Since February 2025, government intervention has accelerated the UK’s regulatory divergence from the EU through an extensive range of new policy consultations covering the full spectrum of the prudential framework.

The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) had already identified 2025/2026 as busy years for new policy reforms as the full extent of the UK’s post-EU regulatory regime starts to take shape. However, following the Leeds Reforms and the clear message from the Chancellor that the UK should be the global centre for financial services by 2035, proposed amendments to the cross-sector prudential landscape have accelerated. This is reflected in the large volume of policy documents published on an almost daily basis by the PRA and FCA in recent weeks.

With a busy regulatory outlook taking shape, organisations should pay close attention to the proposed changes. Let’s take a closer look at the pipeline of changes and what they could mean for organisations.

UK banking rules and compliance updates

Preparing for the PRA’s introduction of Basel 3.1 remains the focus of the industry and there will be a great deal of comfort for firms after the January 2027 implementation date for the regime was confirmed.

However in the meantime, firms have been working towards ensuring new solvent exit planning requirements are in place by the 1 October 2025 deadline. Making sure the new Solvent Exit Analysis (SEA) is sufficiently detailed, without being overly prescriptive has been a challenge. But firms that have secured independent review and assurance have benefited from an industry-wide view of progress.

Along with changes to the securitisation, resolution and leverage frameworks, another factor for banks to bear in mind is the publication of PS14/25, which introduces amendments to the Large Exposures Framework.

The policy includes new rules on the identification of groups of connected clients, removal of exemptions (e.g. exposures to the UK Deposit Guarantee Scheme) and changes to credit risk mitigation techniques.

Smaller banking firms continue to adapt to the SDDT regime. As part of the ongoing changes, the PRA is working to finalise the simplified capital requirements for these firms, aiming to reduce regulatory burdens while maintaining safety and soundness. Along with the removal of SS20/15 for building societies and the recent introduction of a possible new form of IRB for smaller firms, we expect to see a more even playing field in the banking sector over the coming years.

Regulatory reforms for investment firms

The FCA has launched a significant reform of the AIFMD. The proposed changes include a call for input and aim to simplify reporting, reduce compliance costs and provide more flexibility for UK-based managers, including PE fund managers. These reforms are designed to tailor the UK’s regulatory regime to domestic market needs and encourage innovation in asset management. Though the prudential impact of the proposed changes has not yet been published, the FCA has indicated that they will move forward under the premise of ‘changes in the perceived balance of risks’.

For retail investment managers, a notable announcement is the proposed new category of regulated activity: ‘targeted support’. Firms offering targeted support will be able to provide investment advice to those otherwise unlikely to invest through a simpler regulatory regime, provided they hold at least £500,000 in capital. The goal is to address the ‘advice gap’ by helping more businesses offer affordable, accessible guidance to retail investors. This proposal is currently under consultation and should be finalised in late 2025.

MIFIDPRU investment firms will also be subject to a wider regulatory restatement initiative, which aims to streamline the regulatory framework for such firms, keeping all rules within one reference point in the FCA Handbook.

Insurance regulation and compliance trends

Prudential regulatory updates are relatively light for insurers, given the extent to which Solvency II has already been integrated into the UK framework. However, a key development is the introduction of solvent exit planning requirements, which will come into force in a year’s time.

For larger insurers, the introduction of significantly enhanced liquidity regulatory reports will result in a notably more complex regulatory reporting framework. A key to adapting to this will be adopting cashflow mismatch templates in a controlled way.

The PRA is also continuing to emphasise the integration of climate-related financial risks into prudential supervision. Insurers are expected to enhance their scenario analysis capabilities and embed ESG considerations into their risk management frameworks, further integrating the UK’s broader sustainability and competitiveness objectives into insurance considerations.

Outlook for upcoming regulatory framework

Here are key upcoming regulatory milestones:

Q3 2025

• FCA consultation on final rules for arranger firms and AIFMD reform.
• PRA policy statement on changes to leverage ratio threshold for retail deposits.
• Implementation of new capital buffer framework following PS8/25.
• Implementation of changes to the UK ISPV regulatory framework following PS9/25.
• Expected FCA update on capital deduction for redress for personal investment firms.

Q4 2025

• Implementation of new guidelines on solvent exit planning for non-systemic banks and building societies.
• PRA policy statement on the final elements of the Strong and Simple regime for SDDTs.
• PRA consultation on adoption of the Basel framework for the prudential treatment of cryptocurrency.
• PRA policy statement on changes to Depositor Protection rules, including FSCS limit increase.
• FCA policy statement on the definition of capital.
• Publication of the PRA’s policy statement on retiring the refined methodology under Pillar 2A.
• Life Insurance Stress Test 2025.
• FCA consultation on liquidity requirements for funds.
• Joint FCA/PRA consultation on changes to securitisation rules.

Q1 2026

• Publication of the policy statement on changes to Resolution Assessment threshold and Recovery Plan frequency for SDDT firms.
• Publication of the discussion paper on the approach to market risk capital requirements for MIFIDPRU investment firms that deal on their own account.
• Effective date for changes to FRS102 accounting standards.
• PRA consultation on changes to the liquidity framework and approach to a repo-led framework.
• Implementation of changes to the Large Exposures framework following PS14/25.
• Removal of SS20/15 for building societies.
• Amendments to the PRA Rulebook definitions covering definition of capital, ECAI mapping and securitisation following PS12/25.
• Implementation of new liquidity reporting requirements for large insurers (>£20bn assets) following CP19/2.4.

Q2 2026

• Implementation of solvent exit planning requirements for insurers.
• Dynamic General Insurance Stress Test (DyGIST) 2025.

Q3 2026

• Implementation of Pillar 2A changes to market, counterparty credit and pension obligation risk.
• Implementation of the new definitions of main indices and recognised exchanges following CP3/25.

Q1 2027

• Implementation of Basel 3.1 and SDDT capital framework.
• Implementation of amendments to Pillar 2A for credit and operational risk.

To find out what these changes mean for your business and for guidance on how to prepare for them, please contact Gavin Sharpe or James Roberts.