UK Regulatory Radar

The Leeds Reforms: 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. Read more in the articles linked above. Key developments covered include:

• The launch of the Financial Services Growth and Competitiveness Strategy
• Reforms to the SM&CR
• Modernising the redress system
• Boosting retail investment (including a statutory instrument on targeted support)
• The launch of a wholesale financial markets digital strategy
• Proposals relating to Basel 3.1, the new prudential regime for Small Domestic Deposit Takers and the resolution framework for banks
• A new captive insurance regime and HMT consultation on supporting new risk transfer solutions
• Decision not to proceed with UK Green Taxonomy and other updates on sustainable finance
• Proposals to accelerate regulatory approvals

The rest of this month’s UK Regulatory Radar focuses on developments outside of the Leeds Reforms package.

Bank of England Financial Stability Report: The Financial Policy Committee’s (FPC’s) July view on the stability of the UK’s financial system found that risks and uncertainties related to geopolitical tensions and reduced co-operation on trade and international policy are still elevated. Financial markets have continued to function through significant turbulence, but the FPC is working to further enhance their core resilience. The Committee noted that financial stability is crucial for sustainable growth and that weaknesses in non-bank finance can amplify shocks. However, the UK banking system is still in a strong position to support households and businesses, even if economic and financial conditions deteriorate – therefore the countercyclical capital buffer (CCyB) has again been maintained at 2%. The Report also considers stablecoin developments, the results of the 2024 Cyber Stress Test and the implications of the growth of the private assets industry.

Market access under UK-Swiss agreement: Following an update as part of the Leeds Reforms, the FCA has set out how firms can avail themselves of the market access benefits under the Berne Financial Services Agreement (BFSA), expected to come into force in early 2026. Under the agreement, UK insurers will have passport-like cross-border access rights to the Swiss market for certain wholesale lines of business for large clients. UK and Swiss investment firms will be able to provide investment services to certain high net worth clients without local authorisation. The FCA has published details of how firms can apply and has welcomed expressions of interest in advance of the Agreement coming into force.

See Leeds Reforms articles above.

Loan to Income (LTI) flow limit: The PRA and FCA have announced a further review of the LTI limit in response to the FPC's latest recommendation. This follows the PRA and FCA’s recent confirmation of increases to the limit from £100m to £150m. The new review will consider the FPC’s recommendation that lenders be permitted to increase their share of high-LTI lending while maintaining the overall 15% limit. Whilst the review is in progress, mortgage lenders will be able to apply to the regulators for a rule modification or individual guidance to enable them to increase their high-LTI lending beyond the current threshold.

Large Exposures Framework: PRA PS14/25 and SS 3/25 provide feedback to responses the PRA received on Chapter 5 of CP14/24 and on groups of connected clients (GCC) in relation to Chapter 4 of CP23/23 (on the identification and management of step-in risk, shadow banking entities and groups of connected clients). PS14/25 removes stricter requirements on exposures to certain French counterparties, redefines the definition of control, and makes other minor clarifications and drafting amendments. The final policy will be implemented from 1 January 2026. SS3/25 covers: groups of connected clients based on control; an alternative approach for exposures to central governments; establishing interconnectedness based on economic dependency; control and management procedures for identifying connected clients; and illustrative scenarios.

Restatement of CRR and certain Solvency II requirements: The PRA has published a policy statement (PS12/25) and final rules restating parts of the CRR and Solvency II Rulebook. This includes assimilated law concerning Own Funds and Eligible Liabilities in CRR, supervisory expectations on securitisations, and the mapping of external credit rating agency ratings to credit quality steps (ECAI mapping). The restatements on Own Funds are without substantive changes, but there are some minor amendments to improve the proportionality and transparency of the PRA's approach.

