Rewiring The Financial Regulatory System: The Leeds Reforms And Mansion House 2025 Speech

Chancellor Rachel Reeves has delivered her second Mansion House speech as part of a package of measures - dubbed the "Leeds Reforms" - that are designed to "rewire the financial system".

At the centre of these reforms is the Government's Financial Services Growth and Competitiveness Strategy (FS Sector Strategy), a 10-year plan to deliver its vision for a proportionate, predictable and internationally competitive UK financial services regulatory landscape.

In this blog, we briefly round up some of the most significant announcements and developments, taking a thematic approach. While some of the trailed proposals (e.g. Phase 2 of the UK pension reforms, ISA reforms) didn't ultimately make the cut, it is clear that many aspects of the UK financial services sector will be impacted in both the short and long term; there is much for firms to digest.

Individual accountability: Senior Managers and Certification Regime (SM&CR) reforms

The shared ambition of the Government and regulators is to reduce the regulatory burdens of the SM&CR by 50%.

For phase 1 of the SM&CR reforms, the FCA and PRA are consulting on proposals to improve its efficiency and effectiveness. The aim is to streamline processes and reduce the burden on firms, while retaining the SM&CR's core principles and standards.

HM Treasury has also published a consultation paper on reforming the SM&CR, proposing to:

• Remove the certification regime from legislation (in her 2024 Mansion House speech, the Chancellor committed to consulting on this - see our blog). The regime will be moved fully into the regulator's, where it can be amended over time more easily.
• Make legislative changes to the senior managers regime (SMR) framework to help significantly reduce the number of pre-approvals that need to be sought from the regulators.

Further phase 2 reforms will be explored by the regulators during a later, second stage of work, making use of the additional flexibilities that legislative amendments would bring.

The Government does not intend to make use of its powers under the Financial Services and Markets Act 2023 (FSMA 2023) to take forward secondary legislation to apply the SM&CR to financial market infrastructure (FMI) firms at this time.

Ring-fencing regime: HM Treasury review

Working with the Bank of England (BoE), HM Treasury will carry out a short review of the ring-fencing regime, reporting by early 2026. The review will consider both the legislative framework and PRA rules and assess options for: permitting ring-fenced banks to provide more products and services to UK businesses; addressing inefficiencies in how ring-fencing is applied to banking groups; and examining the case for allowing banks to share resources and services more flexibly across the ring-fence. The Government will legislate to take forward reforms in this area when Parliamentary time allows.

Referring to this in her speech, the Chancellor stated that she has "committed to meaningful reform of the UK's ringfencing regime, recognising that now is the time to go further in tackling inefficiency and boosting growth while retaining the aspects of the regime that support financial stability and protect consumer deposits."

Redress: Financial Ombudsman Service (FOS) reforms

Following its review of the FOS, the Government is consulting on proposals to deliver the "most significant reform ... since its inception".

The aim is to address the issues identified in the review, to end the FOS' position as a quasi-regulator and ensure it returns to its purpose of being a simple, impartial dispute resolution service. The proposals include:

• Adapting the FOS' "fair and reasonable" test.
• Introducing a mechanism for the FOS to seek the FCA's views on rule interpretation in confirming compliance.
• Imposing an absolute time limit of 10 years for bringing cases to the FOS.
• Making it easier for the FCA to intervene quickly on a mass redress event.

In parallel, the FCA and the FOS are jointly consulting on modernising the redress system, including introducing an updated framework for dealing with mass redress events and a new FOS case process to streamline case handling and ensure decisions are taken at the right level in the organisation. Ahead of any legislative change, the FCA and the FOS have issued a revised Memorandum of Understanding (MoU) that includes cooperation in relation to an issue with wider implications or a possible mass redress event.

In addition, the FOS has announced its new approach to interest on certain compensation awards, reducing the interest rate from 8% to track the BoE's base (average) rate +1%, calculated as a weighted average. It is aiming to introduce this change from 1 January 2026 for new complaints referred to it from that date. It will publish further details in autumn 2025, alongside the wider reforms to modernise the redress system.

The FOS will also consult in late summer 2025 on the introduction of different levels of case fees for financial services firms.

Retail advice: new Targeted Support regime - draft SI and policy note

The Government will be working with the FCA to launch targeted support for consumers "by ISA season 2026". HM Treasury has published, and is requesting feedback on, a draft statutory instrument (SI) (the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2025) that will amend the Financial Services and Markets Act (Regulated Activities) Order 2001 (RAO) to create the new targeted support regulated activity. An accompanying policy note provides commentary on the draft SI and is designed to be read with the FCA's recently published targeted support consultation (CP25/17). The Government intends to legislate in 2025, subject to feedback on the draft SI and Parliamentary time permitting.

