UK and European regulators accelerate reforms to boost innovation and strengthen oversight in financial services

On 21 October 2025, HM Treasury released an update charting the UK government’s ongoing efforts to reform the regulatory framework, aiming to foster economic growth and innovation within the financial services sector. This update builds upon the initial action plan published in March 2025, which set out ambitious goals including reducing administrative burdens on businesses by 25% and streamlining regulatory processes.

A notable development is the introduction of a new “Regulator Dashboard,” designed to publicly display performance metrics such as authorisation processing times and key performance indicators for 16 major regulators. Complementing this, a Regulators Council will be established, bringing together the CEOs of these key regulators to enhance accountability and maintain a continuous dialogue between regulatory bodies and government ministers. These steps underscore the government’s commitment to transparency and responsiveness in regulatory oversight.

To further bolster regulatory effectiveness, independent expert performance reviews will assess challenges faced by regulators, helping to remove barriers to economic growth. Additionally, the Department for Business and Trade (DBT) will run targeted policy sprints to identify regulatory obstacles impacting innovative companies and high-potential scale-ups, with a focus on fostering healthy competition and innovation-friendly frameworks.

Recognising the growing significance of artificial intelligence, the Department for Science, Innovation and Technology (DSIT) has proposed the creation of an AI Growth Lab. This initiative aims to bridge the gap between rapid AI innovation and regulatory frameworks, ensuring that emerging technologies can thrive within a robust but flexible regulatory environment.

In a significant regulatory shift, the Financial Conduct Authority (FCA) has been designated as the lead authority for anti-money laundering and counter-terrorist financing supervision across new sectors, including legal and accountancy firms, trust and company service providers, and potentially estate and letting agencies. This centralisation of supervisory responsibility is intended to strengthen economic crime prevention through more cohesive regulation.

On the broader European stage, the European Commission and the three European Supervisory Authorities have unveiled their 2026 work programmes, emphasising interconnected priorities such as digital operational resilience under the Digital Operational Resilience Regulation (DORA). This entails increased supervision of third-party providers critical to financial operations and the deployment of AI-powered supervision tools to enhance market integrity and innovation monitoring.

The European Commission’s 2026 agenda also includes a broad simplification drive, introducing 38 new policy objectives and numerous legislative initiatives aimed at reducing regulatory complexity and securing cost efficiencies. Evaluations of existing legislation, like the Whistleblowing Directive and Shareholder Rights Directive, are planned to ensure regulatory frameworks remain fit for purpose.

Back in the UK, the House of Lords Financial Services Regulation Committee has recently questioned the government’s approach to the FCA and Prudential Regulation Authority’s (PRA) secondary growth objectives. In a letter to Chancellor Rachel Reeves, they highlighted perceived gaps in the government’s response regarding the effectiveness of financial services regulation in promoting broader economic growth. The Committee pointed out limited evidence of how retail investment culture expansion directly translates into productive economic investment and expressed concerns over the impact of bank capital and liquidity requirements on specialist lenders’ growth.

Meanwhile, the FCA has released findings from a review of consolidation within the financial advice and wealth management sector, focusing on risks related to debt structures, group governance, and risk management. Firms are advised to re-examine their structures and procedures in light of these findings to ensure compliance with regulatory expectations and promote market integrity.

Whistleblowing activity remains robust, with the FCA reporting a rise in whistleblowing reports in Q3 2025 compared to previous quarters. Key issues raised include fitness and propriety concerns, organisational culture, compliance failures, and consumer duty breaches. While many reports inform ongoing FCA work, a substantial number led to direct intervention or significant enforcement action.

Supporting innovation and growth, HM Treasury announced the establishment of a Scale-up Unit, jointly led by the FCA and PRA. This unit will provide tailored support to fast-growing financial firms, helping them navigate regulatory complexities and accelerate their expansion. Initially limited to select banks, building societies, and insurers, there are plans to extend this support to other regulated firms, promoting resilient and well-managed growth across the sector.

Further reinforcing UK regulatory adaptation, the FCA is enhancing client categorisation rules in corporate finance firms to ensure robust assessment and certification practices, safeguarding investor protection and regulatory clarity.

Additional government support initiatives include the launch of a concierge service for global financial services firms, aimed at easing their entry and expansion in the UK market through guidance on regulatory and business environments.

Across the Channel, the European Central Bank emphasised in a speech the critical need for banks to embrace digital transformation, manage risks arising from increased reliance on fintech, cloud providers, and big tech platforms, and maintain operational resilience through comprehensive continuity planning.

Industry bodies echo this sentiment; the International Regulatory Strategy Group published a global regulatory coherence dashboard identifying areas where the UK can lead in aligning regulatory standards internationally.

The FCA is concurrently advancing open finance through a partnership for Smart Data Accelerator programmes and initiating TechSprints focused on mortgages and SME finance, aiming to accelerate secure and beneficial data sharing practices in financial services.

Looking ahead, the Bank of England underlined its regulatory focus on emerging risks from innovative financial activities rather than traditional entity-based oversight. It also signalled forthcoming consultations on systemic stablecoin regulation, reflecting the evolving landscape of digital finance.

Lastly, the European Commission has deprioritised certain Level 2 financial services acts, delaying their adoption until after 2027 to concentrate resources on essential regulatory measures and simplify the legislative landscape.

Together, these developments reflect a dynamic period in UK and European financial regulation, balancing the imperative to foster growth and innovation with maintaining stability, integrity, and consumer protection in increasingly complex and digitalised markets.