UK Financial Services and Markets Bill 2026-27: A major milestone of the government’s growth and competitiveness strategy

Consumer Credit Act 1974 reform

In May 2025, HM Treasury (HMT) published a Phase 1 consultation on Consumer Credit Act 1974 (CCA) reform as part of its ongoing efforts to modernise the UK’s consumer credit framework (see this article for more on the consultation). The focus was on the CCA information requirements, sanctions and criminal offences.

The day before introduction of the Bill to Parliament, HMT published a policy statement setting out responses to questions raised in the Phase 1 consultation and its proposed approach to the remaining CCA provisions. In relation to the Phase 1 proposals, HMT confirmed:

• The repeal of most information requirements and their recasting into FCA rules to allow flexibility and modernisation;
• The repeal of the sanctions (unenforceability, disentitlement to interest) as they are considered disproportionate in an FCA regulated regime;
• The retention of the criminal offences (e.g. regarding canvassing off premises, minors) due to their deterrent effect.

On the proposed approach to the remaining CCA provisions, some key points include:

• Many customer rights will be recast into FCA rules, including withdrawal rights, most cancellation rights, early settlement, termination rights, security provisions, and misuse of credit tokens;
• Various definitions and CCA concepts will be retained;
• S176A (Electronic transmission of documents) will be retained and amended;
• Provisions which apply to unauthorised persons will also continue to apply (as the FCA does not have jurisdiction to take action). Retained provisions include s157 (CRAs), s86 (death of debtor), and s70 (cancellation – recovery of money paid).
• HMT singled out the provisions relating to antecedent negotiations (s56), connected lender liability (ss75/75A) and unfair relationships (s140A-C) as being complex, 'highly technical' and 'underpinned by a body of case law', and therefore requiring more policy work. The government does not intend to change these CCA provisions for now.

The relevant changes are set out in Schedule 1 to the Bill.

Regarding commencement of the revised regime, as summarised in the Explanatory Notes to the Bill:

• Where provisions are being repealed and recast in FCA rules, the Government will only commence the repeal once the relevant FCA rules are in place, with implementation dates being aligned.
• For agreements initiated before and continuing after the new regime comes into force, detailed transitional provisions will be set out in secondary legislation.
• The transitional period will commence once the FCA regime is finalised. Its length is expected to reflect the scale of the changes required, to ensure that firms have enough time to implement the new regime.

Following publication of HMT’s policy statement, the FCA confirmed it will consult on the key elements of the new consumer credit regulatory framework. Its approach will be underpinned by the Consumer Duty, and it will consider existing consumer rights and protections when developing its policy. More information on its approach and next steps will be provided in due course.

Financial Ombudsman Service and redress system reform

In March this year, HMT published its response to a consultation it launched in July 2025 with proposals to make changes to the Financial Ombudsman Service (FOS). The changes are aimed at preventing the FOS from acting as a quasi-regulator and providing greater regulatory coherence with the FCA. In relation to the redress system, they include equipping the FCA with the tools it needs to respond quickly and effectively to ‘mass redress events'. A mass redress event is where a particular issue is likely to affect a large number of financial services consumers, and is likely to be the subject of a large number of complaints, with the potential for a significant amount of compensation to be owed.

For more on HMT's consultation response and the changes that have now been included in the Bill, take a look at this article.

One of the changes being taken forward is to adapt the ‘fair and reasonable' test used by the FOS to determine cases, to set out that where firms have met their obligations under relevant FCA rules, the FOS will be required to find that a firm has acted fairly and reasonably. The government had also intended to introduce a power that would allow it to specify, via secondary legislation, that particular FCA rules are not to be included in the adapted fair and reasonable test or should be dealt with in a different way. The HMT response stated that this would be particularly relevant when considering the application of the high-level FCA Principles for Business, including the Consumer Duty. However, HMT amended its consultation response on 18 May 2026 to remove reference to the government's intention to take such a power. A note on the consultation webpage explains that: ‘Following further assessment and feedback, the government no longer considers this power necessary and it is not included in the Bill.'

Ring-fencing regime updates

The government’s recently concluded Ring-Fencing Review considered whether there were further reforms that could be made in support of the government’s growth agenda while maintaining financial stability. It found that there are opportunities to make the regime more flexible, proportionate and responsive to developments in markets and the wider regulatory framework.

