Rebalancing risk to unlock growth: How financial services regulation will shape the economy in 2026

Financial services sit at the heart of the UK government’s modern Industrial Strategy. Designated as one of eight “growth-driving sectors”, it is expected to play a central role in supporting economic growth – yet it faces intensifying global competition from alternative financial centres worldwide.

Against that backdrop, the government has repeatedly stated that boosting the sector’s growth and international competitiveness is a top priority. UK regulators have therefore been asked to review the regulatory framework with a view to “delivering a competitive regulatory environment” – one that better supports innovation, investment and long-term growth.

This shift was formalised in 2023, when the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) were given a new secondary statutory objective to facilitate the international competitiveness and growth of the UK economy. In practice, however, its “secondary” status initially limited its impact. Early communications from regulators lacked urgency, reinforcing the perception that growth remained subordinate to risk containment. To be fair, this is an unfamiliar, and potentially unrealistic, brief for UK regulators. As the House of Lords Financial Services Regulation Committee observed in its June 2025 “Growing Pains” report:, “regulation alone cannot generate economic growth”, and the link between financial services regulation and wider economic outcomes remains poorly evidenced.

The same report nevertheless highlighted a range of regulatory barriers undermining the UK’s attractiveness as a global financial centre. These included a risk-averse regulatory culture, disproportionate compliance burdens, excessive information requests issued by the PRA and FCA, regulatory “mission creep” and ongoing uncertainty around the interaction between FCA rules, the Financial Ombudsman Service and Consumer Duty. As the reform agenda moves into its next phase, progress will depend less on headline objectives and more on execution: smarter, more proportionate and increasingly tech-enabled regulation, alongside clearer policy direction in emerging areas such as crypto-assets. Getting this balance right will be critical if the UK is to maintain its position as a leading global financial hub.

Authors

Polly James

Matthew Baker

Anthony Williams

Read time

8 min read

Published date

27 Jan 2026

Growth takes centre stage

Recent months have seen a marked shift in the FCA’s regulatory priorities. In response to the current government’s agenda, the FCA has now placed growth at the centre of its policy framework, including its 2025-2030 five-year strategy, which sets out four core priorities: supporting growth, fighting crime, helping consumers and becoming a “smarter regulator”.

That repositioning was reinforced in the FCA’s July 2025 report to Parliament on its progress against the secondary statutory objective. Covering the period from July 2024 to June 2025, the report emphasised its commitment to “put growth and competitiveness at the heart of the FCA approach”.

This language represents a stark change from the FCA’s long-standing emphasis on putting consumers at the heart of regulation and of firms’ business models (For example: Improving the consumer experience and Fair treatment of customers). Although consumer protection remains central, the tone of the FCA’s messaging has become more balanced, reflecting a growing recognition that excessive risk aversion can itself carry economic cost.

That recalibration was made explicit by FCA Chairman Ashley Alder in the 2025-2030 strategy. ”Now is the time to look again at our collective attitude to risk,” she said. “Too often, the focus has been on the risks of a decision taken rather than the lost opportunity of taking none. We want to change that. Rebalancing risk can spur growth, which is crucial if finance is to serve the country.”

Taken together, these statements signal a more pragmatic regulatory mindset. The FCA appears increasingly willing to acknowledge the trade-offs between risk, innovation and growth, and to revisit long-standing assumptions about how regulation operates in practice.

Putting policies into practice: how the government and regulators are driving growth

The government’s Financial Services Growth and Competitiveness Strategy has outlined a series of short-term steps for regulators, including:

Processing applications for authorisations and approvals more quickly;
Reforming the consumer redress system;
Improving in the consistency and quality of FCA supervision teams; and
Reviewing the Consumer Duty to provide more certainty on its scope.
Beyond these structural reforms, the strategy emphasises modernising regulation through digitisation, including digital identity frameworks and open banking, and embracing fintech and crypto innovation as engines of growth.

In her Mansion House speech on 15 July 2025, Rachel Reeves also announced an intention to “streamline the Senior Managers and Certification Regime (SMCR)”, aiming to cut the burdens on firms by 50%. On the same day, the FCA, PRA and Treasury published separate consultations seeking industry input on short- and long-term SMCR reforms.

In our practice, we are already seeing significant improvements in the pace and effectiveness of regulatory approvals for firms and individual Senior Management Function holders. While some inconsistencies remain, it is clear the FCA is dedicating significant resources to this area.

However, the proposed SMCR reforms are unlikely to deliver meaningful benefits in 2026. Key legislative changes, such as moving the Certification Regime from legislation into the regulators’ rulebooks, will take time, and short-term costs to firms in terms of resourcing and management effort are expected. International clients continue to tell us that the UK’s approach to individual accountability is a material factor in deciding where to establish operations. Aligning UK standards more closely with global norms could therefore have a significant impact over the longer term.

On the consumer redress front, the FCA and Treasury proposals offer real promise. These include:

Amending the “fair and reasonable” test so FOS decisions align with FCA rules;
Formal FCA consultation on rule interpretation;
Making FOS a subsidiary of the FCA to enhance consistency; and
Introducing a 10-year longstop for complaints.

If implemented, these changes should curb the quasi-regulatory role FOS has assumed over the past 25 years, restoring clarity and predictabilty for firms.

