Disputes Yearbook 2025:
Financial services regulatory

FCA Enforcement – Streamlining and Greater Disclosure

On 3 June 2025, the FCA published its streamlined and updated Enforcement Guide, and formally confirmed that it would not proceed with proposals to disclose the names of firms subject to enforcement investigations. The publication paused the very public debate between the FCA and relevant stakeholders in relation to particular aspects of transparency and efficiency in enforcement. 

It would not be unexpected for the FCA to return to the role of transparency as a regulatory tool. Not least, as a recent High Court ruling, CIT v FCA, underlined that firms need to be alive to the risk of regulatory publicity where a matter presents a serious consumer protection issue. 

On its enforcement approach more broadly, 2025 has seen the continued efforts under Joint Executive Directors of Enforcement and Market Oversight Therese Chambers and Steve Smart to increase the pace of enforcement investigations and reduce the backlog of cases. There has been progress on both fronts.

Whilst some long-running cases remain open, the FCA advised the House of Lords Financial Services Regulation Committee in June that five recent investigations had achieved a public outcome in less than 16 months, compared to an average length of 42 months for investigations closed in 2023/24. The FCA has also reduced the number of open enforcement cases. In 2025, they had 130 open cases at the end of March, compared to 188 open cases at the same time in 2024; we expect 2026 to see a similar – if not greater – reduction.

As the threshold for enforcement rose, there has been a noticeable increase in the use of other supervisory tools by the FCA, including variations of permissions, directions, and imposition of requirements. That the bulk of these are "voluntary" may be read as indicative of efforts at constructive rather than adversarial engagement between the regulator and the regulated. However, failure to successfully navigate supervisory intervention has led firms into enforcement, with the results of supervisory engagement cited in Final Notices and increasing the severity of the findings. Alongside these tools, there has also been an uptick in the number of senior manager attestations, underscoring the continuing importance of individual accountability in the regulatory regime even while the Senior Managers and Certification Regime is being recalibrated (see more below).

Long awaited proposals on non-financial misconduct

In July 2025, alongside publishing a new rule which defines, for the first time, non-financial misconduct (NFM) within the Code of Conduct Sourcebook (COCON), the FCA launched further consultation on some NFM guidance to potentially be included in COCON and the Fit and Proper Test for Employees and Senior Personnel Sourcebook (FIT).

The new FCA COCON rule is for non-banks only and will come into effect in Sept 2026; if introduced, the proposed guidance is intended to come into effect at the same time. The decision to include the definition of NFM in a rule for non-banks only complicates rather than simplifies the attempt to embed NFM within the FCA handbook, and the limited scope of the guidance means that firms will continue to need to apply judgement as they tackle NFM in practice. Rather than assisting, recent FCA enforcement has largely ducked the issue, focusing on failure to inform the regulator and governance issues rather than tackling any underlying conduct.

The consultation period closed in early September, and final text is awaited.

The Leeds Reforms – Continued focus on economic growth and international competitiveness

The continuing emphasis on economic growth and international competitiveness was evident as Chancellor Rachel Reeves delivered her second Mansion House speech in July. She set the wheels in motion with a package of regulatory changes known collectively as the "Leeds Reforms". This package has engaged the financial services industry (and related sectors) in the latter half of 2025 and will continue to do so into next year.

The central document in the Mansion House collection was the Government's Financial Services Growth and Competitiveness Strategy. It is a first-of-a-kind 10-year plan which articulates the Government's ambition that, "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 is organised across five areas of focus: delivering a competitive regulatory environment; harnessing the UK’s global leadership in financial services; embracing innovation and leveraging the UK’s Fintech leadership; building a retail investment culture and delivering prosperity through UK capital markets; and setting the UK’s financial services sector up with the skills and talent it needs.

We expect that the Strategy document will be a key reference for the industry in engagement with regulators, policy makers and other stakeholders over the next few years. 

