permissions regime for the ASA residual risk add-on.
• Make consequential amendments to reporting and disclosure requirements to align with proposals 1 to 4.

The PRA considers that this approach will enable it to implement the “vast majority” of Basel 3.1 – approximately 90% of risk-weighted assets in the UK – on 1 January 2027, whilst allowing time for greater clarity around how other jurisdictions will implement the FRTB aspects most relevant for cross-border activities. The more minor changes are intended to relieve the operational burdens on firms and ensure that capital requirements remain appropriate.

Strong and Simple capital framework

With Basel 3.1 and the Strong and Simple capital regime for smaller banks to be implemented on the same date, 1 January 2027, the Interim Capital Regime (ICR) will no longer be required.

Updates to the UK bank resolution framework

The BoE and PRA have issued a broad package of announcements on resolution-related policy.

Key updates in the BoE’s final policy on the minimum requirement for own funds and eligible liabilities (MREL) include raising the indicative thresholds for the minimum requirement for own funds and eligible liabilities (MREL) from £15-25 billion in total assets to £25-£40 billion. This is intended to provide greater clarity and flexibility on whether a firm will need a transfer or bail-in strategy, with the former no longer needing to hold MREL above minimum capital requirements. The thresholds will be updated every three years, starting in 2028, to reflect changes in nominal economic growth.

The PRA is consulting until 31 October on amendments to its MREL reporting (CP15/25) and, as part of wider changes to Pillar 3 disclosure, MREL disclosure requirements (CP16/25). Proposals include:

• Increasing the Resolution Assessment Threshold for reporting and disclosures to £100 billion of retail deposits, up from £50 billion – to ensure that only the largest and most complex firms would need to report and disclose their preparations for resolution.
• A more proportionate approach to MREL disclosures by applying different requirements for disclosure templates across different types of firms.
• Introduction of four new disclosure templates, based on BCBS disclosure templates with modifications to reflect the specificities of the UK MREL regime.

Making it easier for mid-sized banks to compete in the mortgage market

The PRA will publish a Discussion Paper in mid-summer with options to help mid-sized banks to grow by adjusting some barriers to gaining permissions to build Internal Ratings Based (IRB) models for residential mortgages.

In addition, the government welcomed the FPC’s announcement that it will review the overall level of bank capital needed for UK financial stability.

HMT goes ahead with captives regime

The government confirmed it is proceeding with the introduction of a new UK captive insurance framework to ‘cement the UK’s position as a leading international jurisdiction for insurance and risk management business’. HMT has agreed with industry feedback to make the regime scope broader, both in terms of which firms can establish captives and the types of risk insured. This will particularly benefit Group Life fixed-term policies, certain types of compulsory lines on a reinsurance basis and financial services firms wishing to set up their own captives (for limited uses e.g., to manage own properly risk).

HMT has also accepted the industry argument to allow for captives to be established through a Protected Cell Company (PCC). This will broaden the usability of the captive framework to smaller companies that do not have the means to establish as standalone captive insurers – allowing more firms in the ‘real economy’ to effectively manage their risks.

The PRA and FCA will consult on exact details of the regime in the summer of 2026, but the government anticipates that the framework will include proportionally lower capital and reporting requirements and a faster authorisations process. The captives regime is expected to be implemented in mid-2027. No legislation is necessary for this.

Many insurers and brokers would welcome the introduction of a captives regime and HMT’s broadening of its scope – although there may be some disappointment that it is at least two years away. The PRA and FCA have also welcomed the HMT approach.

HMT consults on supporting new risk transfer solutions

The government is consulting until 8 October on new flexibilities to promote the use of insurance linked securities (ILS) and wider reforms to the Protective Cell Company (PCC) framework. These proposals will require further legislative change to be implemented.

ILS are typically used for natural catastrophe (nat cat) bonds to cover tail risks from natural disasters. HMT is proposing to give the PRA greater flexibility in determining how funding requirements are met, such as how assets are valued and extent to which all funding must be fully paid up front.

The government is also proposing to expand the definition of 'insurance risk transformation' to allow PCCs to assume risk from non-carriers (e.g., brokers or MGAs). Additionally, it is looking to expand the type of activities that can be carried out by giving PCCs the option to be authorised either as risk transformers or insurers (currently only the former is possible). Finally, the consultation builds on recent PRA changes to allow transformer vehicles to enter into more than one contractual arrangement by extending this treatment to the cells of PCCs.

