UK Government Proposes Legislative Changes to Drive Forward Financial Services Reforms

The new Financial Services and Markets Bill will make required changes to help complete certain outstanding elements of the Leeds Reforms.

By Becky Critchley, Nicola Higgs, Rob Moulton, and Charlotte Collins

Key Points:

• The Bill is an important legislative step in delivering the Leeds Reforms, moving forward changes that cannot be completed through regulator action alone.
• The reforms are broad in scope, covering topics including the SMCR, FOS, ring-fencing, consumer credit, appointed representatives, provisional licences, and AML/CTF supervision.

On 19 May 2026, the Financial Services and Markets Bill 2026-27 (the Bill) completed its first reading in the House of Lords. The Bill was announced in the King’s Speech earlier in May and contains a collection of measures designed to progress some of the outstanding elements of the Leeds Reforms that require changes to primary legislation (see this Latham Client Alert), as well as other previously announced regulatory reforms.

The publication of the Bill will address criticisms that, while the regulators have been working at pace to realise the regulatory reforms envisaged by the UK government, many of these reforms cannot be completed without the necessary legislation. As Nikhil Rathi put it in a letter to Dame Meg Hillier, Chair of the Treasury Committee, in January 2026, “While we are moving fast, there are often areas where we have to wait for legislation or Government action”.

There are no surprises in the Bill, given that all the changes have been announced, if not also consulted on. However, the fact that legislation to effect these changes is now in motion will help firms in assessing the potential impact and planning any regulatory change projects.

Key Aspects of the Bill

SMCR

The Bill will make the legislative amendments confirmed by HM Treasury in its recent consultation response (see this Latham blog post). These include:

• removing the Certification Regime from legislation so that it can be recast in regulator rules,
• allowing the regulators to specify circumstances in which firms may appoint certain Senior Managers without pre-approval by the regulators,
• repealing provisions relating to Statements of Responsibilities, and
• repealing provisions requiring firms to notify breaches of the Conduct Rules and to train staff on the Conduct Rules.

Confirmation of the legislative changes will pave the way for FCA and PRA consultations on Phase 2 of the reforms later this year. Although the necessary framework is already in place, the government states that it does not plan to take forward legislation to apply the SMCR to financial market infrastructures at this point in time.

Financial Ombudsman Service (FOS)

The Bill will make the legislative amendments to reform the FOS, as confirmed by HM Treasury in its March consultation response (see this Latham blog post). These include:

• recalibrating the fair and reasonable test so that firms must be found to have acted fairly and reasonably when they have met their obligations under FCA rules,
• introducing a formal referral mechanism between the FOS and the FCA,
• enabling the FCA to respond quickly to mass redress events, and
• imposing an absolute time limit of 10 years for bringing complaints to the FOS.

Ring-Fencing

The statutory framework underpinning the bank ring-fencing regime will be updated to:

• move aspects of the regime out of legislation and into PRA rules,
• remove overly prescriptive rule-making requirements,
• enable the PRA to waive ring-fencing rules when the objectives of the regime are already met by other prudential or resolution requirements, and
• take account of significant developments in the resolution regime by no longer envisaging insolvency as the only scenario for any failed non-ring-fenced entity.

These changes were confirmed by HM Treasury on 18 May 2026 in its conclusions on the ring-fencing review.

CCA Reform

The Bill will make the necessary amendments to the Consumer Credit Act 1974 (CCA) to reform the UK consumer credit regime, as confirmed by HM Treasury in its Policy Statement published on 18 May 2026 (see this Latham blog post). Under this approach, most CCA provisions will be repealed and, where appropriate, replaced with more flexible, outcomes-focused FCA rules, supported by the Consumer Duty.

However, a number of provisions will be retained in the CCA (with amendments), either because they cannot easily be recast in FCA rules or because further policy work is required before deciding upon appropriate reform.

