The UK government’s new financial services strategy: a catalyst for growth?

On the evening of Tuesday 15 July 2025, the Chancellor of the Exchequer, Rachel Reeves, delivered her second Mansion House speech, in which she set out the government’s plans to “regulate for growth and not just for risk”. Earlier in the day, the government had published its Financial Services Growth and Competitiveness Strategy, along with a wide-ranging package of reforms to financial services regulation, dubbed the “Leeds Reforms”. 

In this blog post, we analyse key aspects of the government’s strategy and reforms and consider what they mean for the financial services sector.

Financial Services Growth and Competitiveness Strategy

When the government released its Industrial Strategy in June 2025, it highlighted financial services as one of eight key sectors that can be harnessed to drive high growth in the UK economy. (See our blog post for more information on that.) The Financial Services Growth and Competitiveness Strategy published on 15 July spells out how the government intends to make the UK the number one destination for financial services businesses by 2035. The proposals in the strategy are focused on five areas:

• delivering a competitive regulatory environment
• harnessing the UK’s global leadership in financial services
• embracing innovation and leveraging the UK’s leadership in fintech
• building a retail investment culture and delivering prosperity through UK capital markets
• setting the UK’s financial services sector up with the skills and talent it needs

Targeted support: a new regulated activity

The government has published a policy note and draft statutory instrument setting out proposed amendments to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO) to create a new specified activity of providing targeted support. This follows the FCA’s recent consultation paper on proposals for targeted support in pensions and retail investments. This is a key component of the Chancellor’s efforts to boost savings investment. For more information, see our blog post and briefing.

Streamlining the SM&CR

Both the FCA and the PRA have launched consultations on reforms to the Senior Managers and Certification Regime (SM&CR) to reduce the burden on firms and make the requirements clearer and more efficient. However, there is only so much they can do within the existing legislative framework. In a separate consultation, the government is seeking to go beyond these changes by amending the legislation to remove the Certification Regime in its entirety and to reduce the number of regulatory pre-approvals required for senior managers. For more information, see our blog post.

FOS reform: no more “quasi-regulator”

The government is consulting on reforms to the Financial Ombudsman Service (FOS), following a review by the Economic Secretary to the Treasury. The proposals are intended to stop the FOS acting as a “quasi-regulator” and limit its remit to that of a “simple, impartial dispute resolution service.” Among other things, the government proposes to amend the fair and reasonable test in FSMA and to introduce a mechanism whereby the FOS will seek a view from the FCA when making an interpretation of what is required by the FCA’s rules. 

Alongside the government’s consultation, the FCA and FOS have published a joint consultation paper on changes to the redress system, including proposals to facilitate better management of mass redress events. 

The FOS has also announced that, from the beginning of 2026, the rate of interest it applies to compensation awarded to customers will track the Bank of England’s base (average) rate +1%. The current rate of interest has remained unchanged at 8% for nearly 25 years.

Revocation of UK CRR and delayed implementation of Basel 3.1

HM Treasury has published a policy update on its intention to apply the regulatory approach under the Financial Services and Markets Act 2000 (FSMA 2000) to implement the Basel 3.1 standards, as well as its plans to revoke the remaining parts of the UK Capital Requirements Regulation (CRR). The policy update covers HM Treasury’s proposed approach in three areas:

• Basel 3.1: The PRA has published a consultation paper in which it proposes, among other things, to delay the market risk modelling elements of the Basel 3.1 package by one year to 1 January 2028. HM Treasury intends to facilitate the PRA's proposals by legislating for a transitional approach to firms’ calculation of capital requirements for market risk under the internal models approach. The UK remains committed to implementation Basel 3.1 in full by January 2030.    
• Overseas Recognition Regimes: HM Treasury has published a guidance document setting out how it plans to operate the Overseas Recognition Regimes that will replace the existing equivalence regimes inherited from the EU. For the most part, it intends to restate existing equivalence decisions under the UK CRR, though it is considering adapting the current treatment of exposures to exchanges and investment firms and considering whether covered bonds should be designated under the new Overseas Prudential Requirements Regimes.
• UK CRR definitions: HM Treasury plans to revoke all definitions contained in the UK CRR. The PRA will replace some definitions with definitions in PRA rules, and HM Treasury will restate in legislation those definitions that are needed for the effective operation of the regulatory perimeter, Overseas Recognition Regimes, or other legislation, such as the Banking Act.

Alongside the policy update, HM Treasury has published two pieces of draft legislation: draft regulations that will require institutions to apply specified PRA rules for the calculation of their market risk capital requirements until the end of the transitional period of 31 December 2027, and draft regulations that will restate relevant definitions in UK legislation. HM Treasury is also making legislation to bring into force the revocation of parts of the UK CRR relating to definition of capital and total loss-absorbing capacity (TLAC) with effect from 1 January 2026.