These changes will be welcomed by the industry as an attempt to reinvigorate the ILS market and modernise the UK regulatory framework for risk transfer solutions. The take up of the changes will depend on the final regulatory detail and how competitive this will be compared to alternatives in other jurisdictions.

No UK Green Taxonomy

Following a 12-week consultation, the government has concluded that a UK Green Taxonomy “would not be the most effective tool to deliver the green transition”. Instead, it will focus on other higher priority policies to accelerate investment into the transition to net zero and limit greenwashing.

The decision not to develop a UK-specific taxonomy is not particularly surprising, given that feedback from industry was generally not supportive and firms are already subject to extensive (and increasing) sustainability reporting requirements in the UK. The experience of the EU Taxonomy Regulation, which has been criticised as overly complex and recently been subject to simplification measures, has demonstrated the challenges of applying a sustainability taxonomy whilst also trying to maintain proportionality and international competitiveness.

Commitment to other sustainability measures

The government has restated its commitment to:

• UK Sustainability Reporting Standards, assurance of sustainability reporting and transition plans.
• Ensuring that the BoE’s Financial Policy and Prudential Regulation Committees support its approach to net zero transition.
• Supporting the growth and integrity of the transition finance market and voluntary carbon and nature markets. The government intends to provide its response to the latter consultation later in 2025.
• Bringing forward legislation later this year to regulate ESG rating providers.

The government is consulting on revised statutory timelines for regulatory approvals for insurers and deposit takers, proposing a deadline of 4 months for complete and 10 months for incomplete applications. In response, the PRA and FCA have set out revised targets against which they will report from January 2026.

The PRA has gone further by targeting more ambitious approval times for certain applications:

• 3 months for complete applications from insurance firms that qualify for the wholesale insurance accelerated authorisation pathway
• 6 weeks for complete applications from insurance special purpose vehicles
• 10 working days for complete applications from insurance special purpose vehicles that qualify for an accelerated pathway

The FCA has also announced new statutory and voluntary targets relating to new firm authorisations and registrations, variations of permission and SM&CR applications. 

• Berne Agreement: The UK government announced that it will lay two statutory instruments in July to implement the UK’s commitments under the agreement. It added that the UK and Switzerland have committed to ensuring the agreement is fully implemented by the end of this year so that firms can start registering to use it on 1 January 2026. 
• National Payments Vision: As part of work on the National Payments Vision, the Payments Vision Delivery Committee (PVDC), chaired by HMT and with senior representatives from BoE, FCA and PSR, has announced an agreement on a new model to deliver the next generation of UK retail payments infrastructure. This will establish a Retail Payments Infrastructure Board, and an industry-led Delivery Company to deliver the PVDC’s strategy. 
• Pensions investment review: There were no announcements on Phase 2 of the Pensions Investment Review (PIR) which will focus on retirement adequacy, indicating a further delay to proposals. Its launch and/or more detailed timelines were anticipated to form part of the Chancellor’s Mansion House speech, following the conclusion of Phase 1 in May and comments from Torsten Bell, Pension’s Minister, indicating it would be launched shortly.
• Capital markets reforms: The FCA has rolled out the latest phase of its reforms to capital markets that it has summarised here. In addition to the launch of a new listings taskforce, two new policy statements introduced updates in relation to reforming prospectus requirements, corporate bond disclosures, and creating a new public offer platform. For investment firms specifically, the FCA will publish an engagement paper by the end of the year on reforming the IFPR market risk framework.
• Application of the Consumer Duty to wholesale firms: As revealed in the FS strategy, the government has asked the FCA to report back by the end of September on how it plans to address concerns from asset managers and other wholesale firms about the application of the Duty to wholesale firms in the distribution chain.
• Mortgage Guarantee Scheme: The government announced a permanent Mortgage Guarantee Scheme. It will be available to lenders from July 2025, helping to support homebuyers with a deposit as small as 5 percent.
• FCA changes to client categorisation: The FCA had already announced that it will consult on updating its client categorisation rules. A consultation later this year will gather feedback on the elective professional regime.
• Secondary growth objectives: The FCA and PRA released their second annual reports on how they are operationalising their growth and competitiveness objective, summarising their key achievements.

Taken together, the Leeds Reforms form a coherent approach to financial services reform. The industry will be watching closely to see how quickly consultations become policy, and how effectively firms can deliver on the government’s ambitions. If implemented well, they could boost confidence in the UK as the centre of financial services innovation, investment, and growth.