To further support consumers and address risk aversion to retail investment, the Government's strategy includes getting behind an industry-led campaign promoting the benefits of retail investment to consumers and supporting industry-led action to move towards informing, rather than warning, consumers about investing's benefits and risks.

Consumer Duty: application to wholesale firms

The Chancellor has requested that the FCA report to her, by the end of September 2025, on how it intends to address concerns about the application of the Consumer Duty for firms primarily engaged in wholesale activity (e.g. asset managers and other wholesale firms). When it reports, the FCA will set out its plans to deal with concerns about the operation of the Consumer Duty for wholesale firms in distribution chains impacting retail consumers; and give certainty on the categorisation of professional clients. Before it reports, the FCA will test its plans with market participants, industry and consumer groups.

Digital, AI and payments

The Government has published its Wholesale Financial Markets Digital Strategy, setting out its vision for digitalising UK wholesale markets. It identifies three broad areas of focus: market optimisation; market transformation; and market leadership (which includes appointing a Digital Markets Champion to lead and coordinate work). Other innovation-related workstreams include:

• The FCA and the PRA will jointly launch a Scale-Up Unit to enhance engagement with fast-growing, innovative regulated firms.
• The FCA will launch a Smart Data Accelerator to help with use case testing and the development of regulatory policy for Open Finance. The Government will work with the FCA to set out an Open Finance roadmap by March 2026.
• The Government will appoint an AI Champion in financial services.
• The Government will work with the regulators to help the financial services industry benefit from widespread adoption of personal digital identity.
• The Government will modernise and future-proof the legislative framework for payment services and e-money regulation, supporting interoperability between existing and emerging forms of digital money. The FS Sector Strategy sets out a series of measures that the Government and regulators intend to take in relation to payments and settlement systems, including taking forward work on tokenisation. In addition, the newly-established Payments Vision Delivery Committee has announced in an update that it will publish a Payments Forward Plan by the end of 2025; and the Government has issued an update on the Digital Gilt Instrument (DIGIT) pilot, detailing a further set of features to be tested as part of the pilot.

Targeted cross-cutting reforms to the regulatory environment

HM Treasury sets out in a consultation paper a series of cross-cutting reforms in certain areas where it understands (including through feedback to its November 2024 call for evidence on the FS Sector Strategy) that this will make a significant positive difference to firms. Notably, the Government intends to:

• Set new, shorter statutory deadlines for the regulators to determine key applications (i.e. new firm authorisations, variations of permissions and senior manager approvals) – see the table below for a summary of the proposed changes to the current statutory deadlines. The Government has also agreed with the FCA (see letter) and the PRA (see letter) a series of stretching, non-statutory targets for processing other applications.
  

• Legislate to change how the regulators' "have regards" operate (to streamline regulator policy-making).
• Require the FCA and the PRA to set out long-term strategies explaining how they will meet their objectives through regulation and supervision.
• Rationalise the regulators' reporting requirements.

The Government is also considering a new streamlined authorisation regime for innovative start-ups that would allow them to conduct limited regulated activities with reduced conditions. It intends to consult on its proposals in autumn 2025.

Regulatory capital: updated approach to UK resolution framework

The BoE has confirmed its approach to setting a minimum requirement for own funds and eligible liabilities (MREL). With effect from 1 January 2026, a revised MREL statement of policy will apply. The BoE has increased (from £15-25 billion) the total assets indicative thresholds for a transfer or bail-in preferred resolution strategy to £25-£40 billion. It will update this on a three-year basis, starting in 2028, to reflect changes in nominal economic growth. HM Treasury intends to make several statutory instruments relating to resolution - these have been considered in finalising MREL policy.

Separately, the PRA has issued three consultation papers relating to the resolution assessment threshold and recovery plans, MREL reporting and Pillar 3 disclosures.

In addition, the PRA intends to be more responsive and flexible in its approach to banks using internal models for credit risk. Later in July 2025, it will publish a discussion paper exploring options to help mid-sized banks grow by adjusting some barriers to gaining permissions to build Internal Ratings Based (IRB) models for residential mortgages.

Regulatory capital: implementing Basel 3.1 - adjustments to market risk framework

The PRA is consulting on proposed changes to its previously published near-final Basel 3.1 market risk rules (specifically, the Fundamental Review of the Trading Book (FRTB)) and a related supervisory statement.