Making the resolution regime more proportionate

The Bank of England and PRA have also taken steps to make the bank resolution regime more proportionate and less burdensome. Following an October 2024 consultation on amendments to the Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL), the Bank has confirmed that it will raise the asset threshold for MREL requirements to between £25 and £40 billion, among other changes to simplify the regime. In addition, the PRA is consulting on increasing the Resolution Assessment threshold under the Resolution Assessment Framework from £50 billion to £100 billion in retail deposits, as well as allowing Small Domestic Deposit Takers (SDDTs) to review their recovery plans every two years instead of annually. The PRA is also consulting on amendments to simplify and streamline MREL reporting to, while at the same time it has launched a consultation on proposals to enhance Pillar 3 disclosures by firms, including new disclosures on the resources supporting resolvability by firms subject to MREL.  

Reforming the ring-fencing regime

In her Mansion House speech, the Chancellor has also committed to “meaningful reform” of the ring-fencing regime, looking at how changes can strike the right balance between growth and financial stability, including protecting customer deposits. HM Treasury will carry out a review of the regime and report to the Economic Secretary by early 2026, looking at options such as allowing ring-fenced banks to provide more products and services to UK businesses and share resources and services more flexibly across the ring-fence, as well as addressing inefficiencies in how ring-fencing is applied to banking groups. The government says it stands ready to legislate to take these reforms forward when Parliamentary time allows. This follows changes that the government already made to the regime earlier in the year. For more information on that, see our briefing.

The National Payments Vision: next steps

The government has published an update on the work of the Payments Vision Delivery Committee, which was established to set out the approach for the development of the UK’s retail payments infrastructure. The Committee has agreed a collaborative new model that involves both the public and private sector and will publish its strategy for retail payments infrastructure in the autumn. 

Digitalisation of wholesale financial markets

The government has published a policy paper in which it sets out a strategy to digitalise UK wholesale financial markets. Among other things, the government intends to legislate where necessary to remove paper from wholesale markets and drive forward share dematerialisation. Alongside the government’s policy paper, the Digitisation Taskforce, chaired by Sir Douglas Flint, has published its final report, recommending a staged approach to removing paper share certificates and moving to a fully intermediated system of shareholding in the UK. The government has also issued an update setting out features to be tested as part of its digital gilt instrument (DIGIT) pilot.

A new regime for captive insurance

Following a consultation launched in November 2024, the government has confirmed that it will introduce a new framework for captive insurance companies, in order to enhance the competitiveness of the UK insurance sector. In light of responses to the consultation, the government has decided to go beyond the original proposals and allow a wider range of firms to set up captives and permit more types of risk to be insured by them. It has committed to introduce new legislation that will enable captives to be established within protected cell companies.

The government has opted not to create a bespoke regulatory framework for captive managers, as it considers that the existing framework for insurance intermediaries is sufficient. In a joint statement, the FCA and PRA say they will launch consultations on new rules in summer 2026, with a view to having a regime in place by mid-2027.  

The government has also launched a consultation on changes to the Risk Transformation Regulations 2017 to broaden the range of risk transfer options in the UK.

Scrapping the UK green taxonomy

In a move that has long been expected, the government confirmed that it will not proceed with a UK green taxonomy. This follows a consultation in which a majority of respondents said they did not support the development of the taxonomy. The government has concluded that a UK taxonomy would not deliver the objectives of channelling capital and reducing greenwashing in a proportionate way. It plans to focus instead on other ways to deliver the green transition more effectively.

Cross-cutting reforms

The government has also launched a consultation on changes to the overarching regulatory framework for financial services, in order to make the regime more proportionate. Proposals include:

• shortening the statutory deadlines for new firm authorisations, variation of permissions, and senior manager authorisations—both the FCA and the PRA have published letters they have sent to the Chancellor setting out actions they have taken to speed up regulatory approvals
• requiring the FCA and the PRA to set out long-term strategies for how they will advance their objectives, including their secondary growth and international competitiveness objective
• streamlining the requirement for the FCA and PRA to have regard to the regulatory principles in FSMA 2000 and HM Treasury’s remit letter by linking this to the regulators’ long-term strategy rather than day-to-day decisions
• rationalising regulatory reporting requirements

The government will also consult in autumn 2025 on a new lighter-touch authorisation regime for innovative start-ups, which would allow relevant firms to conduct limited regulated activities with streamlined conditions.

In addition, the Chancellor has asked the FCA to report back to her by the end of September 2025 on how it plans to address concerns about how the Consumer Duty applies to wholesale firms.

A catalyst for growth?

The financial services industry will welcome many of these changes, which should go some way towards making the UK a more competitive environment in which to do business. Whether the reforms will deliver the economic growth the government is seeking remains to be seen.

Freshfields will be hosting a live one-hour webinar at 2pm London time on Wednesday, 23 July 2025, in which a panel of senior lawyers with expertise in financial services regulation, pensions, and competition law will analyse the government’s growth strategy and what this means for financial institutions and the economy. To register, click here.