The Financial Services and Markets Bill 2026–27: key reforms

On 19 May 2026, the Financial Services and Markets Bill (the FSM Bill) was introduced in the House of Lords and published alongside its Explanatory Notes. The Bill represents a significant package of reforms intended to modernise financial services regulation, support growth and business lending, and update consumer protections for the digital age, while maintaining high standards of regulatory oversight.

The reforms address several longstanding areas of concern across the sector: modernising consumer protection and redress (including fundamental reform of the Financial Ombudsman Service (FOS)), consolidating the regulatory framework (including bringing payments regulation within the FCA), and reducing administrative burden on firms, notably through streamlining elements of the Senior Managers and Certification Regime (SM&CR), without compromising core protections. In parallel, the Bill seeks to strengthen the UK's financial crime framework by modernising AML/CTF supervision to improve consistency and effectiveness.

This is largely an enabling Bill, much of the substance will follow through FCA and PRA rulemaking and secondary legislation, meaning firms should treat it as the starting gun for a sustained period of regulatory change rather than a single compliance event. The Bill has been introduced in the House of Lords, but the timetable for its progress remains uncertain, as a date for the second reading has yet to be set. Although the precise timing for the Bill's finalisation is unclear, there is optimism that, given the momentum behind the reform agenda, it will move through Parliament relatively quickly. Following its passage through the Lords, the Bill will proceed to the House of Commons and, subject to available parliamentary time, could receive Royal Assent before the end of the year. While a small number of provisions are expected to take effect immediately, the majority will only be implemented on dates to be determined by HM Treasury (HMT) through secondary legislation. Below, we outline the key reforms and their practical implications.

1. Reforms to the Senior Managers and Certification Regime (SM&CR)

The Bill amends the statutory framework underpinning the SM&CR to make it more proportionate and flexible, shifting more technical detail to FCA/PRA rulebooks while preserving the core principle of individual accountability. The reforms respond to industry concerns about administrative burden, particularly around the Certification Regime and statements of responsibilities, and seek to give regulators greater agility to calibrate the regime to different firm types without the need for primary legislation. See our latest SMCR+ View here.

Senior Managers Regime:

• The FCA/PRA will be able to specify in their rules when certain senior management appointments may proceed by notification rather than requiring prior regulatory approval, with pre-approval remaining the default in other cases.

• Statutory requirements for "statements of responsibilities" (including the obligation to update them following significant changes) are repealed, with regulators empowered to decide in rules when statements are required and what form they should take.

• A streamlined process is introduced for firm-requested conditional or time-limited approvals, removing the requirement for warning/decision notices and tribunal referral steps where the regulator grants only what the firm requested, but preserving full procedural protections where the regulator refuses or imposes different conditions.

Certification Regime:

• The statutory Certification Regime, including the prescriptive obligation for annual certification, is repealed. Staff assessment requirements will instead be set by regulators through their rulebooks, while regulators retain the ability to require fit and proper standards.

Conduct Rules:

• Firm-facing statutory obligations relating to Conduct Rules (such as how firms train staff on conduct requirements and when breaches must be notified to regulators) are removed from FSMA, with these matters to be addressed through FCA/PRA rules instead.

• Regulators' power to make conduct rules is extended to individuals who are themselves authorised persons (i.e. sole traders), closing a gap in coverage and enabling consistent conduct standards across all authorised persons.

2. Financial Ombudsman Service (FOS) reforms

The Bill fundamentally reforms the FOS framework to improve predictability, align FOS outcomes more closely with FCA regulatory standards, and reduce the risk of the FOS acting as a 'quasi-regulator'. It also gives the FCA significantly enhanced tools to manage mass redress events more quickly and consistently. See our Consumer Duty View here on the FCA's March 2026 consultation on reforming the FOS. The key reforms include:

• Recalibrated 'fair and reasonable' test: Where FCA rules applied and a firm complied with them, the FOS must find the firm acted fairly and reasonably. The FOS may only determine a complaint in the complainant's favour where there was non-compliance with an applicable FCA rule, or, where no rule applied, the firm's conduct was not fair and reasonable in all the circumstances.

• FCA referral mechanism: The FOS must refer ambiguous FCA rules to the FCA for an opinion and must notify the FCA of complaints raising issues with wider implications. The FCA may direct the FOS not to determine a complaint until the regulatory position is clarified.

• Governance: A single "Financial Ombudsman" replaces the current panel-of-ombudsmen model, with ultimate authority for determinations and power to delegate to authorised staff. The FOS Chair appointment moves from the FCA to HMT.

• 10-year longstop: A statutory 10-year time limit is introduced for FOS compulsory jurisdiction complaints (from the date of the act or omission), with the FCA empowered to define exceptions. Court access remains subject to ordinary limitation rules.