The relevant changes in the Bill are aimed at creating a more agile and proportionate ring-fencing framework. This will include enabling HMT to move aspects of the regime out of legislation and into PRA rules, so they can be updated in a more agile and proportionate way and creating greater scope for the PRA to use modifications and waivers.

Some other key points from the government’s May 2026 policy paper include:

• The government will publish a consultation on the operation of a New Growth Allowance and other reforms to allow ring-fenced banks to provide more products and services to businesses. These changes will be delivered via secondary legislation once the Bill has been enacted and as soon as Parliamentary time allows.
• The New Growth Allowance will support the financing needs of the real economy by permitting ring-fenced bodies (RFBs) to undertake activities otherwise prohibited by the regime. The government will consult on an allowance worth up to 10% of their Pillar 1 risk-weighted assets for credit risk, which could be used to unlock up to £80 billion of financing for UK businesses and infrastructure.
• Inefficiencies in how ring-fencing is applied to banking groups will also be addressed. This will include the PRA and the Financial Policy Committee (FPC) reviewing how ring-fencing interacts with certain capital requirements, including how the Basel 3.1 output floor and the leverage ratio are applied to banks in the regime.
• In addition, the £35 billion primary threshold for the regime will be subject to review every three years, with a view to uprating it in line with the evolution of banking practices and growth in the deposit base.

The PRA has also announced plans to consult this summer on reforming the rules around shared operational services for RFBs.

Senior Managers and Certification regime (SMCR) reforms

The Bill introduces changes to the SMCR statutory framework which, according to the Explanatory Notes, are aimed at enabling the regulators ‘to operate the regime in a more proportionate and flexible manner through their rulebooks, while preserving individual accountability.’ This follows HMT’s April 2026 response to its previous consultation on SMCR reform, as well as some ‘Phase 1’ changes of a mostly relatively minor or administrative nature that the FCA and PRA have already made (as of 24 April 2026) or will shortly be making (as of 10 July 2026) using their rule-making powers or by adapting their existing processes (see (FCA PS26/6 and PRA PS12/26).

. The ‘Phase 2’ changes being introduced under the Bill are:

• Removal of the Certification Regime: The certification regime will be removed from primary legislation (including the annual recertification requirement). This will enable the regulators to develop a more proportionate, flexible and risk-sensitive framework in its place, which will be contained in their rulebooks.
• Reduction in the number of senior management functions (SMFs) that require regulator pre-approval: The regulators will be given a new power to specify in rules where it would be suitable for a firm to notify them of the appointment of a senior manager following the firm’s assessment of fitness and propriety (as opposed to having to seek pre-approval).
• Repeal of the prescriptive legislative provisions relating to Statements of Responsibilities: This will enable the regulators to introduce appropriate requirements in their rulebooks in place of the legislative requirements.
• Streamlining of Conduct Rules: This will be achieved by repealing the prescriptive legislative requirements which require firms to notify regulators of disciplinary action in relation to a Conduct Rule breach and to conduct mandatory training. The regulators will retain their power to make Conduct Rules and set out appropriate requirements in their rulebooks.
• Removal of statutory notice requirements for SMF applications: HMT will give the regulators the power to specify in rules and guidance the circumstances in which they may accept senior manager applications subject to time-limits or conditions. Approval of these would not trigger statutory notice requirements, as is currently the position.
• Financial Markets Infrastructure (FMI): The Financial Services and Markets Act 2023 provides for the SMCR to be applied to central counterparties (CCPs), central securities depositories (CSDs) and recognised investment exchanges (RIEs). However, these provisions are yet to be fully commenced in legislation. The government is not planning to commence the SMCR for FMIs at this stage and a decision to do so would be subject to further consultation. However, as part of the wider SMCR reforms equivalent legislative changes to those that will apply to FCA and PRA-authorised firms will be made to the SMCR for FMIs, to ensure consistency.

Given that a number of the above changes will require new FCA and PRA rules, firms will have to await publication of the relevant consultations for details of the revised SMCR.

Note also the next item below on reforms to the appointed representatives regime being introduced via the Bill, which include bringing appointed representatives within the scope of the SMCR.

Appointed representatives reforms

In February 2026, HMT published a consultation setting out detailed proposals for the reform of the appointed representatives (ARs) regime (see this article). The Bill makes the required changes to the legislative framework, which include:

• requiring authorised firms to have permission from the FCA before they can appoint ARs;
• extending the jurisdiction of the FOS to apply directly to ARs in certain circumstances;
• bringing ARs within the scope of the SMCR; and
• moving the detailed requirements on the principal/AR contractual relationship into FCA rules.

