This week, the Financial Conduct Authority’s (FCA) work continues in stripping back regulations inherited from the EU and replacing them with rules tailored to UK needs. Our leading item outlines the FCA’s approach to changing the regulatory framework for alternative investment fund managers (AIFMs). Underlying this is the wider reform agenda to support economic growth, with the FCA committing £9 million to the challenging task ahead.
Growth and confidence go hand in hand. And so our second item highlights the recent proposals to increase (or rather, maintain in real terms) Financial Services Compensation Scheme (FSCS) depositor protection in the face of inflationary pressures since the limits were last changed back in 2017.
Elsewhere this week, we pick up a mixed bag of recent developments in mortgage-lending, sustainability, and derivatives trading.
The FCA is proposing reforms to its rules for alternative asset managers to help firms enter the market, grow, and innovate more easily. The new framework will be more streamlined and proportionate, allowing firms to operate more efficiently both in the UK and globally, while maintaining strong risk management and consumer protection. This move is part of the FCA’s broader effort to boost competition, support economic growth, and enhance the global competitiveness of the UK’s financial sector.
Asset managers are central to the UK economy, overseeing £12.3 trillion in mainstream assets, and £2 trillion in alternative assets. Private markets have seen rapid expansion, tripling in size over the last decade. Much of the current regulation comes from EU law, particularly the Alternative Investment Fund Managers Directive (AIFMD), which the UK Government plans to replace. The FCA is considering replacing these rules with its own, better-suited to UK markets.
The FCA is also exploring bespoke rules for investment trusts and venture capital firms, recognising their unique needs. Feedback on the proposals is open until 9 June 2025, with detailed consultation planned for 2026. These reforms are among 50 actions the FCA is taking to support long-term UK economic growth.
Read more on the reforms to the rules for investment managers
Read more on the call for input: future regulation of alternative fund managers
The Prudential regulation Authority (PRA) has issued a consultation paper proposing changes to the FSCS. The first set of proposals includes increasing the protection limit for depositors from £85,000 to £110,000 and raising the limit for certain temporary high balance claims from £1 million to £1.4 million, effective December 2025. These changes aim to maintain depositor confidence in the face of inflation. Additionally, the PRA seeks updates to disclosure rules and a six-month transition period for firms to adapt.
The second set of proposals relates to the Bank Resolution (capitalisation) Bill, which would allow FSCS funds to recapitalise failing firms, supporting their sale or transfer. The PRA is consulting on the necessary changes to rules governing FSCS operations to enable this new function.
The consultation invites feedback, with deadlines of 30 June 2025 for FSCS protection limits and 30 April 2025 for the Bank Resolution Bill.
The FCA and PRA are jointly consulting on changes to the loan-to-income (LTI) flow limit. The LTI flow-limit requires mortgage lenders to ensure that no more than 15% of their new residential mortgages each year have an LTI ratio of 4.5 or greater. There's currently a de minimis threshold, exempting firms extending fewer than 300 mortgages or mortgages with a total value below £100 million per year from the flow limit.
The FCA and PRA consultation meets a recommendation from the Financial Policy Committee to raise the de minimis threshold to firms writing a total value of mortgages below £150 million per year. Due to UK GDP growth since the threshold was introduced in 2014, the raise is considered necessary to avoid 'inadvertent regulatory tightening' and thus promote the regulators’ objectives on competition, competitiveness and growth. The changes are considered to be sufficiently minor that no cost-benefit analysis is required. The consultation closes on 8 May 2025.
Read more on CP25/6 from the FCA
Read more on CP6/25 from the Bank of England
The FCA recently shared its feedback from firms following the publication of its discussion paper (DP) on finance for positive sustainable change. The DP aimed to encourage an industry-wide dialogue on firms’ sustainability governance, incentives and competences. The feedback provided will help the regulator to consider the direction of its future approach.
Firms have responded to several of the themes outlined in the DP. These include, but weren't limited to:
The FCA isn't currently considering the introduction of new rules on the themes discussed in the DP. However, it will continue to promote the themes through other initiatives both domestically and internationally.
Read more on DP23/1: Finance for positive sustainable change
The FCA recently released policy statement PS25/2, outlining changes to the UK’s derivative trading obligation (DTO) and post-trade risk reduction services (PTRRS). The statement responds to feedback received from Consultation Paper 24/14 on the derivatives trading obligation and post-trade risk reduction services. The proposed changes aim to strengthen market integrity and reduce systemic risks.
The changes outlined in PS25/2 expand the scope of DTO to include a wider range of derivatives, including SOFR Overnight Index Swaps. This aims to increase transparency, mitigate systemic risk, and protect against market abuse. Another change announced by the FCA in the policy statement is that PTRRS allows investment firms to benefit from various exclusions, including exemptions from the DTO, best execution, and the transparency requirements.
Firms should be aware of these changes, as they will come into effect from 30 June 2025.
UK Regulatory Handbook 2024
An essential guide to the regulatory landscape for financial services