• Mass redress powers: The FCA gains the power to direct the pausing of complaints, at both firms and the FOS, without prior consultation, to prevent cases progressing ahead of a regulatory response. Where a consumer redress scheme is in place, the FOS must redirect unresolved in-scope complaints back to firms to be dealt with under the scheme.

• Thematic reporting: The FOS and the FCA must jointly publish regular thematic reports explaining the approach taken to complaint types and how FCA standards are applied.

3. Consumer Credit Act reform

The Bill delivers the 'next phase' of Consumer Credit Act 1974 (CCA) reform, repealing many remaining CCA provisions and enabling the FCA to recast appropriate requirements into FCA rules. Rather than replicating existing CCA provisions verbatim, the FCA will design outcomes-based rules within its FSMA powers, reflecting the Consumer Duty and existing regulatory requirements. Repeals will only be commenced once the relevant FCA rules are in place, with an expected transition period and Treasury power to make transitional secondary legislation to ensure an orderly changeover.

• Most CCA statutory information disclosure requirements, and their attached sanctions (including unenforceability and interest disentitlement), are repealed, with future enforcement shifting to the FCA's supervisory and enforcement toolkit and FOS redress.

• A range of CCA 'rights and protections' provisions are repealed (including cancellation/withdrawal rights, early settlement/rebates and termination rights) where protections can be delivered through FCA rules.

• Certain CCA provisions are retained in legislation where they are considered too complex to recast or are more appropriately dealt with in statute, including the core definitional framework, linked transactions, protected goods, pawnbroking, land mortgages, judicial controls (including time orders), enforcement provisions and selected criminal offences.

• Complex provisions, including section 56 (antecedent negotiations), sections 75/75A (connected lender liability), and sections 140A-140C (unfair relationships), are left unchanged in legislation for now, with potential future reform following further policy work.

4. Appointed representatives (AR) reform

The Bill addresses longstanding gaps in the AR legislative framework to better prevent misconduct and provide more consistent customer protection, including rationalising conduct and fit-and-proper requirements by bringing ARs within SM&CR in a proportionate way, while preserving the current scope of regulated activities that ARs can carry on. The reforms respond to persistent regulatory and consumer concerns about the AR model, giving the FCA stronger leverage over both principals and ARs themselves. See our article on the FCA's recent review on managing inactive ARs here.

New FCA permission gateway for principals:

• A new regulatory gateway requires authorised firms to obtain FCA permission before acting as a principal for ARs. The FCA can vary or withdraw permission to limit or stop AR activity that poses material consumer risk.

• To avoid disruption, HMT may allow the FCA to grant permission to existing principals during a transitional period without requiring full applications.

Simplification of the AR exemption and register requirements:

• Section 39 FSMA is simplified by removing the requirement for AR contracts to comply with requirements set in regulations and by moving detailed Financial Services Register requirements for ARs out of legislation and into FCA rules.

• Obsolete tied agent provisions (section 39A FSMA, relating to tied agents operating outside the UK) are repealed as no longer necessary following EU exit.

Extension of FOS jurisdiction to ARs:

• The FOS compulsory jurisdiction is extended to ARs. Complaints will generally be handled against the principal where the principal is responsible, but the Ombudsman may determine a complaint directly against the AR where satisfied the principal cannot be held responsible.

• Scheme rules will ensure ARs are given an appropriate opportunity to participate in proceedings where responsibility for the act or omission is disputed between the principal and the AR.

Bringing ARs within SM&CR:

• The FCA may apply SM&CR general conduct rules directly to ARs and create a dedicated AR Senior Management Function in principal firms, so that a named senior individual is accountable for AR oversight. The FCA will also be able to apply fit-and-proper requirements to individuals within ARs through its rules

5. Payments regulation: PSR abolished

The Bill abolishes the Payment Systems Regulator (PSR) and transfers its functions to the FCA, consolidating payment systems regulation within a single regulator while aiming to keep the substance and scope of PSR functions generally equivalent.

• The FCA will receive new payment systems objectives (competition, innovation, service-user interests) and powers broadly equivalent to PSR powers, including rulemaking and directions for participants, the ability to regulate fees and charges (including maximum fees), access directions, agreement-variation powers and disposal-of-interest powers.

• HMT retains a designation regime to bring significant payment systems into FCA regulation as "regulated payment systems."

• Appeals for FCA payment systems decisions are streamlined to judicial review, rather than multiple routes including the Competition Appeal Tribunal.

• Confirmation (following the recent challenge brought by Mastercard and others, familiar to readers of Payments View) that the regulator has the ability to regulate fees and charges, including by providing for a maximum fee or charge, with the addition of an express provision to this effect.

