Money Covered: The Week That Was - 18 July 2025

Welcome to The Week That Was, a round-up of key events in the financial services sector over the last seven days.

The third episode of Season 4 of our podcast, Money Covered – The Month That Was, where the team discusses developments that we expect to see in 2025 in relation to Financial Services and Accountants is now available.

To listen to this and all previous episodes, please click here.

Headline Developments

Update following Mansion House Speech

Rachael Reeves' Mansion House speech provided important elucidation of the Government's approach to financial regulation. The Chancellor followed electoral commitments to focus on growth, underwhelming since the election, with commitments to strip back perceived unnecessary regulation in the financial sector, along with a restatement of her commitment to her fiscal rules. This is supported by a plethora of related policy papers and consultations. We summarise what this means for financial services and adjacent sectors in terms of proposed reforms below

Financial Ombudsman reforms

The Chancellor presented a package of reforms with the intention of stopping the FOS from acting as a 'quasi regulator' and returning it to its original role, being that of a simple, impartial dispute resolution service.  The key proposals were covered in an FCA press release. Key proposals include the following:

• The key change is perhaps to the FOS' 'fair and reasonable' test. This is to be retained but, in circumstances where a firm complied with the FCA's rules, this will mean FOS is required to determine that the firm has acted fairly and reasonably. This may add a greater degree of certainty for financial services firms. However, this ties in with a requirement that the FOS makes references to the FCA for determination where there is uncertainty about the application of FCA rules. In our experience, the FCA tends to take a fairly consumer friendly interpretation.
• A proposal to introduce an 'absolute' limit of 10 years from the conduct complained of to bring complaints to the FOS. This is a welcome proposal, as it has long been a criticism that FOS complaints were not subject to a 'longstop' in the same was as a civil claim.
• It has also been confirmed that the interest rate applicable to some FOS awards will be changed from 8% to Bank of England Base rate +1% - this is another welcome change given that the standard 8% rate could feel punitive. 

Broader FCA changes

The Mansion House Speech also proposed changes for the FCA, with at least some of these appearing to have been prompted by the volume of pending complaints concerning vehicle finance. Highlights include the following:

• Revisions to the mass redress event framework, permitting the FCA to pause the complaint handling process, and avoid consulting before making rules where it considers that a mass redress event is emerging and this would be in the interests of consumers and firms, with subsequent simplification of the test to introduce a s404 scheme.
• Proposed shortening of statutory deadlines for the FCA and PRA to determine authorisation and permission applications by approximately one-third.
• Reforms to the Senior Managers and Certification regime, aiming to reduce overall compliance costs.
• Directing the FCA to review the current performance of the Consumer Duty. There is a focus on wholesale activity (being where firms do not provide services directly to UK customers), with firms raising concerns of a perceived 'one size fits all' approach to the application of the Duty regardless of a firm's role.
• The UK's position as the world's second largest centre for asset management was highlighted. Draft legislation will be published in early 2026 with the intention of 'futureproofing' this sector.

Retail investment changes

• Perhaps the key takeaway here is the long awaited to the change to the regulatory boundary to allow for targeted support. Changes are proposed to the Financial Services and Markets Act allowing for the creation of a new specified activity of providing targeted support, and a carve-out providing that this does not fall within the meaning of 'advising on investments.' This will allow firms to make recommendations to groups of customers with similar characteristics, thus allowing guidance to be provided without the full costs of advice being incurred.
• Expansion of stocks and shares ISAs to permit interests in long-term asset funds to benefit from their favourable tax treatment

Banking and mortgage lending

• Commitment to Basel 3.1 banking credit risk reforms from January 2027
• Raising the total asset threshold for MRel systemic risk requirements from £25bn to £40bn
• Supporting BoE proposals to remove the rigid 15% cap on individual lenders granting mortgages at a loan-to-income ratio above 4.5, subject to aggregate exposure being properly managed
• Review of proposals to permit affordability reviews accounting for rent payment histories

Insurance

• Directing a review of the captive insurance framework, with anticipated reduced capital and reporting requirements and speeding-up of authorisations
• Review of current rules relating to insurance-linked securities, empowering the PRA to permit transformer vehicles to hold assets less than aggregate maximum risk
   
  We are, of course, at an early stage for many of these reforms. Most will go through public consultation prior to legislative implementation and may see revisions prior to their entry into force. We will remain abreast of developments, and as always.
   
