UK Regulatory Radar

BoE H1 2025 Systemic Risk Survey: The BoE has published the results of its Systemic Risk Survey for H1 2025. The survey quantifies and tracks, on a biannual basis, market participants’ views of risks to, and their confidence in, the stability of the UK financial system. Survey respondents on balance remain confident in the stability of the UK financial system over the next three years, although confidence fell relative to the previous survey. The perceived probability of a high-impact event affecting the UK financial system in both the short and medium term has also increased for the first time since H2 2022.

BoE Financial Policy Committee Record: The April Financial Policy Committee (FPC) Record, outlining the risk outlook for the UK economy, found that overall the global risk environment has deteriorated, uncertainty has intensified, and asset prices have declined. However, the Committee noted that the UK banking system retains the capacity to support households and businesses, even if conditions continue to worsen. Therefore, the countercyclical capital buffer (CCyB) has been maintained at 2%. The Record was accompanied by a Financial Stability in Focus report on the systemic impacts of AI (see more below).

FCA approach to supervisory communications: The FCA has confirmed that it will stop issuing and publishing portfolio letters from 30 April 2025 and will replace them with a small number of market reports. These reports will include communications relevant to different types of firms as well as insights from supervisory work. Past portfolio letters and Dear CEO letters, with a few exceptions, will be retired and marked as ‘historical’ but will remain accessible. Dear CEO letters will continue to be issued on significant issues that require action from senior management.

FCA regulatory returns: Aligned to its recently updated strategy, the FCA is consulting to remove the requirement to provide data related to three specific reports and notifications:

• The Retail Investment Adviser Complaints Notifications Form (Form G)
• Client Money and Assets (FSA039)
• Section F of the RMAR

Given the simple nature of the data requirements, their removal will only be of minor positive impact to firms. Implementation is unlikely to require any material regulatory change.

BoE External MRELs: The BoE has published its 2025 external minimum requirements for own funds and eligible liabilities (MRELs). This is relevant for all firms with a resolution entity incorporated in the UK for which an MREL above minimum capital requirements has been communicated. The BoE describes its approach to MREL disclosure, including supporting assumptions and firm-specific information for bail-in and transfer preferred resolution strategy firms. Firm-specific MRELs are also included. The format of the disclosure is unchanged from the March 2024 disclosure.

PRA final policy on step-in risk: The PRA has published PS5/25, following consultation paper CP23/23, which proposed new rules for the identification and management of step-in risk based on BCBS guidelines. Step-in risk is the risk that a bank provides financial support to an unconsolidated entity that is facing stress, in the absence of, or in excess of, any contractual obligations to provide such support. The main update since CP23/23 is the addition of rule 6.2, which removes the requirement for a firm to consider its relationship with a third-party securitisation special purpose entity for step-in risk where its only relationship is an investment in its senior securitisation position. The new rules will be implemented on 1 January 2026.

Significant risk transfer financing: The PRA has issued a Dear CFO letter on prudential expectations around significant risk transfer financing, emphasising the regulator's focus on ensuring that banks adequately capitalise risks. The letter specifically addresses the potential undercapitalisation of Securities Financing Transactions (SFTs) collateralised by illiquid collateral and highlights a key consideration in the forthcoming Basel 3.1 changes. See article above.

PRA modification by consent of LCR: In early April, the PRA offered a modification by consent that would allow certain third country covered bonds under the Liquidity Coverage Ratio (LCR) part of the PRA Rulebook to be included in Level 2A High Quality Liquid Assets (HQLA), subject to a cap on the amount recognised. Following several requests for clarification, the PRA has now decided to pause the process and withdraw the modification. The PRA plans to clarify its approach shortly, but in the meantime, firms do not need to amend their approach to recognising third country covered bonds under the LCR.

O-SII buffer framework review: The Financial Policy Committee (FPC) is consulting until 30 May on increasing O-SII buffer thresholds based on the 20% cumulative growth in nominal GDP between 2019 and 2023 to ensure the framework reflects the original risk appetite of the Committee. The consultation follows a review carried out by the FPC in 2024.

