Welcome to the UKGI weekly regulation update service for Aviva ABC brokers

Context

In December 2022, the previous Government announced that the Treasury, FCA and the PRA would review the SM&CR.  The FCA published a Discussion Paper (DP23/3) jointly with the PRA in March 2023, and invited views on the regime’s effectiveness, scope and proportionality, and on potential improvements. The Treasury launched a Call for Evidence on the regime at the same time, and a Treasury Consultation has been launched alongside this Consultation.

The FCA has announced that, in a first phase of relatively low-level reforms, the FCA and the PRA propose to streamline the SM&CR to allow some additional flexibility for firms and make the requirements clearer and more efficient.   Further changes the FCA are looking to explore in Phase 2 of the reform are set out at paragraph 1.11 of the Consultation.

Key points to note and next actions

In this first phase of reforms the FCA is proposing to:

• Amend the 12-week rule, (which allows someone to cover for a Senior Manager without being approved) so that firms that use it would have 12 weeks to submit an application for an SMF, rather than 12 weeks to get a decision on an application. Once an application has been submitted, the person performing the role under the 12-week rule could continue to perform it until the application is determined by the FCA.  In addition, firms would also not need to submit updated Statements of Responsibilities (SoRs) to the FCA until the absence has reached 12 weeks.
• Streamline the SMF approval process, including planning potential changes to processes and communications (particularly in relation to foreign candidates considering performing SMF roles).
• Increase the validity period of criminal record checks for new SMF applications from three months to six months, and remove the requirement for firms to undertake criminal records checks where an existing SMF holder is applying for an SMF in the same firm or group.
• Allow more time to report updates to Statements of Responsibilities (SoRs), requiring firms to keep SoRs up to date at all times at the firm, but not needing to submit them to the FCA each time they make a change. Instead, the FCA would allow submission of changed SoRs on a periodic basis and no later than every 6 months after the last submission.
• Remove overlap in certification roles (for example,  removing the requirement for separate certification when the manager of a certification employee is already certified for another certification function at the same firm) and provide guidance on annual certification to help firms streamline the process. For example, the certificate can be provided digitally rather than in hard copy, can embed re-certification within existing processes such as performance reviews, and that firms can conduct the certification process proportionately when there are no changes from the previous year – such as not re-checking criminal records).
• Allow more time for firms to update specified Directory information.
• Provide guidance in areas such as the applicability of key SMF roles, the allocation of Prescribed Responsibilities (PRs), and the application of Conduct Rules and related reporting requirements.
• Change guidance about the period in which firms should provide regulatory references about individuals upon request from a hiring firm (reducing the period in which to reply from 6 weeks to 4 weeks).
• Raise the thresholds for becoming an Enhanced SM&CR firm (in particular, increasing the total intermediary regulated business revenue threshold from £35m to £45m).

Firms are invited to respond using the FCA’s online form by 7^th October 2025.  In phase 2 the FCA will work with the Treasury as it consults on legislative changes to make additional changes to the regime, including what should replace the certification regime, and the number of senior managers subject to approval

Context

The FCA and FOS are seeking to modernise the financial redress system to help prevent it becoming overwhelmed, delaying consumer compensation.  Consultation Paper CP25/22 “Modernising the redress system” has been published accordingly.

Key points to note and next actions

Currently, the majority of complaints are resolved by firms, and the redress system works well for individual cases that are referred to FOS. However, high volumes of complaints on specific or novel issues can jam the system and cause significant delays.

The proposed changes will help firms identify and resolve issues before complaints escalate and aim to give greater predictability.  This is cited as another example of an intervention to give businesses more “…confidence to invest, innovate and support UK growth”. The proposals include:

• Improving how the FCA and FOS work together to ensure consistency in the interpretation of regulations. This includes a new referral process to improve transparency about regulatory alignment and a lead complaint process to look at novel and significant complaint issues as they emerge.
• Clearer guidance for firms on reporting issues to the FCA sooner, alongside good practice examples to help identify and resolve complaints.
• Guidelines to help industry assess and trigger the need to resolve a situation with wider implications that could spike complaints.
• Changes to the way the Financial Ombudsman processes complaints to ensure they are well-evidenced and ready before an investigation begins.

The FCA and FOS are asking for comments on this Consultation by 8^th October 2025

Context

The FCA and FOS, alongside the announcements in relation to modernising the redress system and FOS interest rate application changes, have published an updated Memorandum of Understanding (MoU).  The updated MoU seems to be a clear message to FOS (in light of the motor finance commissions case decisions) that FOS should not make decisions which might have wide-ranging implications without first consulting the FCA in relation to its interpretation of its rules.