Legislative changes required to deliver some of the Leeds Reforms, including those covered in more detail below, are likely to be included in a new Financial Services (and Markets) Bill in the next session of Parliament.

The Leeds Reforms – Reforming redress

Part of the Leeds Reforms package which was broadly welcomed by industry and other stakeholders was the launch, by HM Treasury, of a consultation on long-awaited reforms to the Financial Ombudsman Service (FOS). The FCA and the FOS published a complementary consultation paper on modernising the redress system alongside. The closing deadline for responses to both was 8 October 2025.

The impetus for reform may be linked, in part, to the motor finance commission matter, but concerns about the FOS's quasi-regulatory role have existed for some time. Among the matters being considered as part of a reform which aims to deliver greater operational certainty for firms and consumers are: 

• the "fair and reasonableness" test which is the standard which the FOS applies in making its determinations; 
• the introduction of a mechanism for referrals to the FCA on issues of regulatory interpretation or where there may be wider implications; and
• introducing a 10-year long-stop limit beyond which the FCA will not be able to consider a complaint (subject to exceptions for long term products, the details of which are yet to be announced).

These are meaningful changes, but it remains to be seen whether they go far enough to combat the issues faced by firms and whether the greater involvement of the FCA is a positive or negative factor (especially with the increased flexibility seemingly available to the FCA to impose redress without satisfying the tests baked into relevant sections of FSMA, following the settlement of Bluecrest which leaves the 2024 Court of Appeal decision and its wide interpretation of the FCA's wide powers intact).

The Leeds Reforms – Recalibrating the Senior Managers and Certification Regime 

As part of the Leeds Reforms, HM Treasury launched a consultation on streamlining the Senior Managers and Certification Regime (SMCR). The consultation includes proposals to:

• remove the Certification Regime from legislation (when parliamentary time allows), allowing the FCA and PRA to "use their rule-making powers to develop a more flexible and proportionate regime";
• reform the approach to pre-approval under the Senior Managers Regime (SMR); and
• allow the regulators greater flexibility in how they define Senior Manager Functions (SMFs).

In addition to those proposals, HM Treasury also asked about other reforms which it could make, including the Conduct Rules, that would further "ease the burden".

Alongside HM Treasury's consultation, the PRA and FCA issued proposals on reforms to the SMCR to make the regime less onerous which would not require legislation. Their proposals focused on changes to make to their processes (including approvals) more flexible, removing duplication and providing more guidance on expectations under the regime.

Responses to the consultations were requested by 7 October 2025; for its proposals, the PRA has indicated a likely implementation timing of mid-2026.

The Leeds Reforms – Clarifying the Consumer Duty

The Consumer Duty has been a flagship initiative for the FCA as it shifts to a "more outcomes-focused approach". The Duty has been in place for new products since July 2023, and since July 2024 for "back book" products (ie those sold before the Duty's 2023 application date). 

As the Duty continues to embed in the financial services sector, the lack of clarity around its application to wholesale activities – and the costs and complexity associated with that application – increasingly came to feature in policy discussions on competitiveness and growth. The Chancellor has tasked the FCA with addressing this issue, and the regulator has committed to "amend the Duty’s rules to remove disproportionate burdens from wholesale firms and give them confidence to act proportionately".

In addition to changes to the Duty's application, the FCA also plans to update the client categorisation framework. These changes are expected to come in during 2026.

The Leeds Reforms – Revising ring-fencing

In the aftermath of the global financial crisis of 2007/08, the UK introduced a "ring-fencing" regime – essentially, this requires UK banks to separate their retail banking services from investment banking activities. The UK was the only major market to initiate this kind of structural separation as a response to the crisis.

Some changes were made to the regime in early 2025. However, in the new Financial Services and Growth Strategy, the Government confirmed that it would conduct a short review of both legislation and the Prudential Regulation Authority's rules. The review will assess options for: allowing ring-fenced banks to provide more products and services to UK business; addressing inefficiencies; and allowing banks to share resources and services more flexibly across the ring-fence.