MiFID Org Reg transfer to the PRA Handbook: See detail on this in Capital Markets and Asset Management below.

Reforms to UK AIFMD: The FCA and HMT are seeking input on proposals to streamline the regulatory requirements for UK Alternative Investment Fund Managers (AIFMs). The goal is to reduce regulatory burdens for these firms while maintaining core protections for consumers and markets. See article above.

Second FCA consultation on the Consumer Composite Investments framework: Following its first consultation on a framework for Consumer Composite Investments (CCIs) in December 2024, the FCA has published a follow-up consultation on related changes. These include further proposals on cost disclosures (specifically on implicit transaction costs and on aligning the MiFID approach), wider handbook changes that are required to implement the CCI regime (e.g. in COLL), detailed transitional provisions, and extending the FCA's supervisory and enforcement powers in the context of the CCI framework. The FCA will consider feedback to both consultations together and expects to publish a policy statement by the end of 2025.

CCP Stress Test: The BoE has outlined the key elements of its fourth exploratory stress test of UK Central Counterparties (CCPs). The test will focus on assessing the resilience of UK CCPs to the default of two or more of their members during a severe market stress. This includes a core credit stress test and additional reverse stress testing and sensitivity testing that explores how the results change under increasingly severe assumptions. The stress test will also consider the impact on the wider financial system via initial margin and variation margin calls.

FCA consultation on the definition of regulatory capital for investment firms: The FCA is proposing to streamline the rules on the types of funds that MIFIDPRU investment firms must hold to absorb losses and maintain financial resilience during periods of stress. As well as simplifying and consolidating the existing rules about what qualifies as regulatory capital, the FCA is proposing to remove large sections of the regulatory capital rules that are not relevant to investment firms and to make others simpler. No changes are proposed to the levels of regulatory capital that firms must hold, and the consultation would not require firms to adjust their capital arrangements.

MiFID Org Reg transfer to the PRA Handbook: The MiFID Organisational Regulation (MiFID Org Reg) sets out detailed organisational requirements, which in the UK are applied to both investment firms and Capital Requirements Regulation (CRR) firms. The PRA is consulting on moving the existing firm-facing requirements contained in MiFID Org Reg into the PRA rulebook before HMT beings revoking the MiFID Org Reg under FSMA 2023, otherwise risks could arise from gaps in the PRA’s ability to enforce key components of its systems and controls requirements. The PRA is not proposing any new requirements for firms as part of the changes. The FCA has similarly consulted in CP24/24.

Margin requirements for non-centrally cleared derivatives: The PRA and FCA are jointly consulting to implement an indefinite exemption for single-stock equity options and index options from the UK bilateral margining requirements. The CP also includes proposals to amend the margining treatment of legacy contracts for counterparties that fall under the Average Aggregate Notional Amount (AANA) threshold and a proposal to allow firms to align dates related to the AANA calculation with other jurisdictions. The regulators are aiming to reduce the burden of the bilateral margining regime in the UK with these amendments to the UK version of EMIR BTS 2016/2251.

Derivatives trading obligation (DTO) and post-trade risk reduction services: The FCA’s PS25/2 confirms that certain classes of SOFR OIS (secured overnight financing rate overnight index swaps) will be subject to the DTO from 30 June 2025. The PS also confirms a framework for post-trade risk reduction services which allows investment firms to benefit from various exclusions, including the exemptions from the DTO, best execution and the transparency requirements.

Primary Market Bulletin 55: The FCA’s latest Primary Market Bulletin provides feedback and finalises the technical and procedural notes in its Knowledge Base to reflect last year’s changes to the listing regime and feedback on the sponsor regime. It also details changes made to the UK Listing Rules to reflect the updated UK Corporate Governance Code 2024. 

CP7/25 Matching Adjustment Investment Accelerator: The PRA has proposed a new framework, the Matching Adjustment Investment Accelerator (MAIA), to accelerate investment in UK assets by insurance firms and be included in the Matching Adjustment Portfolio (MAP). The framework will allow firms with MA permissions to include a limited quantity of self-assessed MA eligible assets in their MAP without prior PRA approval. The PRA notes that this will promote its secondary competitiveness and growth objective. Stakeholders have until 4 June 2025 to respond to the consultation, and the PRA expects implementation of the policy in Q4 2025, with the reporting element not applicable until 31 December 2026.