These changes will have a significant impact on both ARs and their principals.

New provisional licences authorisation regime

In a development that's likely to be particularly welcomed by fintechs, the Bill includes provisions establishing the new provisional licences authorisation regime that was part of the government's March 2025 Regulation Action Plan (see more here) and on which HMT published a policy update in December 2025. The regime – referred to as ‘temporary Part 4A permission' in the Bill - is expected to be most appropriate for early-stage firms, particularly those with an innovative business model, that would otherwise struggle to meet the usual requirements to obtain authorisation in a reasonable timeframe.

The regime is intended for firms that are not already authorised and are seeking permission under Part 4A of FSMA for activities already within the FCA's perimeter. Provisional licences will apply for a fixed duration of up to 18 months or a different period prescribed by HMT in regulations (but not exceeding 2 years). As stated in the December 2025 policy update, the FCA will engage with the industry on the design of the regime and consult as necessary.

New ‘streamlined' payment systems regulatory framework

In April 2026, HMT published the response to its September 2025 consultation on a new ‘streamlined' regulatory framework for payment systems (see this article).

The overarching proposal confirmed by HMT in its response – and now included in the Bill - was to abolish the Payment Systems Regulator (PSR) and transfer its functions to the FCA. The FCA will take over the PSR's regulatory responsibilities, including for promoting competition and innovation in payment systems and the services provided by participants in payment systems, as well as supporting the interests of consumers and businesses using these services day to day. The functions provided to the FCA by the Bill are intended to replace and be ‘generally equivalent' to the substance and scope of the PSR's functions.

The detailed changes – which include the insertion of a new Part 8C on payment systems to FSMA - are set out in Schedule 2 to the Bill.

Other provisions of interest

Future proofing recovery powers relating to illicit cryptoassets: The Bill introduces a delegated power for the Secretary of State or HMT to amend and update, by secondary legislation, the provisions enabling UK law enforcement agencies to recover criminal cryptoassets in a wider range of circumstances in the Proceeds of Crime Act 2002, the Anti-Terrorism, Crime and Security Act 2001, and the Terrorism Act 2000 to reflect future technological, market and regulatory developments. The Explanatory Notes to the Bill emphasise that the new power would only enable technical, not substantive, amendments.

Overseas recognition regimes (ORRs): HMT does not currently have the ability to create new ORRs (ie recognition of an overseas jurisdiction's financial services rules as equivalent to those in the UK) outside of areas of financial services activity already covered by assimilated law. The Bill will provide this ability.

Gibraltar authorisation regime (GAR): The existing market access regime for Gibraltar firms in the UK will be replaced by the new GAR established by the Financial Services Act 2021.

Access to banking services: On 14 May 2026, HMT announced an independent review into access to banking in the UK. Unlike access to cash, which is protected by legislation and the FCA's access to cash rules, there is currently no equivalent for access to in-person banking services. The Bill gives HMT a (currently broad) power to introduce targeted secondary legislation or empower the FCA to make rules, should evidence from the Review show that it's necessary. The government will keep the power under review as the Bill progresses, with an expectation that it would be narrowed following completion of the Review in October 2026.

Cross-cutting reforms relating to PRA/FCA functions: The Bill facilitates various cross-cutting reforms that were confirmed in HMT's May 2026 response to its July 2025 consultation. The changes include amending FSMA 2000 to set shorter statutory deadlines for determining certain applications for authorisation, variation of permission, and approval, as well as to remove a range of reporting and other procedural requirements from the regulators. This last change includes removing obligations to consult on guidance and minor rule changes. While this might sound like a welcome reduction in the number of consultations requiring firms' review, there could also be a risk that changes with a potentially more significant impact could slip through the net and become part of the regulatory rulebook without firms having a chance to influence their final form.

Anti-money laundering (AML) and counter terrorist financing (CTF) supervision changes: The Bill introduces changes that will enable the FCA to assume its new AML/CTF supervisory responsibilities in relation to legal and other professional services, announced by the Chancellor of the Exchequer in October 2025.

Commercial credit data sharing (CCDS) scheme: Changes in the Bill are aimed at reforming the CCDS scheme, which seeks to improve access to finance for SMEs, to ensure it better reflects today's landscape for SME finance. They follow a November 2025 consultation and call for evidence, to which the government issued its response on 11 May. HMT intends to engage stakeholders further on changes that will take place in subsequent secondary legislation, and look to understand synergies with other ongoing work, notably industry efforts to improve the quality of data submissions in CCDS and the FCA's work to develop in parallel a regulatory regime for consumer credit data sharing (part of its Credit Information Market Study remedies – see this article for more).

