Financial Services: How will the UK regulate for the future?

On 29 April 2021, the Financial Services Act 2021 (the “FSA 2021”) received Royal Assent. The main purpose of the FSA 2021 is to set forth a regulatory framework for financial services in the United Kingdom (“UK”) fit for today’s world. Following the wave of changes initiated by the FSA 2021 following the UK’s departure from the European Union (“EU”) regulatory umbrella and the EU Single Market, HM Treasury and major actors in the financial services sector such as the Financial Conduct Authority (the “FCA”) and Bank of England, entered into a process of changes and took steps to improve the regulatory framework of financial services in the UK and tackle the issues faced by the financial sector. On 14 July 2022, the Chief Executive of the FCA delivered a speech on the UK’s approach to the future of financial services and how the financial sector will be shaped post-Brexit.


Consultations and discussions of the HM Treasury, FCA and Bank of England are focused on certain common points such as regulation of crypto-assets, the importance of the ESG strategy and sustainable growth in financial markets, digitalisation in the financial sector, diversity and inclusion, consumer duty, and mitigation of the impacts of the post-COVID era on Small and Medium-sized enterprises (“SMEs”). Furthermore, the UK is working to enhance its competitiveness with respect to its regulatory framework on financial services while the (“EU”) is adjusting its rules in response to the UK’s departure.


Regulation of crypto-assets has been one of the main focuses of the new financial services approach adopted by the UK as it is an easily accessible global product which becomes more popular every day. HM Treasury expressed its aim to turn the UK into a “global hub” in crypto investments and subsequently introduced certain measures and innovations regarding crypto-assets and stablecoins (a new type of cryptocurrency similar to bitcoin but with a more stable value).

As a response to the concerns raised by the use of crypto-assets regarding consumer protection, data privacy and financial crime, the FCA applies anti-money laundering regulations strictly to the firms which carry out crypto-asset-related activities including registration requirements for such firms to be able to continue their business. It also provides guidance to firms with customers which are exposed to transactions related to crypto-assets (or which offer crypto-assets) for assessment of the risks arising from the crypto-asset-related transactions of such customers through implementation of the criteria which are applied to other sources of wealth, and introduces requirements for firms to comply with the FCA’s Principles for Business and ensure that they have the relevant systems and controls in place in order to tackle financial crime. The FCA has published a detailed Notice addressed to the FCA-regulated firms with exposure to crypto-assets to further inform them about their obligations with respect to their crypto-asset transactions.

ESG strategy and sustainable growth

The UK Government intends to incorporate climate change objectives and its net zero economy target for 2050 into its regulatory regime on financial services to facilitate sustainable growth and increase its international competitiveness in this area. The FCA also sets out targets and adopts certain measures to achieve the net zero target through its ESG Strategy and ESG Integration in Capital Markets approach and it is working in cooperation with the HM Treasury to extend its contribution to enhancing transparency and governance in the financial sector. Additionally, the FCA has also been working on the Sustainability Disclosure Requirements (“SDR”) which aim to set out a framework on the reporting requirements to be applied to the real economy companies including listed issuers, asset managers and owners with respect to their sustainability risks, opportunities and impacts. The FCA has recently announced that it has delayed the release of the first draft of the SDR, which was originally due in the second quarter of 2022, to autumn 2022.

Similarly, the Bank of England expressly supports a carbon-neutral economy, encourages the implementation of the disclosure requirements of the Task Force on Climate-Related Financial Disclosures and enhances its climate risk management measures. Accordingly, the prospects in the financial sector indicate that the UK is taking the lead in ESG regulation and incorporation of environmental targets into its financial services regulation.


The FCA is currently in an improvement process regarding its data and tech platforms and cloud use for data storage. These changes aim to adapt to the needs of the digitalised world, maintain a more developed decision-making and risk mitigation mechanism, and adopt a more data-driven supervisory approach. Digitalisation efforts and the data-driven supervision measures adopted by the FCA also aim to match the innovations set forth through the FSA 2021 and the recommendations set out under the Strategic Review of UK Fintech (also known as the “Kalifa Review”) published on 26 February 2021. The FCA has been working on “open finance”, the extension of open banking-like data sharing to a wider range of financial products, which is in line with the development of common data standards and Digital Identity (ID) set forth by the Kalifa Review. Further, the FCA has established the Regulatory Sandbox which allows firms to test innovative propositions in the market with real consumers in response to the Kalifa Review which foresees the establishment of a “Scalebox” to support the growth of innovative firms.

diversity and inclusion 

Lack of diversity and inclusion is deemed a significant issue and therefore prioritised and implemented by the FCA in its policymaking with respect to financial services. The FCA has introduced certain mechanisms to achieve transparency and to tackle inequality and lack of diversity at the company management level. Accordingly, in April 2022, the FCA published new rules which require listed companies to introduce and fulfil certain diversity and gender equality targets on a comply-or-explain basis and set out its own targets for 2025 to maintain a gender-balanced Senior Leadership Team which it is currently working towards.

For more information on diversity and inclusion, and the new rules published by the FCA, please see our earlier article on this: FCA policy statement on diversity and inclusion on company boards.

consumer duty 

Along with the improvements and innovations introduced with respect to financial services, the FCA also aims to set the standards for the provision of consumer services through its New Consumer Duty to protect consumers in the retail finance market. Accordingly, the FCA require companies to make relevant changes in their policies and to adjust their products and services to offer fair value and ensure that consumers make well-informed decisions.

The relevant rules foreseen under the New Consumer Duty will enter into force on 31 July 2023 for new and existing products or services that are open to sale or renewal, and on 31 July 2024 for closed products or services.

next steps

The FCA will continue to work to improve the UK financial services regulation and financial sector, making it more effective, through the implementation of the FSA 2021, supporting innovation and adopting new measures to achieve the regulatory and supervisory targets in the aftermath of UK’s departure from the EU.

In the meantime, firms in the financial services sector will be required to show constant effort to stay in compliance with the innovations under the UK’s new financial services regime while ensuring that they are always alert from a risk management perspective.

To review the full speech delivered by Nikhil Rathi, the Chief Executive of the FCA please click here.

For more information on the future of UK financial services regulation and any guidance or advice, Cleveland & Co External in-house counsel™, your specialist outsourced legal team, are here to help.


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