In addition to the important developments on captive insurance and risk transformation regulations covered in the Leeds Reforms article above, wider developments included:

Roadmap for retail insurance: The FCA published a package of reports on how the retail insurance market is working. The reports cover reviews into drivers for motor insurance premium increases, claims handling in home and travel insurance, interim findings of the premium finance market study and an evaluation of FCA pricing reforms in home and motor insurance. The reports reveal:

• Increased costs outside of motor insurers’ control, such as higher labour, parts, and car hire costs, were the biggest cause of recent premium rises in motor insurance. However, referral fees from credit hire firms and claims management companies contributed to increases.
• Poor claims handling practices in travel and home insurance as a result of inadequate governance and oversight, MI and data deficiencies and a lack of clarity and poor customer understanding of storm cover.
• Value concerns associated with premium finance where revenues materially exceed costs for some firms.
• FCA pricing reforms in home and motor insurance have been effective in reducing price-walking practices with prices remaining stable in home and rising only slightly in motor, despite high inflation.

Authorisation and supervision of Lloyd’s managing agents: The PRA, FCA and the Society of Lloyd’s (‘Lloyd’s’) have agreed changes to streamline the process of regulatory approval for Lloyd’s managing agents, with the intention of reducing the timeframe for authorisation. The PRA and FCA will retain their statutory decision-making roles but will make increased use of the assessment work already carried out by Lloyd’s. This will make decision-making more concurrent and shorten the process, while maintaining high standards of entry. The changes form part of a wider programme of enhanced collaboration between the three organisations to improve effectiveness, efficiency and reduce duplication in oversight of the Lloyd’s market.

Insurance stress test: The PRA has published an update on the Dynamic General Insurance Stress Test (DyGIST), reconfirming the timing for the beginning of the exercise (May 2026) and the in-scope insurers. There will be a workshop in September 2025 for participating firms on further logistics, and additional workshops throughout the exercise.

Solvency triggered termination: The PRA has published a Dear CRO letter on solvency-triggered termination rights (STTR) clauses in bulk purchase annuity (BPA) transactions. The PRA raises concerns around liquidity, asset concentration, contractual uncertainty and operational challenges. The letter calls for CROs to assess the extent to which this is relevant for their business and review how these issues are being addressed. 

Market Watch 82: The FCA’s latest Market Watch publication describes recent observations from the supervision of the UK MiFID transaction reporting regime. These cover remedial timelines, back reporting, and transaction reporting errors and omissions notifications (i.e. breach notifications).

Systematic Internaliser (SI) Regime and Equity Markets: In November 2024, PS24/14 removed pre-trade transparency from SIs’ obligations in bonds and derivatives. In the recently published CP25/20 the FCA is now consulting on a future SI regime for bonds and derivatives as well as on other changes that aim to improve the functioning of UK wholesale markets. The paper also includes a discussion section on whether the growth of bilateral trading and the declining use of central limit order books in equity markets raises concerns and if reforms are needed.

Commodities Ancillary Activities Test: The FCA is consulting on changes to the ancillary activities test (AAT). The AAT allows firms to be exempt from authorisation as an investment firm when their trading in commodity derivatives, emission allowances or derivatives of emission allowances qualifies for use of the ancillary activities exemption (AAE). The proposals aim to aim to simplify how firms determine whether they can benefit from the exemption while ensuring that it provides them with the necessary legal certainty. For more information, please listen to this KPMG in the UK podcast. 

Primary Market Bulletin 56: The FCA’s latest bulletin announces the creation of its new Market Oversight Data & Intelligence department. The department has developed new alerts using position and transaction reports. These allow the FCA to identify late submissions and failures to report. The FCA reminds market participants of the importance of meeting their reporting obligations under UK MAR.

Supervision of financial market infrastructure (FMIs): The BoE has published its Supervisory Statement on the Fundamental Rules for FMIs. These are similar in content to the FCA’s Principles for Business and the PRA’s Fundamental Rules and aim to provide to provide a clear and transparent articulation of the outcomes that the BoE requires of FMIs. They will take effect on 18 July 2026.

The BoE has also set out its supervisory approach to onboarding new FMIs. It outlines different paths firms might take to become an authorised or recognised firm. The BoE is also consulting on its approach to rules permissions and waivers (including its criteria), the proposed timeline to assess applications for permissions, and a standardised form for firms to use.