  The full collection of policy papers and consultations following the speech can be found on the Government's website, here.
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 Accountants

FCE published Draft 2026 Taxonomy Suite

The Financial Reporting Council (FRC), the UK’s accounting regulator, has announced proposed updates to its digital reporting taxonomy suite to align with recent changes in accounting rules and regulatory requirements.

The taxonomy suite enables companies to prepare legally compliant annual reports in extensible business reporting language or a global framework for digital reporting. The proposed changes will reflect updates to international financial reporting standards (IFRS), including new disclosure requirements under IFRS 7 for financial instruments with cash flows linked to conditions such as environmental, social, and governance (ESG) targets. This includes the need for new taxonomy concepts to describe events that trigger changes in loan terms (e.g., ESG performance affecting interest rates) and to disclose financial gains or losses arising from such features.

Additionally, the FRC proposes changes to the audit report section of annual reports, including adding a concept for “Conclusions relating to going concern” and removing the inconsistently used “statement on respective responsibilities of directors and auditors.” Instead, more specific concepts will be introduced, such as “Opinions on other matters prescribed by the Companies Act 2006.” The FRC will also update its charities taxonomy in line with the new SORP 26 and Charities Taxonomy 2026. The consultation is open for comments until 10 September 2025.

To read the consultation drafts of FRC Taxonomy Suite, please click here.

Auditors 

FRC publishes annual audit firm inspection results

On 15 July 2025, the Financial Reporting Council (FRC) published its Annual Review of Audit Quality. Overall, the FRC says audit quality across the UK’s largest firms has continued to improve with five out of six achieving positive audit quality outcomes on 90% or more of their audits. The regulator has also published individual reports for Tier 1 audit firms BDO, Deloitte, EY, Forvis Mazars, KPMG, and PwC.

However, the FRC warned that there is a risk that the gap between audit quality delivered by Tier 1 firms and other firms in the public interest entities (PIE) market will increase. This is despite significant investments by the largest firms to enhance audit quality. The FRC has stated that many non-Tier 1 firms still struggle to consistently meet adequate standards and maintain robust quality management systems. The FRC has also flagged up developments in technology, ownership structures, and the business environment as presenting both challenges and opportunities for the future of the UK audit landscape.

To read more, please click here.

Pensions

PPF publishes 2024/25 Annual Report

The Pension Protection Fund (PPF) has published its 2024/25 Annual Report, revealing that as of March 2025, the PPF held assets of £31.2bn and £17bn in liabilities with its reserves increasing from £13bn to £14.1bn.

The report also confirms that 45 Fraud Compensation Fund cases were completed, which is more than double when compared with the previous year.

The PPF further reveals a reduction in the PPF levy for 2025/26 to £45m and emphasised its support for the Department for Work and Pensions (DWP) in compensation reform efforts.

To read more, please click here.

IA publishes paper to bolster retirement outcomes for pension savers

On 15 July 2025, the Investment Association (IA) has published its ‘Investing for a Better Retirement’ paper, outlining a series of principles and four key recommendations designed to improve saver engagement with retirement choices and a stronger focus on retirement outcomes. The paper emphasises that effective retirement income delivery should be flexible, inflation protected, tax efficient, future-proof, and provide value-for-money.

