On 17 March 2025, the UK Government published a policy paper and accompanying press release outlining a new approach to ensure regulators and regulation support growth. The Government stated that the current regulatory approach has become too risk averse, complex and duplicative. This is stifling progress and innovation and creating unnecessarily burdensome requirements for businesses and investors.
The Government has set out a vision that seeks to address these challenges alongside an action plan that, while still protecting consumers, supports investment and growth, is proportionate and predictable and keeps pace with innovation. This action plan forms part of the Government’s wider agenda to regulate for growth in the financial services sector, which we previously discussed in our blog post here. The Government has noted that the action plan will “deliver on the pledge to cut the administrative cost of regulation on business by a quarter, make Britain the best place to do business and drive economic growth.” In this blog post, we focus our discussion on the key reforms aimed at enhancing growth, reducing the regulatory burden and increasing competitiveness within the financial services sector.
Reducing the complexity and burden of regulation
The Government recognises that one of the clearest manifestations of the challenges faced by regulated businesses is the high administrative costs from activities such as complying with information requests or overly onerous and disproportionate reporting requirements. To combat this, the Government intends to take “a whole of Government approach” in an effort to “cut administrative costs for business by 25% by the end of the Parliament”.
To achieve this, the Government will undertake a baselining exercise to understand how much regulation is costing and where it can be reformed to streamline administrative processes and remove unnecessary burdens. According to the action plan, both the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have committed to reducing regulatory reporting requirements for firms.
Simplifying regulatory structures
The action plan also covers significant steps to simplify regulatory structures by removing or consolidating regulators “where it makes sense to do so”. The Government has shown action and not just words in its decision to abolish the Payment Systems Regulator (PSR), announced on 11 March 2025.
The Government stated that the decision to abolish the PSR follows complaints from businesses that the regulatory environment is too complex – with payment services firms having to engage with three different regulators (the FCA, the PRA and the PSR), costing them time, money and resources. There have also been several complaints about recent decisions by the PSR, including the changes to the mandatory reimbursement regime for Authorised Push Payment (APP) fraud, which was initially proposed by the regulator to be capped at £415,000 but was later reduced to £85,000 following an outcry from the sector. Many payments firms and banks blasted the PSR’s handling of the fraud rules and the proposed cap, including warnings that it could inadvertently hinder competition in the FinTech sector.
This is not the first time we have seen the Government of the day embarking on a change to the institutional design of financial supervision in order to generate an economic outcome or regulatory objective. In 1997, the incoming Chancellor, Gordon Brown, granted independence to the Bank of England and transferred banking supervision to the newly-created Financial Services Authority (FSA), which also assumed the functions of multiple self-regulating organisations which had been responsible for regulating the financial services industry. After the 2008 global financial crisis we saw the dismantling of the FSA and the establishment of the UK’s “twin peaks” model of regulation under which conduct regulation was vested in the FCA and prudential regulation in the PRA. Interestingly, the PSR, which regulates payment systems and their participants, was one of the new regulatory bodies set up in the wake of the financial crisis although, by and large, payment systems remained stable throughout the crisis. However, while the Government’s post-financial crisis agenda was to improve supervisory effectiveness and financial stability, this time around, the Government has a clear plan to cut back on regulation. In his statement, Prime Minister, Sir Keir Starmer said:
“For too long, the previous Government hid behind regulators – deferring decisions and allowing regulations to bloat and block meaningful growth in this country.”
In a letter to the Chair of the Treasury Committee, the Economic Secretary to the Treasury, Emma Reynolds MP, explained that the PSR and its functions will be consolidated primarily into the FCA. The letter states as follows:
“This evolution in the payments regulatory landscape will see the FCA take on responsibility for ensuring the payments landscape promotes innovation and competition, as well as supporting the interests of consumers and businesses who make payments every day.”
The announcement does not result in any immediate changes to the PSR’s remit or ongoing work programme, as the PSR will continue to function as it does now until legislation is passed by Parliament. The Government says that the PSR and the FCA will “work closely to deliver a smooth transition of responsibilities to ensure the market remains competitive”.
The Government expects to consult on the details of this proposal over the summer and will legislate as soon as possible thereafter. However, during the interim period, the PSR and the FCA will take steps to work closely together, “building on the recent recruitment for a joint PSR/FCA payments executive director”. The Economic Secretary further noted that “This will help realise the benefits of a streamlined regulatory environment and make the transfer of any functions to the FCA as smooth as possible.”
It remains to be seen whether abolishing the PSR will lead to the promised more streamlined regulatory environment, which will reduce overlap and the burden on firms whilst facilitating innovation and competitiveness in a key sector.