• A renaming of the old Payment Service Providers (in the PSR context) to now refer to Payment System Service Providers (in the FCA context) and being "any person who provides services for the purpose of enabling the transfer of funds using the payment system" due to the former obviously already having a clear definition.  The new definition also drops the previous qualification of "to persons who are not participants in the system." This is a potentially substantive widening of the category; under the existing definition, a person providing services only to other participants (rather than to end-users/non-participants) was arguably not a "payment service provider." The new definition appears to capture services provided to anyone.

Two future-looking points that stood out to us are also that:

• By incorporating the supervision of payment systems within the FCA's remit, the FCA's 'international competitiveness and growth' objective now applies to payment systems for the first time. The PSR did not have this objective imposed on them when it came into force for the FCA, rather the PSR's growth-related duty was a regulatory principle to have regard to sustainable UK economic growth. This will be interesting to see applied in the context of both the wider, new FSMB requirements on annual reporting, as well as the significant discussions in Europe on ensuring the robustness and competitiveness of European payment systems which we continue to cover in Payments View.

• The statutory duty on the PSR to impose the APP scam reimbursement requirement has now been repealed and not re-imposed on / transferred to the FCA. While this is framed more as the objective having been "achieved" and does not mean that the regime imposed in 2024 will suddenly disappear (the explanatory notes make clear that they are to be retained), there is now no continuing statutory duty on the FCA to maintain or develop APP fraud reimbursement requirements.

6. Ring-fencing: flexibility, not abolition

The Government plans to loosen rules requiring banks to ring-fence retail banking from investment banking operations, with the stated intention of boosting lending.

• The Bill clarifies the PRA's duty to make ring-fencing rules, updates the purposes of ring-fencing by replacing 'insolvency' with broader 'failure', removes a statutory limb about dependence on group resources, and removes the fixed list of topics ring-fencing rules must cover.

• Certain detailed provisions currently set in secondary legislation can be moved into PRA rules if HMT enables this by order, improving flexibility while preserving Parliamentary oversight.

• The Bill does not itself change firms' operational or compliance requirements on commencement; existing requirements continue unless and until amended via secondary legislation or PRA rules following consultation.

7. Faster authorisations and provisional licences

The Bill introduces two complementary measures aimed at improving access to the UK's regulatory perimeter: shorter statutory deadlines for existing application processes and a new provisional licences pathway enabling eligible early-stage firms to conduct limited regulated activities under close FCA supervision for a defined, time-limited period.

• The Bill reduces statutory deadlines for complete new firm applications and variations of permission from six months to four months, and for senior manager applications from three months to two months.

• A new provisional licences route is introduced via temporary permissions, enabling eligible early-stage firms to conduct limited regulated activities under close supervision for up to two years, before transitioning to full authorisation or winding down.

8. Other measures of note

• AML supervision consolidation: The Bill supports a shift so the FCA takes on AML/CTF supervision of legal service providers, accountancy service providers and trust or company service providers, addressing longstanding concerns about fragmentation across multiple supervisory bodies.

• Regulator accountability: Both the FCA and PRA must publish long-term strategies at least every five years and report annually on implementation, including standalone reporting on how they have advanced their competitiveness and growth objective.

• Overseas Recognition Regimes: HMT gains a new framework power to establish Overseas Recognition Regimes across any area of financial services activity, including new areas such as ESG ratings and digital assets, enabling recognition of overseas jurisdictions where their regimes deliver materially similar outcomes.

Practical implications

The FSM Bill establishes the statutory scaffolding; the detail will emerge through FCA and PRA rulemaking consultations. Firms should be doing the following now:

• SM&CR readiness: Identify your current certification population, annual assessment processes and training programmes. These will need to be redesigned as the regime shifts from statutory prescription to regulator-set rules. Internal governance frameworks should be adapted to track FCA/PRA rulebook developments closely.

• Complaints and redress strategy: The FOS reforms place a premium on demonstrable compliance with FCA Handbook requirements. Firms should review record retention policies (particularly for legacy issues approaching the 10-year longstop), recalibrate redress provisioning and develop operational playbooks for FCA-led mass-complaint interventions.

• Consumer credit transition planning: Firms with CCA-regulated products should conduct a gap analysis now - mapping which statutory requirements they rely on, which are being repealed and when FCA replacement rules are expected. Legacy portfolio documentation may need redesigning.

• AR governance uplift: Principal firms should assess whether their current AR onboarding, monitoring and oversight evidence will withstand scrutiny under the new permissioned gateway. Contractual allocation of responsibility between principal and AR should be revisited.

• Payments: single-regulator transition: Payment system participants and PSPs should prepare for a single FCA interface, engage with FCA policy development on payment systems, and review contractual frameworks around pricing and access.

• Regulatory engagement: Given the enabling nature of the Bill, firms that engage proactively in FCA and PRA consultations will be best placed to influence - and prepare for - the final requirements. Building early relationships with policy teams on priority areas is advisable.