Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates

UK Financial Regulation Update

Skadden Publication / The Capital Ratio

Sebastian J. Barling Wilf Odgers Cyrus Yazdanpanah

The first four months of 2025 proved busy for the UK’s financial regulators, with both the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) publishing their strategy and business plan documents. As part of this update, we select some of the key points coming out of the following:

Read together, these provide a comprehensive road map of the initiatives and regulatory direction for the next few years.

FCA Five-Year Strategy

Two overarching (and overlapping) themes emerge from the FCA’s recently published strategy paper: (i) supporting growth and (ii) rebalancing attitudes toward risk. In particular, the FCA is explicit that regulation should aim to facilitate informed risk-taking, not eliminate risk.

This approach underpins the four priorities on which the FCA will focus over the next five years:

  • Be a smarter regulator: The FCA has indicated that it will (effectively) reduce supervision, with less intensive supervision of firms “doing the right thing.”
    • Firms can expect a smaller number of market reports (replacing the portfolio letter approach) and fewer (but more focussed) enforcement actions delivered more quickly.
    • The FCA intends to streamline its processes and use technology to become more efficient and effective.
    • More regulated firms will have direct contact points with the FCA.
  • Support sustained economic growth: The FCA will take an increasingly “tech-positive” approach to support improvements in productivity.
    • The authority will focus on continually boosting the competitiveness of UK financial services, including through its approach to integrating the Payment Systems Regulator.
    • The FCA also hopes to eliminate redundant rules and will review the current redress mechanism.
  • Help consumers navigate their financial lives: Unsurprisingly, the FCA continues to identify the Consumer Duty as the backbone of this priority.
    • The authority will continue developing its “targeted support” regime to ensure consumers have better support and information available to them.
  • Fight financial crime: The FCA will maintain efforts to identify and address those who seek to use FCA authorisation as a cover for crime, and endeavour to increase consumer awareness of investment and APP fraud.

2025/26 Work Programme

The work programme sets out what the FCA aims to deliver in 2025/26 to advance these four strategic priorities, including its anticipated spending on these projects. The biggest areas of investment by the FCA for this year will be in:

(i) Continuing assimilation and replacement of EU law (£9 million).

(ii) Developing the UK cryptoasset regime (£7.8 million).

(iii) Reviewing motor finance discretionary commission complaints (£6.9 million).

(iv) Developing the targeted support regime following the Advice Guidance Boundary Review (£3.7 million).

In addition to these primary areas, we expect the regulatory priorities for this year will include the following agenda items:

PRIORITY 2025/26 WORK PROGRAMME AGENDA
Becoming a more efficient and effective regulator
  • Continue to reduce regulatory data reporting, with consultations on this expected in summer 2025.
  • Review the current firm categorisation model.
  • Expand the agency’s ability to identify and quickly address harm by updating processes and using digital intelligence to identify where to act.
Supporting economic growth
  • Reform the Financial Ombudsman Service (FOS) and broader consumer redress framework.
  • Consult on changes to the £100 contactless limit.
  • Streamline rules, guidance materials and wider communications now that the Consumer Duty is in place.
  • Provide a dedicated authorisations case officer to every firm in the regulatory sandbox.
  • Extend Pre-Application Support Service (PASS) to all wholesale, payments and cryptoasset firms.
  • Implement a new prospectus regime, as well as a regime to allow companies to make public offers of securities via a regulated platform without the need for a prospectus.
  • Continue to develop the Private Intermittent Securities and Capital Exchange System (PISCES).
  • Introduce competitiveness reforms to remuneration rules for banks.
  • Continue to implement the new transparency regime for bonds and derivatives, and develop consolidated tape and optionality around payment for investment research.
  • Progress the digital securities sandbox and develop a road map for digital assets, starting with the asset management industry.
  • Reduce the transaction reporting obligations and streamline both the Senior Managers and Certification Regime (SMCR) regime and UK asset management regimes.
Helping consumers navigate their financial lives
  • Collaborate with government to bring deferred payment credit programs and “buy now pay later” programs under the FCA regulatory regime.
  • Continue to embed and apply the Consumer Duty consumer protection framework.
  • Pursuant to the Advice Guidance Boundary Review, reform previous rules on advice and guidance to help consumers can make informed decisions.
  • Review the responsible lending and advice rules for mortgages.
 Fighting financial crime
  • Build a new data-led detection capability to bring together multiple datasets.
  • Collaborate with partners to share and analyse data and remove gaps where money is laundered.
  • Invest in systems to use intelligence and data more effectively.
  • Lead a cross-industry project to better understand the flow of illegitimate funds across different types of APP fraud to prevent that movement.
  • Proactively assess anti-money laundering systems and controls for firms deemed higher risk.
  • Use powers to disrupt, pursue and sanction those committing and enabling financial crime

PRA Business Plan

The business plan sets out the work plan for the PRA’s strategic priorities and for the authority’s primary and secondary objectives in 2025/26. The four strategic priorities outlined are:

(i) Maintaining and ensuring the safety and soundness of the banking and insurance sectors and ensuring their continuing resilience.

