Your guide to this week in regulation

The Financial Conduct Authority (FCA) has described its AI engagement approach, confirming again that no new AI-specific rules are planned. Key existing frameworks will apply, and good and poor practice guidance will follow later this year. 

Meanwhile, the FCA's latest consultation on mortgage lending rules proposes giving lenders more flexibility to serve first-time buyers, older borrowers and the self-employed. The FCA acknowledges the trade-offs, yet concludes the cost of excluding creditworthy borrowers is ultimately the greater risk.

Elsewhere, the FCA proposes simpler climate-related disclosure rules for investment products, with estimated annual savings of around £20m for firms; a further signal that reducing the regulatory burden is now a live priority.

Our fourth item covers Money Market Fund reform, where the FCA signals it will hold fire on rule changes until government legislation is in place. 

Finally, the FCA warns about misleading car finance claims adverts on social media in a reminder that the redress scheme continues to generate conduct risk in adjacent markets, and that the FCA's scrutiny of financial promotions remains sharp.

FCA sets out AI engagement approach

The FCA has confirmed it will not introduce new AI-specific regulation. Instead, it will apply existing frameworks, including the Consumer Duty and the Senior Managers and Certification Regime (SM&CR), to firms' use of AI. The regulator has set out how it is engaging directly with firms to understand how AI is being used and governed in practice.

The FCA is focused on four areas:

• how firms oversee and govern AI systems
• how they test models and monitor outcomes
• how they ensure fair treatment for customers, including those with characteristics of vulnerability, and
• how they explain AI-driven decisions to customers and regulators.

The FCA will publish good and poor practice guidance later in 2026.

Read more on the FCA's AI engagement approach

FCA consults on mortgage access rules

The FCA has launched consultation paper CP26/18, proposing changes to mortgage lending rules to widen access for first-time buyers, older borrowers and the self-employed. The proposals give lenders more flexibility to assess affordability based on a borrower's full current position, including variable income, minor past credit issues and age. They also extend the scope for interest-only lending where suitable and make it easier for older homeowners to access equity in their homes.

The FCA acknowledges the trade-offs. Wider access carries additional risk, but it argues the cost of excluding creditworthy borrowers is higher. Core affordability requirements remain in place. Arrears are at historically low levels, and 99% of mortgages taken out since 2014 are on track.

Lenders and brokers should read CP26/18 and respond to this consultation by 28 July 2026. 

Read more on opening the door to mortgages 

Read more on the FCA's mortgage access proposals 

Read more on CP26/18: Mortgage rule review

Simpler climate reporting for investment firms

The FCA has proposed simpler climate-related disclosure rules for investment products, estimating annual savings of around £20m for firms. The proposals aim to reduce the reporting burden under the existing Sustainability Disclosure Requirements framework, in line with the government's broader drive to cut regulatory costs and support UK competitiveness.

The FCA is consulting on changes that would streamline what firms must disclose about the climate impact of investment products, while maintaining meaningful information for consumers.

Investment firms and asset managers should review the consultation, assess the impact on their current disclosure processes and respond by the relevant deadline.

Read more on simpler climate reporting rules

Money Market Fund reform update

The FCA has set out its next steps for reforming the UK Money Market Fund (MMF) regime, following government plans to repeal and replace the existing UK Money Market Funds Regulation through new legislation. The FCA will issue new rules and guidance once the legislative framework is in place, and has confirmed it will not make changes to existing rules in the interim.

The reform follows concerns raised after the 2022 liability-driven investment crisis about the resilience of MMFs under stress. The new regime aims to strengthen that resilience while keeping MMFs a viable cash management tool for institutional investors.

MMF managers and their legal and compliance teams should monitor the government's legislative timetable and begin planning for rule changes. The FCA will consult on its new rules once the legislation passes.

Read more on reforms to UK Money Market Fund Regulation

FCA warns on car finance claims ads

The FCA has warned consumers to be wary of misleading car finance "money tips" adverts placed by claims management companies (CMCs) and law firms on social media. The adverts, which promote services linked to the motor finance redress scheme, may overstate the likelihood of compensation or obscure the fees firms charge.

The FCA stresses that consumers do not need to use a CMC to make a claim under the motor finance scheme and that doing so reduces any compensation received. The regulator has already taken action against a number of firms running non-compliant promotions.

Consumers should check the FCA register before engaging any claims firm. CMCs and law firms running car finance promotions should urgently review their financial promotion compliance against FCA rules and, where needed, withdraw or amend adverts.

Read more on misleading car finance claims adverts