On 17 March 2025, the UK government published an Action Plan (Plan) in a bid to overhaul the UK regulatory system so that regulators and regulation supports growth.
Focusing on regulators across sectors such as business, finance, energy and the environment, the Plan sets out the government's vision for a regulatory system that:
- supports growth
- is targeted and proportionate
- is transparent and predictable
- adapts to keep pace with innovation.
The Plan is shaped around three actions. We look at each action in turn and pick out some of the key points of relevance to the financial services sector.
Action one: tackle complexity and the burden of regulation
According to statistics cited by the government, the cost of red-tape could be as much as £70 billion per year, or around 3-4% of GDP. The government has committed to reduce the administrative costs of business by 25% by the end of the current Parliament.
As a preparatory step, it is undertaking a "baseline exercise" to understand how much regulation costs and where reforms can be made.
The government will deliver an "ambitious" regulation reform programme, targeted at reforms that remove or streamline administrative processes. Its Industrial Strategy will set out a series of reforms across the growth-driving sectors, which include financial services.
As part of ensuring the regulatory system is easier for businesses to navigate, the government will streamline the regulatory landscape, proactively removing or consolidating regulators where this makes sense. Last week, it was announced that the Payment Systems Regulator would be largely folded into the FCA. The FCA will become responsible for making sure the payment sector promotes innovation and competition thus enabling a more coordinated and streamlined approach. The government will consult on the details of this change during the summer and legislation as soon as possible.
On 18 March 2025, the Chancellor of the Exchequer, Rachel Reeves, met with leading FinTech leaders to discuss the government's Financial Services Growth and Competitive Strategy and near-final draft legislation (published on the same day) to revoke the detailed firm-facing regulations in the Markets in Financial Instruments Directive Organisational Regulation, so that they can be replaced by the FCA and PRA rules. This will help to deliver a new regulatory framework that supports growth and makes the UK's capital markets more attractive.
Action two: reduce uncertainty across the regulatory system
The duties and roles of the main regulators will be simplified. HMT will review the various "have regards" that the PRA and FCA are subject to, and look to rationalise these so that the regulators can focus on their priorities. To ensure that the financial services sector maintains its world-leading status, the role of the Financial Ombudsman Service (FOS) will also be reviewed to ensure that it is acts impartially, providing quick and predictable resolutions to disputes, rather than as a "quasi-regulator." It is intended that this work, which builds on a joint FCA and FOS review of the current redress system, will be completed by the summer with legislation to follow.
Two financial services regulatory initiatives that build on the Chancellor's Mansion House speech last year are highlighted in the Plan:
- HMT will work with the regulators, the Office for Investment and the City of London Corporation to establish a "concierge service" that boosts the attractiveness of the UK as a destination for global financial services, by helping firms to navigate the UK regulatory ecosystem.
- A suite of measures enabling the FCA to assist early-stage innovative firms looking to commence regulated activities, including more bespoke support, issuing "minded to approve" notices to support fundraising, and exploring whether the legislative framework can be updated to permit relevant firms to carry out limited regulated activities with simplified conditions.
The Plan is accompanied by a list of key regulator pledges, which includes 10 from the FCA and PRA (seven from the FCA, two from the FCA and PRA, and one from the PRA). The pledges cover some of the measures referred to above and also include pledges to extend pre-application support to all wholesale payments and crypto firms and to simplify the FCA's mortgage and advice rules to support greater home ownership, as well as the FCA's review of the contactless payment limits.
Action three: challenge and shift excessive risk aversion in the system
The government underscores the need for regulations and regulatory actions to be proportionate and is determined to ensure that a balance is struck between consumer protection and growth. To this end, it is adopting a "whole-of-government" approach, in which sponsoring government departments will undertake performance reviews of regulators.
The government has stressed its commitment to artificial intelligence, referred to as the "defining opportunity of our generation". Building on its January 2025 response to the AI Opportunities Action Plan, it will work with regulators to identify their future AI capability needs and provide clear strategic direction on the need to promote safe AI innovation.
Innovation is at the cornerstone of the government's call for growth and regulation is seen as a "strategic asset" to enable innovation. The Regulatory Innovation Office (RIO) was established in October 2024 by the Department for Science, Innovation and Technology (DSIT) to work with innovative businesses, regulators and departments to address regulatory obstacles to innovation, and to drive broader change in regulators' views towards innovation. DSIT is now launching a new forum for regulators to prepare for the quantum revolution. The forum is expected to include the constituent members of the Digital Regulation Cooperation Forum, which include the FCA.
In what is another move to support innovation, at the FinTech gathering (see above), the Chancellor confirmed the next stages to test distributed ledger technology in the UK gilt market in the form of a Digital Gilt Instrument.
Help is at hand
If you'd like to discuss what the government's Action Plan means for your business, please contact a member of our Financial Services Regulatory team.