The IA makes four key recommendations:

• an enhanced support framework for non-advised DC investors.
• strengthening adviser guidance on retirement income advice to further improve outcomes for savers.
• embedding a value-for-money mindset across the retirement income market; and
• reforming the UK authorised investment fund rules to better enable investment managers to deliver retirement income-oriented products.

To read the Paper, please click here.

Developments for FCA Regulated Entities

Developing AI risks may result in insurance gaps

As a result of the exclusion of cyber risks which is typically seen in professional indemnity insurance policies, firms often choose to purchase specialist cyber-insurance. However, those specialist cyber policies commonly restrict cover to breaches arising from 'malicious' actors. There are, therefore, growing industry concerns as to whether negligence claims arising from advice given to consumers directly by AI chatbots would fall into the gap between professional indemnity policies (which exclude cyber losses) and cyber policies.

As the use of AI continues to grow exponentially, so too does the risk this poses to firms. For this reason, brokers need to understand how, where and why AI is being used by their clients, the risks this may present, and consider whether specific cover is available to address these risks.

If specific cover is – as anticipated - not available for AI related risks, or clients do not wish to purchase that cover, brokers should give detailed advice to their clients of these 'gaps in cover' and explain that it means they will be liable, without recourse to their insurance policies, for such losses.

ESMA to force clarity on regulation crypto products

The European Securities & Markets Authority (ESMA) has warned crypto-asset service providers to ensure they do not mislead customers in the way they deal with a blend of regulated and unregulated crypto products.

Given the crypto asset industry's history, it is perhaps unsurprising that the EU adopted the Markets in Crypto-Assets Regulation (MiCA) in June 2023. However, ESMA now fears that regulated providers may be benefiting, deliberately or otherwise, from a 'halo effect', with customers often believing that they fell within the scope of the protections offered by MiCA when a provider offered both regulated and unregulated products.

Responding to this, it has issued guidance, requiring providers to clearly set out the regulatory status of individual products or services in marketing and at all stages of the sales process; and clearly delineating between regulated and unregulated products, for instance by including them within separate sections on their websites.

You can read ESMA's statement here.

Open finance sprint outcome report published

The FCA held a two day 'Open Finance Sprint' event in March this year with key stakeholders.  

The purpose of the event was to explore and develop sustainable and beneficial use cases in open finance. Four opportunity areas were explored: 

• Financial Wellbeing – Ensuring better financial wellbeing through using credit data and debt management.
• Financial Resilience – Building consumer resilience for better financial choices.
• Financial Growth – Leveraging data for personal finance choices and growth.
• Digital identity verification – Leveraging digital identity for safer authentication and verification. 

Within each opportunity area, the four 'building blocks' identified to promote success for the future of open finance were: 1) data 2) technology 3) stakeholders 4) commercial system. 

The FCA have announced that they will be launching a 'smart data accelerator' to help implement open finance and smart data. An open finance roadmap is set to be published by March 2026. 

To reach the report, click here. 

Regulator to review client categorisation rules 

The Financial Conduct Authority (FCA) have announced their intention to review their client categorisation rules. 

The purpose of the review is to modernise their rules as to how clients are classified (i.e. professional, retail etc.). The hope is that this will drive economic growth by providing more opportunities for investors, reduce regulatory burdens and support market growth, as well as providing appropriate protections.  

This is part of 50 growth initiatives the FCA hope to complete by the end of the year. Commenting on the plans, the chief executive of the FCA has stated: 

"Modernising the client classification regime will provide greater clarity about the rules and protections applying to different customer groups, particularly for wholesale firms. We want to rebalance risk to support growth and competitiveness, which is at the heart of our strategy. We are delivering a large number of reforms to support a bolder risk appetite, making it easier for companies to raise capital and reimagining financial advice and guidance to boost investment". 

To read the announcement in full, click here. 

With thanks to this week's contributors: Shauna Giddens, Daniel Parkin, Rebekah Bayliss, Haiying Li, Damien O'Malley, Nitin Mathias, Faheem Pervez and Joe Towse