This week, we lead with coordinated changes from both of the UK regulators on high loan to income (LTI) lending. This will give lenders more room to set their own risk appetite, with the inevitable judgements and trade-offs that come with this greater flexibility. Elsewhere, the Financial Conduct Authority (FCA) is consulting on redemption terms for retail investment funds that hold illiquid assets, with primary concerns around fund resilience and suitability for investors.
The FCA’s recent survey of corporate finance firms has found a range of gaps in whistleblowing arrangements, complaints monitoring and compliance reporting which serve as a helpful reference point for any authorised firm. Meanwhile, the Bank of England expects firms to act on a recent sector-wide exercise based on a global cloud outage.
We conclude this week with the FCA’s review of governance at benchmark administrators which provides helpful reminders for all boards.
The PRA and the FCA have published final rules and guidance on high LTI lending, which start on 28 October 2026. They remove the cap that limited each lender to 15% of its new mortgages at 4.5 times income or more, and keep the 15% limit across the whole market.
Lenders now set their own high LTI strategy within their risk appetite. The PRA will publish the market-wide figure each quarter, starting with the third quarter of 2026. If the market-wide figure exceeds the limit, the regulators may expect firms with a share above 15%, measured over four rolling quarters, to cut it gradually. Interim waivers and individual guidance lapse on 28 October without any action by firms. The rules cover PRA-authorised lenders and FCA-authorised lenders outside PRA-authorised groups.
Lenders above the de minimis threshold need to monitor the published figure and be able to reduce their own flow. Lenders that change their risk management in order to lend above 15% are expected to discuss those changes with supervisors.
Read more on PS19/26: High loan to income lending
Read more on SS2/26: High loan to income lending
Read more on FG26/11: FCA guidance on high loan to income lending
The FCA has opened a consultation, CP26/35, on minimum redemption terms for retail funds with at least 50% of their value invested in inherently illiquid assets, such as property and infrastructure. The proposals cover non-UCITS retail schemes that offer regular liquidity, mainly direct property funds and some funds of funds. The FCA wants fund terms to match the time needed to sell the assets, which it expects to make suspensions less likely.
The FCA proposes to:
Existing funds would have two years to comply, and managers would give investors at least one year of notice. Managers, platforms and advisers can respond until 11 December 2026, and the FCA expects to publish final rules in the first half of 2027.
Read more on CP26/35: Fair redemption terms for authorised funds investing in illiquid assets
The FCA has published findings from a survey of 411 corporate finance firms on their compliance resources, with 382 responses. Most firms were small, with 64% employing nine or fewer people, and 47% carry out all the compliance activities surveyed.
Of the respondents, 63% have a compliance function with other business duties, which can create conflicts of interest, and 90% use third-party compliance support, although responsibility stays with the senior manager. The gaps lie in practices that support a compliance culture: 90 firms reported no arrangements for whistleblowers to disclose concerns, 82 had no breach register and 74 did not monitor complaints handling.
The FCA stresses the need for credible challenge at the 32 firms that act as nominated advisers, corporate advisers or brokers, or listing sponsors. The FCA will engage further with selected firms and expects all firms to review their own arrangements. It sets out five questions to test them, including whether compliance has enough authority to challenge the business and whether staff can speak up safely.
Read more on strong compliance functions in corporate finance markets
CMORG completed its two-yearly simulation exercise, SIMEX26, on 8 October 2026, using a worldwide outage of cloud services as the scenario. The Bank of England and UK Finance chair the group, with HM Treasury and the FCA taking part. The Economic Secretary to the Treasury opened the exercise at a venue hosted by the London Stock Exchange Group. Thirty-eight banks and market infrastructure operators took part, among the largest and most systemically important in the sector.
The exercise included a live meeting of the Cross Market Business Continuity Group, which steers how the sector responds together to systemic incidents. The scenario did not draw on specific threat information. Previous scenarios have included a cyber-attack on a major bank and a failure of infrastructure outside the sector. The exercise builds on recent work through CMORG on third-party resilience, secure innovation with artificial intelligence and cyber recovery.
The Bank of England expects firms to act on the exercise and strengthen how they respond to severe operational and cyber events.
Read more on the CMORG sector-wide cloud outage simulation exercise
The FCA has published a multi-firm review of governance at benchmark administrators. It is the last part of supervisory work that began with the FCA’s 2024 portfolio letter. The review assessed five areas: board capability, board challenge and decisions, delegation and escalation, board information, and governance assurance.
Firms generally had established governance frameworks. In some cases, board records omitted the reasoning behind decisions and the actions agreed. Some firms had less developed information sharing and escalation between the UK regulated entity and the wider group, and board reports made it hard to pick out matters needing a decision. Where one person holds several roles, the FCA points to capacity, conflicts and key-person dependency. Boards worked best where challenge led to a clear decision and follow-through.
The FCA suggests asking whether board reports helped directors spot a change, question an assumption, take a decision or follow an agreed outcome. It will use the findings in its supervision of administrators and encourages administrators to engage with the Government review of the UK Benchmarks Regulation.
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