UK EMIR: The BoE is consulting on proposals to restate certain CCP-facing requirements in UK EMIR into BoE rules, alongside some targeted policy changes. The CP is focused on the approach to revoking and replacing the specific CCP-focused elements of UK EMIR. Other requirements in EMIR such as uncleared derivatives and reporting as well as direct requirements on trade repositories and clearing members and clients will be taken forward in due course. The material changes proposed by the BoE relate to the transparency of margin requirements and adding a second skin the game (SSITG) to the default waterfall. This CP also contains a discussion section on eligible collateral for posting to CCPs. As part of these changes, BoE is also consulting on:

• A supervisory statement on CCP margin
• Its approach to supervisory processes (model changes, recognition orders and variations of recognition orders) and margin permissions
• Its approach to permissions in relation to CCP rules.

In relation to non-UK CCPs, the BoE is also consulting upon its draft statement of policy to tiering. Non-UK CCPs are tiered according to the level of risk they potentially pose to UK financial stability. Overseas CCPs that are tiered as ‘systemic’ will become subject to direct UK supervision and regulation whereas overseas CCPs that are tiered as ‘non-systemic' will be primarily supervised and regulated by their home authority. Systemic non-UK CCPs can also apply for comparable compliance permissions – in this context the BoE is consulting upon its approach to assessing applications.

FCA client categorisation review: The FCA announced that it will carry out a review of its approach to client categorisation later this year. The FCA’s goal is to provide greater clarity on the rules and protections that apply to different customer groups, particularly for wholesale firms. Specifically, it will launch a consultation on the elective professional client categorisation later this year.

Regulation of Buy Now Pay Later (BNPL): The FCA is consulting on rules and guidance for BNPL lenders, following the government’s decision to bring them within the FCA perimeter, which comes into force on 15 July 2026.

The FCA proposes to apply the majority of existing rules for regulated credit activity including the Consumer Duty. However, certain rules will be disapplied where they are irrelevant, or their application would be disproportionate. Proposals include requiring proportionate creditworthiness assessments for new and repeat lending, information disclosure requirements at key stages of the customer journey, and the inclusion of BNPL activities in the FOS's compulsory jurisdiction. The FCA will open registration for a temporary permissions regime two months in advance of the rules coming into force. The final rules are expected to be confirmed in Q1 2026.

Mortgage guarantee scheme: The government has announced a new mortgage guarantee scheme (MGS) permanently available to lenders from July 2025. The goal is to help support homebuyers with a deposit as small as five percent, and incentivise and sustain the availability of 91-95% loan-to-value mortgages. The scheme provides a government-backed guarantee insuring lenders against a portion of potential losses on eligible residential, repayment mortgages with the aim of providing lenders more security, and buyers more options. Interest only, offset, guarantor, and buy-to-let mortgages and second or subsequent mortgages are ineligible for the scheme. Lenders wanting to participate in the MGS must submit a participation notification to HMT.

Mortgage rule changes: The FCA has confirmed simplified mortgage rules designed to support lenders and borrowers. It is proceeding with the proposals broadly as consulted upon, confirming the removal of the "interactive dialogue" trigger for mandatory advice, allowing simpler affordability assessments for term reductions and remortgaging, and the removal of existing non-Handbook guidance on interest-only mortgages and cost of living support. The new rules came into force immediately.

TPR Corporate Plan 2024 to 2027: In its year two update TPR confirmed its continued commitment to raise trustee and governance standards, drive value for money in pension schemes, and develop safe pathways to deliver good retirement outcomes. A key part of TPR’s upcoming activity will be focused on helping the industry to prepare for the transformative impact of the new Pension Schemes Bill.

Digital Pound: The BoE published two design notes on the digital pound setting out its emerging thinking. The Product Strategy design note sets out possible use cases that would provide value to individuals and businesses and a proposed product roadmap including an initial stage product proposition.

The second design note sets out how interoperability for UK-based payments can support innovation, inclusion, and the singleness of money by enabling seamless exchange between digital pounds, commercial bank deposits, cash, and new forms of digital money. The note outlines three potential models for delivering interoperability, evaluates their trade-offs, and presents a preferred approach. However, Andrew Bailey remarked in his Mansion House speech, that he ‘remains to be convinced why the natural next step is to create a new form of money rather than put digital technology into retail payments and bank accounts’.

See Leeds Reforms articles above for latest updates.