The FCA’s 2025 review also introduced targeted measures, such as clarifying scope for wholesale firms and adjusting insurer-distributor responsibilities, to support this objective. However, the fundamental challenge remains: outcomes-based regulation inherently creates uncertainty compared to prescriptive rules. If this approach continues under the FCA’s 2025–2030 strategy, it may limit progress on the secondary statutory objective, particularly in retail markets.

Looking ahead, the success of these reforms will depend on how well they are integrated with broader modernisation efforts – including digitisation, open banking and crypto regulation – outlined in the Financial Services Growth and Competitiveness Strategy. Together, these initiatives aim to create a tech-enabled regulatory environment that supports innovation while maintaining resilience.

Driving growth in practice: FCA’s December 2025 proposals

Building on the government’s initial action items, on 8 December 2025 the FCA published a “suite of measures to empower retail investment, reinforce wholesale markets and maintain the UK’s position as a world-leading financial centre”. These proposals include:

Overhauling the client categorisation rules (CP 25/26): Aimed at making it easier for firms to service professional clients who do not need retail protections, powering innovation, reducing costs and driving growth.
Encouraging retail investment (DP 25/3): Seeking industry feedback on how better-informed risk-taking could increase participation.
Simplifying product disclosure (PS 25/20): Replacing EU-derived packaged retail investment products (PRIIPs) and Undertakings for Collective Investment in Transferable Securities (UCITS) disclosure requirements with a more flexible UK regime.

Of these, the overhaul of the client categorisation rules and replacement of PRIIPS/UCITs are likely to have the great regulatory impact, by reducing compliance complexity and lowering barriers for firms.

In parallel, the FCA published plans to bring cryptoassets fully within the regulatory perimeter, focusing on custody, market integrity and consumer disclosure. This reinforces the UK’s dual growth agenda: driving innovation while maintaining market integrity and customer protection in digital finance.

Does conduct regulation undermine the growth agenda?

Standing in stark contrast to the broader deregulatory trend is the FCA’s new guidance on non-financial misconduct, published in December 2025.

This guidance codifies a view the FCA has been developing since 2018: poor interpersonal behaviour taking place at work (but not necessarily related to work) is a risk management issue and therefore should carry regulatory consequences for individuals and firms. In adopting this position, the UK is a clear outlier internationally.

It is an open question whether this expansive approach aligns with the FCA’s secondary statutory objective. In the Foreword to PS25/23, the FCA anticipates this tension, stating:

“Tackling non-financial misconduct (NFM) in financial services firms supports all 3 of our operational objectives – as well as supporting growth and international competitiveness by helping to improve the UK financial sector’s reputation, strengthening its access to global talent and increasing market and consumer confidence.”

Some international clients, however, warn that the UK’s expansive approach to conduct regulation could influence decisions on where to base European operations. Whether the FCA’s NFM framework supports or impedes competitiveness will depend on its practical application. If NFM becomes an enforcement priority, protests of over-regulation are likely; if it remains primarily a supervisory focus, the impact may be more muted. Given the FCA’s stated aim to streamline enforcement, our prediction is that supervision will dominate.

This tension illustrates that driving growth through regulation in 2026 will not mean deregulation across the board. Instead, firms should expect a dual track approach: streamlined processes and tech-enabled reforms on one hand, and heightened cultural and conduct expectations on the other. Navigating this dynamic will be a key strategic consideration for global firms operating in the UK.

The role of enforcement in a growth-focused regulatory landscape

Enforcement is a core component of any regulatory framework. But in a world where regulation is expected to drive growth, the PRA and FCA must balance deterrence with predictability and efficiency. Since 2023, the FCA’s Executive Directors of Enforcement and Market Oversight, Therese Chambers and Steve Smart, have committed to moving away from an “enforcement-led” approach, where hundreds of enforcement investigations run concurrently, towards a “data-led” strategy. This involves:

Investing in technology to analyse firm and market data more effectively;
Innovating in data sources to identify emerging risks; and
Focusing on enforcement activity on areas of strategic importance, with fewer, faster investigations.

For example, the FCA’s August 2024 fine of an accountancy firm for failing to report suspected fraud – under a little-known statutory reporting obligation – appears designed to drive higher reporting volumes from auditors across the industry. Similarly, a recent Freedom of Information request revealed that the FCA had closed 100 enforcement investigations without further action since 2023, reflecting a deliberate focus on speed, clarity, and prioritisation.

We anticipate that this strategic approach will increase predictability of enforcement risk for firms. In turn, this is likely to enhance the UK’s reputation for financial services more quickly than wider policy reforms, which take longer to implement in practice. By signalling clearly what is and isn’t acceptable, a data-led, outcome-focused enforcement strategy can support both market integrity and growth.

Rebalancing risk and driving innovation in 2026

Taken together, these developments show that 2026 will be a year of incremental but meaningful change. Firms can expect faster authorisations, clearer redress processes and steps toward tech-enabled regulation. At the same time, cultural and conduct expectations will remain high, and outcomes-based regulation will continue to challenge predictability.

Driving growth through regulation will look less like wholesale deregulation and more like a recalibration: streamlining where possible, tightening where necessary, and rebalancing risk to maintain trust while enabling innovation. Firms that anticipate and navigate this dual track – efficiency on one hand, high conduct standards on the other – will be best positioned to thrive in the UK’s evolving financial services landscape.

Rebalancing risk to unlock growth