This week, the Financial Conduct Authority’s (FCA) simplification agenda continues. In our leading item, and following his permanent appointment, the Director of Retail Banking sets out the agenda for mortgage reform. This will entail a fine balancing act to address long-standing societal challenges in the housing market, while maintaining strong consumer protection. Meanwhile, in our second item, the Prudential Regulation Authority (PRA) paves a similar path, stripping back a feature of its supervisory statements for building societies.
Moving onto asset managers, our third item underlines the expectation for smaller firms to adopt proportionate approaches to risk management and governance.
We round of this week with recent developments in payments, including a wide-ranging speech covering the digitalisation of the financial system, including digital money and digital assets.
Emad Aladhal, the FCA’s Director of Retail Banking, recently gave a speech at the Building Societies Association Annual Conference, in which he discussed the regulator’s five-year strategy and its implications for mortgage reform. During the speech he outlines that achieving home ownership is increasingly challenging for many people, risking long term financial resilience. For first-time buyers, he highlights that they in particular are much less likely to secure a mortgage, despite data suggesting that they present no additional risk or underperformance compared to any other borrower.
To combat this, Aladhal unveils a consultation paper on proposals to simplify mortgage rules and increase flexibility. The proposals seek to make it easier for first-time borrowers to engage with mortgage providers. With data suggesting 15% opt for 40-year mortgages due to affordability issues, proposals also include reducing the need for full affordability assessments when reducing their mortgage terms further down the line.
For existing mortgage customers, proposals aim to make it easier, faster, and cheaper to engage with mortgage providers and remortgage with new lenders. It's hoped, Aladhal outlines, that this would give consumers more options, while allowing lenders greater scope for innovation and delivering good outcomes. He highlights that the regulator will launch a discussion paper on the proposals in June 2025, with the FCA welcoming comments on the consultation paper until then.
The PRA is proposing to discontinue its Supervisory Statement 20/15 (SS20/15), which oversees building societies’ treasury and lending activities.
First introduced in 2015, the statement sets out the PRA’s approach to supervising financial risks and firms’ regulatory compliance. It outlines key financial risks faced by building societies and a range of risk management approaches, while placing limits on building societies that don't adequately manage their risks.
Following a recent review, the regulator has concluded that the expectations of the statement no longer align with its broader policy approach and present a potential level-playing field issue between building societies and banks. In particular, it concluded that building societies have become more sophisticated in risk management in recent years, sparking new hope that withdrawing the statement will help building societies to compete and grow without imposing additional costs.
The consultation on potentially discontinuing the statement is open to responses until August 2025, with the PRA inviting feedback from stakeholders.
The FCA has recently published its findings on the business models of smaller asset managers and alternatives. This review highlights both good and poor practices within the industry, aiming to guide firms towards better compliance and improved customer outcomes.
The FCA's analysis reveals that while some firms demonstrate robust governance and effective risk management, others fall short in areas such as transparency and customer communication. The report underscores the importance of clear, fair, and not misleading information, urging firms to enhance their disclosure practices.
Moreover, the FCA emphasises the need for smaller firms to adopt proportionate approaches to risk management and governance, tailored to their specific business models. By doing so, these firms can better protect their clients and ensure sustainable growth.
The FCA's findings serve as a crucial resource for smaller asset managers, providing actionable insights to foster a more resilient and customer-focused industry. Firms are encouraged to review the full report and implement the recommended practices to enhance their operations and client trust.
Read more on smaller asset managers and alternatives business model review
In her recent speech, Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England, discusses the implications of digitalisation on the financial system. She highlights the importance of interoperability in digital money and assets, arguing that without it, the global financial system risks fragmentation. Emerging digital systems, operating in ‘walled gardens', could lead to inefficiencies and trapped liquidity.
Breeden also stresses the need for harmonised international standards. She draws parallels to the standardisation of railway gauges, suggesting a similar approach for payment infrastructures to encourage innovation while minimising risk in cross-border transactions.
Her speech also covers the Bank of England’s work on Central Bank Digital Currency and stablecoin regulation, emphasising the concept of ‘singleness of money’: ensuring that all forms of money are interchangeable and always maintain a one-to-one value. Breeden calls for collaboration with global regulators to ensure financial stability and suggests using sandboxes to experiment with new technologies and enable integration of digital money and assets into the broader financial system.
The Payment Systems Regulator (PSR) has issued a policy statement to revoke Specific Direction 3 (SD3) and consult on revoking Specific Direction 2 (SD2). SD3, which mandated competitive procurement for faster payments infrastructure by 1 July 2026, is being revoked due to significant changes in the new payments architecture (NPA) programme. This decision provides the necessary flexibility for the national payments vision (NPV) to progress without legal constraints.
The PSR will continue to monitor Pay.UK and the broader payments sector to ensure competition and innovation are upheld. Additionally, the PSR is considering revoking SD2, which concerns BACS infrastructure, and invites feedback on this proposal by 5 June 2025.
This move aligns with the PSR's commitment to a more agile and effective regulatory framework for the UK's payment systems.
Read more on PS25/4 decision and consultation
UK Regulatory Handbook 2024
An essential guide to the regulatory landscape for financial services