Reviewing the Financial Ombudsman Service (FOS)
The Government plans to simplify the duties of the FOS, so it is able best to support growth and investment. The FOS is another body that has attracted criticism from the industry. The Economic Secretary to the Treasury has been asked to examine whether the FOS is delivering its role as a simple, impartial dispute resolution service which quickly and effectively deals with complaints against financial services firms and which works in concert with the FCA. The review will consider a number of points that have been raised as part of the Government consultation on the growth and competitiveness strategy, including:
- The framework that has resulted in the FOS acting, at times, as a quasi-regulator;
- Whether the FOS is applying today’s standards to actions that have taken place in the past;
- Practices that have developed around compensation.
This work is expected to conclude by this summer, with the Government standing ready to legislate to ensure that the dispute resolution system in the UK is fit for a modern economy.
Welcome to the UK: regulatory support for incoming financial services firms
The Government will work with the regulators, the Office for Investment and the City of London Corporation to establish a concierge service that enhances the UK's attractiveness for international financial services firms by making it easier to navigate the UK regulatory landscape and other barriers to entry.
A package of other measures will enable the FCA to support early-stage innovative firms to conduct regulated activities, including the following:
- Extending pre-application support to all wholesale payments and crypto firms;
- Providing a dedicated case officer to every firm within the FCA’s regulatory sandbox;
- Providing 50% more dedicated supervisors to early and high growth firms, to help them navigate the regulatory system and support their growth;
- Indicating more often that the FCA is ‘minded to approve’ startups to help them secure funding.
The Government will also consider whether it can update the legislative framework to allow relevant firms to conduct limited regulated activities with streamlined conditions.
Other regulatory initiatives to reduce red tape
In its action plan and accompanying press release, the Government mentioned these additional examples of the FCA cutting red tape:
- Reviewing the contactless payment limits, including removing the £100 limit on individual payments;
- Simplifying the FCA’s mortgage and advice rules to support greater home ownership. The FCA issued a press release on 7 March 2025 on this initiative and reminded lenders of flexibility in its interest rate stress testing rule, which can help more people access a mortgage. The FCA intends to launch a consultation in May proposing early ideas to simplify its rules and benefit mortgage consumers, making it easier to remortgage with a new lender, discuss options outside a regulated advice process and reduce their mortgage term.
Is the shake-up real?
In addition to the Government’s action plan, other announcements to cut back on regulations were made last week. Both the FCA and the PRA announced decisions to axe their D&I proposals. The FCA has also scrapped its plans to “name and shame” UK firms under investigation. We have separate blog posts on both these developments here and here. In a letter to the Treasury Committee, Deputy Governor for Prudential Regulation and PRA CEO Sam Woods cited the growing emphasis on “reducing regulatory burdens on firms” while still delivering the regulator’s objectives as the reason for the shift in the D&I plans.
Rachel Reeves’s Mansion House speech in November made the Government’s position clear: regulations put in place to protect the economy after the global financial crisis had “gone too far”, and what we are seeing now seems to suggest a Government that is serious about its deregulation plan.While fewer regulatory requirements reduce the burden of compliance on firms and increase their capacity to invest in innovation and grow their business, it remains to be seen whether the changes will spur a level of economic growth and innovation sufficient to justify the changes that need to be implemented on the back of the Government’s action plan.
With respect to the future of payments regulation, we can only wait to see how the FCA’s current modus operandi influenced by the Government’s expectation will impact how payments systems and their participants will ultimately be regulated.
Next steps
The Government will consult on the details of its proposals over the course of spring into the summer. Although reducing the number of regulators may have some obvious benefits and cost savings in the short term, the action plan acknowledges that an institutional fix such as consolidating the PSR’s functions with the FCA will not necessarily improve efficiencies. What is key is that financial supervisors are equipped with adequate resources, sensible working practices and policy guidance to deploy them effectively in the pursuit of policies that promote the Government’s economic vision.
In order for the Government to drive significant change that will lead to economic growth, it has recognised that broader changes to the regulatory landscape will be required as part of a wider Government effort to “kickstart economic growth and make regulators work for the country, rather than block progress”. For this reason, the Government has stated in its action plan that it plans to make sure that regulators have a focused set of duties and clear steers, including a strong focus on investment and growth and clear processes and published timelines for decisions. Linked to this is the Goverments intention to review the number of the PRA’s and FCA’s “have regards” duties to identify further opportunities to rationalise them and ensure a focus on their priorities.
There is a host of factors that can inhibit or promote growth, and regulation is just one of them. Changes to regulation and the regulators alone are not a silver bullet and it is important not to place unrealistic expectations on what can be achieved.
While measures that lead to economic growth are to be welcomed, Government and regulators must not lose sight of their primary objectives to protect the safety of the financial system, markets and consumers. A strong and effective regulatory system contributes to competitiveness and growth. They must not throw the baby out with the bath water.