Overseas Recognition Regimes

The Bill will provide for HM Treasury to make secondary legislation on overseas recognition regimes, which will enable it to grant recognition to facilitate cross-border activity with other jurisdictions (intended to replace the equivalence regimes inherited from EU law with a bespoke UK framework).

HM Treasury published a document setting out the proposed framework for overseas recognition regimes and how they would operate in practice in July 2025, as part of the publications accompanying the Leeds Reforms. The intention is for each of the equivalence regimes under assimilated law to be replaced with overseas recognition regimes. HM Treasury will also have the power to make recognition determinations in other areas, including under new regulatory regimes such as the ESG ratings framework.

The Bill sets out the mechanics of how the recognition process will work. Notably, HM Treasury will be required to consult with the regulators before making any overseas recognition regimes.

Cross-Cutting Reforms

The Bill will amend the Financial Services and Markets Act 2000 to set shorter statutory deadlines for determining applications for new firm authorisations, variations of permissions, changes to requirements imposed by the regulators, Senior Manager approvals, Senior Manager variations, and financial promotion approvals. Other changes will require the regulators to produce new long-term strategies at least once every five years and provide an update in their annual reports setting out how they are delivering against these long-term strategies, remove the requirement for the regulators to consider all of their “have regards” when making day-to-day decisions exercising their policy and rule-making powers, and remove “low value” reporting requirements on the regulators.

While most of the changes related to the last of these are unremarkable, firms should note that the government does intend to remove the obligations for the regulators to consult on guidance and on rule changes “with no or minimal cost impact for firms”. These changes were consulted on as part of the Leeds Reforms, and HM Treasury published its consultation response on 12 May 2026. HM Treasury has gone further than the consultation and included a number of additional applications for which deadlines could be shorted. See the Annex, below, for the full list of changes. Further, a power to amend these deadlines through secondary legislation will be introduced so that HM Treasury can shorten deadlines if the conditions change and the regulators are able to process applications faster.

Appointed Representatives

The appointed representatives regime will be amended so that only authorised firms with specific permission to do so will be able to act as principal (much like the financial promotions gateway for firms wishing to approve promotions for unauthorised persons). As such, only firms assessed as suitable by the FCA will be able to act as principal.

Provisions related to appointed representative agreements will be removed from legislation so that the FCA can set out the appropriate requirements in its rules instead. Further, the SMCR will be extended to apply to appointed representatives, and appointed representatives will be included within the compulsory jurisdiction of the FOS so that complaints may be pursued against appointed representatives in circumstances where the principal firm cannot be held responsible. HM Treasury consulted on these changes in February 2026.

Provisional Licences

New provisions will be introduced into the Financial Services and Markets Act 2000 to allow businesses to apply for temporary Part 4A permissions. This will enable businesses to obtain temporary authorisation for a period of 18 months, providing a stepping stone to full authorisation (much like the mobilisation regime for new banks). The FCA will be given the power to make rules specifying which regulated activities are in scope of this regime. HM Treasury provided a policy update on this provisional licences regime in December 2025, outlining the design of the regime.

Access to Banking Services

HM Treasury will be given the power to make regulations on access to banking services, should evidence show that it is necessary to ensure reasonable access to in-person banking.

PSR

The Bill will effect the changes needed to absorb the remit of the Payment Systems Regulator into the FCA.

AML and CTF Supervision

The Bill will make changes to enable the FCA to assume its new supervisory responsibilities for legal service providers, accountancy service providers, and trust or company services providers under the UK anti-money laundering and counter-terrorist financing regime. This change was announced in October 2025, following a government consultation on options for reform of the supervisory regime.

Next Steps

The Bill must now make its way through the parliamentary process, and so there is no clear timing at this stage for when it might be finalised. A date for the Bill’s second reading has not yet been set. However, given the nature of the changes and the drive to progress the reform agenda, it is to be hoped that the Bill will make a fairly swift passage through Parliament. While the draft envisages that some of the provisions would take effect immediately, most provisions will require HM Treasury to set a commencement date via secondary legislation.

Annex — Changes to Statutory Deadlines