Your guide to this week in regulation

This week, regulators are sharpening their expectations on consumer understanding, capital strength in banking, and innovation across the broader industry. Collectively, this conveys familiar messaging with a focus on consumer protection, resilience and harnessing technology to enhance product and service offerings, supported by adapted forms of long-standing regulatory standards.

We lead with the Financial Conduct Authority (FCA), which is consulting on whether Annual Percentage Rates (APR) still help consumers understand the true cost of credit. This matters now as firms balance growth, lending volumes and Consumer Duty requirements to support informed decisions, particularly where vulnerability risks remain high. Elsewhere, the FCA also confirms it will defend its motor finance redress scheme; underlining its willingness to intervene decisively where trust in markets has been damaged.

Meanwhile, the Prudential Regulation Authority (PRA) has confirmed its next phase of UK banking reforms. Capital, liquidity and reporting rules are clearly shifting from post‑crisis repair towards proportionate resilience that supports lending and competitiveness, with key milestones through 2027 and 2028.

Concluding this week, the FCA looks to support fund tokenisation across the UK asset management sector, encouraged by broad support and ambition from across traditional financial services firms, digital/crypto firms, fintechs and other service providers.

FCA consults on credit promotions

The FCA is reviewing whether Annual Percentage Rates (APR) help consumers understand the true cost of borrowing and is asking whether credit advertising should present costs differently. The review sits alongside work to simplify parts of the Consumer Credit rule book, where the Consumer Duty already sets clear expectations for supporting consumer understanding.

Research published by the FCA shows APRs can support comparison, but only where a lower APR clearly leads to cheaper borrowing. Key findings include:

• APRs worked well when lower rates meant lower repayments, with 80% of consumers identifying the cheapest product
• Fewer than one in five consumers identified the cheapest product where a lower APR did not reduce overall cost
• Additional information, such as total repayment amounts, can improve understanding, but may also make comparisons harder if applied inconsistently.

Alongside the review, the FCA has issued a Discussion Paper and Consultation Paper exploring more flexible ways to present the cost of credit and remove outdated or duplicative advertising rules. Both close on 17 June 2026. Firms should assess whether their credit promotions genuinely support consumer understanding and consider responding to the consultation.

Read more on the FCA review of APRs

Read more on CP26/15: Reviewing the financial promotions rules for consumer credit

Read more on the Research Note

Motor finance scheme faces challenge

The FCA has confirmed it will defend its industry-wide motor finance redress scheme following four legal challenges, three from major lenders and one from a consumer group. The regulator said the scheme remains the fastest and most efficient way to secure fair compensation for consumers and to provide certainty for firms and investors.

The FCA highlighted several points of interest for firms. The scheme was designed after wide engagement and adjusted to reflect feedback from both lenders and consumer groups. Most lenders have committed to implement it, despite difficult decisions, to resolve long-running complaints and help rebuild trust in the motor finance market. The legal challenges introduce uncertainty for millions of consumers in the UK’s second-largest consumer credit market, where £39bn was borrowed in 2024.

The FCA is now engaging with industry and consumer bodies and carrying out contingency planning. It will issue further advice to firms next week. Firms should watch for this update and consider the potential operational, conduct and capital impacts while the scheme’s next steps are clarified.

Read more on the FCA statement on legal challenges to motor finance scheme

UK banking reforms take shape

In a speech at the JPM UK Banks ALM Conference, David Bailey set out the Prudential Regulation Authority’s programme to reshape bank capital and liquidity rules for the next phase of the UK regime. The PRA has completed its post crisis rebuild and is now updating the framework to remain resilient while becoming more proportionate and supportive of growth and innovation.

Key points include:

• Completion of Basel 3.1 rules, with firms expected to be ready by the start of 2027, and further market risk reforms planned for 2028
• A Financial Policy Committee benchmark of 13% Tier 1 capital, intended to support lending and growth when implemented in 2027 under Basel 3.1
• Reviews of buffer usability, the leverage ratio, and the interaction of domestic capital buffers, with next steps due in the July Financial Stability Report, and
• Consultations on liquidity rules, mortgage lending flexibility, securitisation, regulatory reporting and proportionality thresholds.

Firms should review current capital, liquidity and data strategies against this direction of travel, monitor forthcoming consultations, and plan engagement ahead of the July Financial Stability Report and summer policy proposals.

Read more on the speech on building a banking regime for the future

FCA backs fund tokenisation

The FCA has published guidance to support fund tokenisation, aiming to help asset managers adopt distributed ledger technology within existing rules. The regulator confirms that firms can use DLT to create tokenised funds without waiting for bespoke regulation, providing clarity on how current requirements apply in practice.

Key points likely to interest firms include:

• The use of DLT to represent fund units, with potential to lower costs and widen investor access
• New rules introducing an optional Direct to Fund model, which allows investors to deal directly with a fund, whether traditional or tokenised, and
• Comfort that public blockchain models and digital cash tools can be used where appropriate controls operate.

The guidance forms part of the FCA’s wider digital assets roadmap and reflects close engagement with industry. The regulator expects adoption to be market-led, but has focused on providing a clear and practical framework to reduce uncertainty.

Firms considering tokenisation should assess how the guidance applies to their operating models and whether the Direct to Fund (D2F) option could improve dealing efficiency and engage early with the FCA where plans involve novel structures.

Read more on FCA guidance to support innovation in fund tokenisation