Renewed RTGS: The BoE’s renewed Reat-Time Gross Settlement system R2T launched on the 28 April marking a significant milestone in ensuring the UKs payments system is equipped to respond to the changing payments landscape. RT2 aims to provide a more resilient, flexible and innovative sterling settlement system to support monetary and financial stability, while also benefiting the industry through improved access, interoperability, and user functionality.

Card scheme fee remedies: The PSR is consulting on remedies to improve the market for scheme and processing fees. This is in response to ineffective competitive constraints identified in the supply of scheme and processing services to acquirers and merchants (A&M). The PSR proposes remedies including (i) mandating improved transparency to enable better understanding and decision making by A&Ms, (ii) new regulatory reporting requirements to enhance regulatory monitoring, and (iii) strengthened pricing governance with the introduction of requirements on card schemes to ‘pay due regard’ to pricing principles when taking decisions on fee changes.

Consumer Duty - International payments and pricing: The FCA has published the findings of its review on the transparency of international payment costs under the Consumer Duty setting out good and poor practice observed. The FCA found that, while some firms were clearly displaying fees and charges and remittance amounts, this was not universally the case. Issues identified included unclear transaction fees, a lack of clarity around variable fees, and relevant information to inform decision making being hard to find.

Targeted Support policy sprint: The FCA has concluded its six week policy sprint on the proposed Targeted Support regime. The goal of the sprint was to explore new ways to help consumers make important investment decisions and to help accelerate the final policy proposals which will be put out for consultation by the end of June 2025, covering both pensions and investments. In line with its new growth and competitiveness mindset, this is the first time the FCA has used a policy sprint to test future rules before formal consultation. The sprint involved industry, consumer groups, the ICO and, critically, the FOS.  

Pure Protection Market Study: The FCA has formally commenced its Market Study on Pure Protection. The revised Terms of Reference confirm the exclusion from scope of private medical insurance, accident, sickness, and unemployment insurance, and funeral plans. The study will focus on five areas (i) design of distribution arrangements and commissions, (ii) fair value of products, (iii) insurer exits impacts, (iv) the protection gap and access to cover, and (v) barriers to investment and innovation. The interim report is expected by December 2025.

Customers in vulnerable circumstances: The FCA has published the results of its multi-firm review of retail banks' treatment of customers in vulnerable circumstances (CiVC). While some firms displayed good practices, the FCA identified areas for improvement across all firms: (i) the understanding and application of policies and procedures for the treatment of CiVC, (ii) issues identifying and responding to customer needs, (iii) deficiencies in outcomes testing with MI lacking the necessary breadth and depth to evidence customer outcomes, and (iv) fragmented customer journeys risking distress and upset. The FCA specifically highlights the need to improve how firms treat customers affected by bereavement or registering a power of attorney (PoA).

Mortgage loan to income flow ratio: The FCA and the PRA have jointly proposed to increase the de minimis threshold above which the Loan to Income (LTI) flow limit is applied in mortgage lending, from £100m to £150m. This aligns with the FPC’s November 2024 recommendation. The change should correct regulatory tightening caused by nominal UK GDP growth, and restore the percentage of exempt mortgage lending to its original level.

PRA changes to depositor protection: The PRA is consulting on changes to FSCS depositor protection. The PRA proposes to increase the FSCS limits to depositors from £85,000 to £110,000 and the limit for temporary high balances from £1m to £1.4m. This aims to ensure that the limit has not been eroded in real terms due to changes in consumer price inflation.