The proposals would mean that:

• The new internal model approach for market risk (FRTB-IMA) will be implemented on 1 January 2028. Firms would be able to continue to use existing market risk models in the interim period, or switch to the new standardised approaches, as preferred.
• All other elements of the FRTB would be implemented on 1 January 2027, alongside the other aspects of Basel 3.1.
• The Strong and Simple capital framework can proceed with the same 1 January 2027 proposed implementation date.

The PRA is also proposing to make minor changes to the FRTB to smooth its implementation.

Regulatory capital: applying FSMA model of regulation to UK CRR

HM Treasury has published a policy update on applying the Financial Services and Markets Act 2000 (FSMA) model of regulation to the UK Capital Requirements Regulation (UK CRR). This outlines HM Treasury's proposed approach in three areas: Basel 3.1; Overseas Recognition Regimes (see "Market access" below); and UK CRR definitions that will be retained in legislation. Draft legislation has also been published for comment.

The policy update also notes that HM Treasury intends to introduce Overseas Prudential Requirements Regimes (OPRRs) to designate appropriate overseas jurisdictions in relation to the prudential treatment of UK firms' exposure to non-UK covered bonds. It will publish a draft later in 2025.

Special Resolution Regime: updated code of practice

HM Treasury has published an updated version of the Banking Act 2009: Special Resolution Regime code of practice (Code). The Code supports the legal framework of the Special Resolution Regime (SRR) under the Banking Act 2009 and gives guidance on the use by the PRA, BoE and HM Treasury of the special resolution tools.

Market reform (including capital raising)

In a statement, the FCA summarises the work carried out to date under its market reform programme, including revision of the prospectus regime and the introduction of a new public offer platform (POP) (see our dedicated blog for more information). It also outlines its future work, including, in Q4 2025:

• Issuing an update on the next steps in its review of who can be treated as a professional investor for investment firms and how retail consumers access investments.
• Consulting on proposals to improve the quality of transaction reporting data received and reduce costs for firms, with final rules in 2026.
• Reviewing securitisation rules to identify areas to simplify and barriers to remove, with final rules in H2 2026.

The Government commits in the FS Sector Strategy to tailoring the UK regulatory regime in certain key areas, to improve the competitiveness of UK capital markets. This includes updating the UK framework for central counterparties (CCPs) - currently set out in the UK European Market Infrastructure Regulation (UK EMIR) - so that, as provided for in FSMA 2023, the BoE can directly set requirements for CCPs through its rules. HM Treasury has published, for technical comment, two draft SIs (with an accompanying policy note) that will form part of the legislative package to deliver this. The Government intends to lay the SIs in 2026, subject to Parliamentary time allowing. The BoE will shortly consult on its new rules for CCPs.

In partnership with the FCA, the Government will continue to review and reform the Markets in Financial Instruments Directive (MiFID) framework and the UK Benchmarks Regulation (UK BMR), to reduce the burden on UK firms. It will also prioritise reforms to OTC derivatives in UK EMIR.

Market access

The Government is working to facilitate greater market access, including through bespoke treaties like the Berne Financial Services Agreement, which the UK and Switzerland signed in December 2023. In July 2025, the Government will lay two SIs implementing its commitments under the agreement. The parties have committed to ensuring the agreement is fully implemented by the end of 2025. This means that, from 1 January 2026, firms can begin registering to use the agreement.

Overseas Recognition Regimes (ORRs) will also support the further opening-up of the UK's financial services sector and facilitate cross-border financial services, through a new harmonised approach to the UK's regulatory recognition of overseas jurisdictions. HM Treasury has published a guidance document outlining the principles and processes governing ORRs' operation and a new MoU between HM Treasury, the BoE, the PRA and the FCA sets out how each party expects to coordinate their respective functions in relation to ORRs.

In addition, the Government will establish the Office for Investment: Financial Services, a "new, dedicated concierge service" to guide and support international investors seeking to establish or grow a presence in the UK financial services sector.

Sustainable finance: no UK Green Taxonomy

The Government has decided not to proceed with a UK Green Taxonomy; confirming this in its consultation response. It has concluded it would not be the most effective tool to deliver the green transition and should not be part of the UK's sustainable finance framework, to which it remains committed.

Instead, the Government intends to focus on delivering other policies that consultation respondents indicated would be more effective in channelling investment into the net zero transition and tackling greenwashing.

Captive insurance

Following consultation, Government has confirmed it intends to proceed with the introduction of a dedicated, competitive framework for captive insurance in the UK. It is consulting on changes to the Risk Transformation Regulations to introduce new flexibilities enabling innovation and facilitating a wider range of transaction structures.

The FCA and the PRA have welcomed this development and issued a joint statement advising that they intend to consult in summer 2026 on the rules and policies for an effective and competitive UK captive insurance regime, with a view to implementation by mid-2027.

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