Credit union reform: Following a November 2024 government call for evidence and response published in March this year, the Bill contains provisions enabling credit unions to expand by improving the rules on who can become a member (referred to as the ‘common bond'). This is aimed at widening access to affordable finance and supporting the government's aim to double the size of the mutual and co-operative sector. It links back to the government's Financial Inclusion Strategy, which includes a commitment to ensure that the legislative framework supports credit unions in Great Britain to serve their members and scale in a sustainable way – see this article for more on the Strategy in general.

What’s next?

The Bill was introduced to Parliament and had its first reading in the House of Lords on 19 May 2026. Second reading – the first opportunity for members of the Lords to debate the key principles and main purpose of the Bill - is scheduled for 8 June 2026, after which it will proceed to committee stage which will involve detailed line-by-line examination of the clauses and schedules of the Bill.

Recent press and industry commentary suggesting that the Bill would be prioritised in the new parliamentary session appears to have been borne out by how quickly it was introduced after the King’s Speech. Barring any major issues arising during its passage through the legislative process, it seems likely that the Bill could receive Royal Assent before the end of this year. However, given that many of the changes also require secondary legislation and/or new or amended rules from the regulators before coming into effect, firms should brace themselves for a longer period of transition ahead.

As well as getting to grips with the content of the new FSM Bill, financial services firms should also be ready to review some other key regulatory publications due to be issued in the next few months including:

• an HMT consultation on secondary legislation to implement the updates to the statutory ring-fencing framework, following the inclusion of enabling updates to the framework in the Bill (Summer 2026);
• an HMT consultation paper on a review of assimilated payment services law, including the approach to Open Banking and stablecoin payments (see our related article here) (Q2 2026);
• an FCA consultation on responsible lending as part of its Mortgage Rule Review (MRR) work (Q2 2026);
• an FCA consultation on updates to the Consumer Duty as part of its Consumer Duty rule review work (Q2 2026);
• a Bank of England consultation on draft rules for the regulatory regime for sterling denominated systemic stablecoins, with the regime to be finalised and applications accepted by the end of 2026 (see this article for developments to date) (June 2026).

There may also be further announcements related to the government’s growth and competitiveness agenda as part of this year’s Mansion House event, which is due to take place in July.

Comment

A common theme across a number of the changes in the Bill is the continued move away from regulatory regimes enshrined in primary legislation to FCA/PRA rules, and a more general shift towards greater decision-making powers for the regulators.

The idea is that this leads to a more flexible and agile regulatory environment better suited to the faster pace of technological, societal and market transformations, which bolsters the government’s push for growth and (global) competitiveness, For example, the government assessment of the ‘net present social value’ delivered by the overall package of reforms (including the removal of the certification regime, reform of the FOS and relaxation of certain aspects of the ring-fencing regime) is expected to amount to an overall benefit of £1.64bn over the next decade – with a significant reduction in regulatory costs hopefully freeing up lending by banks into the UK economy.

However, the empowerment of the regulators also creates more potential for uncertainty for firms, including as to when regulatory changes might be made – for example, moving the detailed requirements on the principal/AR contractual relationship into FCA rules means there’s greater potential for more frequent review and amendment of AR requirements in the future.

How can Hogan Lovells help?

Hogan Lovells' depth and breadth of knowledge of the legal, regulatory and policy drivers affecting financial services means that we can help you to capitalise on further opportunities to shape your regulatory and policy environment as work on the Bill progresses.

For example, on CCA reform there may be a chance to lobby to expand the scope of the current Bill provisions to tackle issues with certain of the provisions that HMT has decided to carve out of this round of amendments due to their complex and technical nature, eg unfair relationships under s140A-C.

The combination of our legal and consulting teams is also ideally suited to assist you in reviewing your systems, policies and procedures (eg in relation to planned or current arrangements for AR oversight), and how these might have to be adapted in light of the changes that are likely to be introduced by the Bill. Our combined offering can provide you with a full range of services, and clear guidance on how the solutions can be applied within your business.

Our Financial Services Regulatory, Administrative Law and Government Affairs, and Consulting teams are ready to speak to you.

Authored by Virginia Montgomery, Charles Elliott and Daniela Vella.