Motor finance commission: The FCA has released its written submission to the Supreme Court to assist its consideration of the appeal to overturn last year’s Court of Appeal (CoA) decision that ‘a broker could not lawfully receive a commission from a lender without obtaining the customer’s fully informed consent to the payment’. The FCA argues the CoA's approach went too far by effectively treating motor-dealer brokers as owing fiduciary duties to consumers, and that its characterisation of motor dealer brokers’ obligations differed from the regulatory framework in place. The FCA will take the Supreme Court’s judgement into account when determining the outcome of its consultation on proposals to extend the time firms have to respond non-discretionary commission motor finance complaints. Read more about the CoA ruling that has led to the appeal here.

FCA review of trading apps and consumer behaviour: Alongside behavioural research, the FCA has published the findings of its review of trading apps, intended to help firms understand their obligations in full. It found some positive practices but also some areas for improvement, for example, around the target market assessment, appropriateness test and price and fair value.

Professional trustee firms: TPR has announced the extension of its oversight to professional trustees driven by the significant expansion of the market, and the findings of engagement with trustee firms. This identified a number of areas where risks to savers outcomes could arise: (i) relationships with employers, (ii) profit and remuneration models, (iii) sole trusteeship, (iii) in-house advisers, and (iv) scheme decision makers. TPR will begin oversight activity this summer, adopting a risk-based approach, expanding to cover the remaining firms by the end of the year.

Financial stability implications of AI: The BoE’s FPC has published a report on the financial stability implications of AI. Overall, the BoE acknowledges that AI can help financial institutions and support growth but cautions that if FS institutions adopt the technology for core decision-making, there is potential for “systemic consequences to emerge”. The report particularly highlights concerns around the use of AI for trading strategies in a way that could amplify shocks. The BoE has committed to building out its monitoring approach as a result and will consider whether additional policy action is needed.

AI Sprint summary: The FCA has published a summary of its 2-day AI Sprint, focusing on opportunities and challenges, that was held in January this year. Four common themes emerged as important for the responsible development of the technology: (i) regulatory clarity, (ii) trust and risk awareness, (iii) collaboration and coordination, and (iv) safe innovation through sandboxing. The Sprint is one component of the FCA’s AI Lab, and the feedback received will be used to shape the FCA’s regulatory approach. 

PRA consultation on climate-related risks: The PRA is consulting until 30 July on enhancing banks’ and insurers’ approaches to managing climate-related risk. CP10/25 comes with a draft supervisory statement which, once finalised, will replace SS3/19 with immediate effect. CP10/25 sets out the PRA’s updated draft expectations for banks and insurers on the identification, assessment and management of risks associated with climate change. It responds requests from firms for further clarity, and reflects updated understanding of climate-related risks across the industry, prior regulatory feedback and guidance, and international standards. The PRA notes that, since the publication of SS3/19, banks’ and insurers’ progress in building their climate-related risk management capabilities has been “uneven”. CP10/25 sends a clear signal that more work is needed, and that the PRA intends to keep climate-related risk high on the supervisory agenda. The CP is set out in 7 chapters, covering governance, risk management, climate scenario analysis (CSA), data, disclosures and banking- and insurance-specific issues. The consultation will close on 30 July 2025. See here for more detail Managing climate-related risk.

FCA sustainability regulations and UK defence: The FCA has clarified that its sustainability rules do not prevent investment in or financing of defence companies. Instead, its rules are designed to increase the transparency and quality of sustainability information, allowing consumers to make informed decisions. There are no FCA sustainability rules that prevent banks from serving defence clients. Banks may have their own defence-related policies, which some banks describe as part of their sustainability disclosures. 

FCA feedback on sustainability considerations: Following the launch of a discussion paper on sustainability considerations for regulated firms in February 2023 (DP 23/1), the FCA has published a summary of feedback received. The FCA is not currently considering the introduction of further rules on the themes discussed in the DP. It notes that various new rules have been implemented since the DP was published and that time is needed to embed these.

TPR climate risk and small DC schemes: TPR has issued a report which suggests that small defined contribution (DC) schemes which do not take appropriate action to protect investments from climate risk should consider exiting the market. The report finds that there are many small DC schemes where trustees' knowledge of the scale of financial risks posed by climate change is limited. TPR has called on these trustees to upskill or consider consolidating to protect savers’ interests.