(ii) Leading in identifying new and emerging risks and developing international policy.

(iii) Supporting competitive, dynamic and innovative markets, alongside facilitating international competitiveness and growth, in regulated sectors.

(iv) Operating an inclusive, efficient and responsive regulator within the central bank.

The PRA set out some key regulatory initiatives for the banking sector. These include:

  • Implementing the Basel 3.1 standards. In September 2024, the PRA completed work on near-final rules for the Basel 3.1 standards, incorporating industry feedback to enhance UK market competitiveness and growth, for example by lowering capital requirements for SMEs and infrastructure projects. The implementation date for the rules was delayed to 1 January 2027, with full implementation by 1 January 2030. The final rules will be published once the UK Parliament has revoked the relevant parts of the Capital Requirements Regulation.
  • Bank stress testing. In 2025, the largest and most systemic UK banks will undergo a Bank Capital Stress Test (BCST) focused on financial cycle risks, with results informing capital buffer settings.
  • Internal ratings-based (IRB) models to model risk, liquidity and credit risk management. The PRA has published various policy statements on changes to the IRB approach to credit risk and will continue to work with firms to review submissions and approve models, focusing on the “hybrid” approach to mortgage modelling and the IRB repair programme while also assessing the adequacy of post-model adjustments to ensure capital adequacy.
  • Securitisation. The FCA and PRA intend to consult in H2 2025 on further changes to the securitisation rules to make the existing framework more proportionate.
  • Investment in future payments infrastructure. The PRA has continued to contribute to innovations in money and payments, including deposits, e-money and stablecoins. In 2025/26, the PRA will engage with international partners to assess developments in digital money and cryptoasset markets.
  • Future banking data (FBD). FBD aims to reduce costs in banking regulatory reporting and improve the relevance, quality and timeliness of collected data. The project will draw on work carried out between 2021 and 2024 to streamline data collections for insurers.
  • Remuneration reforms. Following removal of the bonus cap and changes to enhance proportionality for small firms in 2023, in November 2024, the PRA and FCA published a consultation paper on further remuneration reforms that proposed streamlining the UK remuneration regime. The PRA and FCA are considering the feedback received and aim to publish the final policy in H2 2025.

The business plan also set out initiatives targeting the insurance industry and operational effectiveness at the PRA, as well as some multi-sector initiatives including implementing changes to the SMCR, as discussed in the Regulatory Initiatives Grid.

Regulatory Initiatives Grid

The Financial Services Regulatory Initiatives Forum is made up of the Bank of England, the PRA, the FCA, the Payment Systems Regulator, the Competition and Markets Authority, the Information Commissioner’s Office, the Pensions Regulator and the Financial Reporting Council, with HM Treasury as an observer member. Together, these bodies published the Regulatory Initiatives Grid, which sets out details of regulatory initiatives relevant to the financial services sector that are planned for the next 24 months.

In terms of new initiatives (not otherwise already discussed), the following represents some other potentially high-impact areas:

  • Regulation for anti-money laundering (AML)/politically exposed persons (PEPs): A Q2 report by the FCA on firms’ adherence to FG17/6 on PEPs which may require a reopening and expanded application of current AML/KYC frameworks.
  • Prudential treatment of cryptoassets: The PRA’s anticipated Q4 consultation paper on implementing the Basel standard for the prudential treatment of cryptoassets, which may require firms to undertake additional prudential work in addition to Basel 3.1 integration.
  • Management of climate risks: The PRA expects to consult in Q2 on updating Supervisory Statement 3/19 on managing climate-related risks, which could require changes to risk management frameworks.
  • Settlement/T+1 developments: The introduction of the T+1 standard settlement cycle for securities trades in H2 2027 will potentially require long-term IT builds that may need to be resourced this year.

What Is Next for Firms?

Notwithstanding the regulators’ focus on growth and deregulation, there remains an enormous amount of regulatory work in the pipeline for 2025 and 2026.

Firms should ensure they have reviewed the regulators’ strategy and plans and update their own horizon-scanning initiatives to reflect expectations. This includes identifying where firms may wish to engage with regulatory consultations in order to better shape commercial outcomes and educating senior management about potential regulatory impacts on existing business.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.

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