Key points to note and next actions

• The MoU retains important commentary on the roles of the FCA and FOS, the statutory responsibilities of the FCA and FOS, governance, cooperation, and information sharing.
• In relation to cooperation, the MoU stresses the particular importance of cooperation in scenarios where decisions of the FCA or FOS may have significant impacts upon users of financial services and firms in the market (e.g., FCA decisions when contemplating or carrying out supervisory or regulatory action, FOS decisions when it receives a significant number of cases concerning the same or similar issues, or where the FOS decisions “…may affect a significant proportion of firms in a sector of financial services”.
• The FCA and FOS will cooperate where either organisation identifies an issue with wider implications (e.g., something that affects a large number of consumers where there is a significant amount of redress at stake).  They intend to:
• consult one another at an early stage;
• engage and communicate at appropriate levels of seniority, to discuss matters of mutual interest;
• ensure that FOS seeks views from the FCA on the interpretation of its rules and how redress could potentially be assessed in advance of issuing a final determination, and that the FCA provides a timely response;
• consider whether the FCA should publish its advice to FOS to clarify the FCA’s expectations on its rules; and
• ensure that the FCA regularly briefs FOS on its work programme, issues of concern and areas of interest, to facilitate the provision of data and views it might consider useful to consider policy developments.

Context

The FCA has announced plans to speed up processes for firms and individuals seeking authorisation.  The FCA’s aim is to maintain high standards  of entry into regulated financial services at the gateway, but to deliver a quicker, more proportionate and predictable approach for firms.  The FCA has also written to Rachel Reeves, Chancellor of the Exchequer, to inform her of the plans.

Key points to note and next actions

The package of targets includes:

• Statutory: New firm authorisations and variations of permission applications to be completed in 4 months (currently 6) for complete applications and 10 months (currently 12) for incomplete applications.
• Voluntary: For variation of permission applications where the new permissions closely align to the existing business model, the target will reduce further to 3 months for complete applications and 6 months for incomplete applications.
• Voluntary: Payments and e-money firm authorisations and registrations completed in 3 months (same) for complete applications and 10 months (currently 12) for incomplete applications.
• Voluntary/statutory: For senior manager regime applications, at least half will be completed within 35 days with a proposed statutory deadline of 2 months (currently 3) for all applications.

The targets also give firms some time to address feedback and remedy issues, reducing, but not eliminating, the risk of increased refusals.

Context

Following a consultation earlier this summer, FOS has confirmed changes to the interest rate applied to the compensation awarded to consumers.

Key points to note and next actions

• FOS considered a range of interest options after feedback from its joint Call for Input with the FCA suggested the rate should be reviewed. The previous rate of 8% had remained unchanged for nearly 25 years despite significant shifts in the economic landscape and interest rate environment.
• The interest applied to some awards is being revised to track the Bank of England’s base (average) rate +1%.  There was a significant majority of support from this option compared to the other potential options considered in the Consultation.
• This will be calculated as a weighted average over a period from when the money was due (i.e. when the loss to the consumer occurred) until the date the redress payment is made.
• Awards will still reflect any actual losses the consumer has suffered, as now.
• FOS is aiming to introduce this change from 1^st January 2026 for new complaints referred to it from that date, but will confirm plans for implementation in due course. Further details will be published in the autumn, alongside wider proposals to modernise the redress system.

Context

The House of Commons Treasury Select Committee has published a 9^th Report on the Financial Ombudsman Service (FOS) and its accountability to the House of Commons.  It has also published details of the correspondence and oral evidence and transcripts which relate to the report.

Key points to note and next actions

• The report states that the Committee observed that fundamental disagreements about FOS strategy, management and operations between, on the one hand, Abby Thomas (former FOS CEO) and, on the other, the FOS Board and Chair led confidence to collapse on both sides. This collapse in confidence covered a broad range of issues and was not driven by a single event or topic. The mutual collapse in confidence led the FOS Board to dismiss Ms Thomas.
• There is no indication of which specific issues there were fundamental disagreements about.
• Having previously refused to answer questions on the departure of the CEO during an oral evidence session, the FOS Chair, Baroness Manzoor, told the Committee that she cannot be required to answer the Committee’s questions due to her Membership of the House of Lords.
• MPs describe this assertion as ‘unnecessary and disrespectful’, concluding that any Peer who accepts a leadership role in a public body must also accept that such roles come with House of Commons scrutiny.
• Chair of the Treasury Select Committee, Dame Meg Hillier, said that the handling of this situation by the senior leadership of FOS has been deeply disappointing, and that the attempt to frustrate a House of Commons Committee from scrutinising the actions of a publicly accountable organisation ultimately proved unsuccessful.
• Dame Hillier added that she hopes that this sends a clear message to any organisation, considering similar action in future, that Members of the House of Commons will seek and obtain answers to the questions they ask on behalf of the British public, whether senior officials attempt to block them or not.

Context

The Government is consulting on reforms to the SM&CR, with the aim of streamlining the regime.  In her previous Mansion House speech, on 14^th November 2024, the Chancellor set out the Government’s view that the SM&CR has played a key role in improving standards and accountability across the financial services sector, but also acknowledged the administrative cost and frictions that the regime places on firms.

Key points to note and next actions

The Consultation proposes:

• To make changes to the Certification Regime framework in order to enable more fundamental and far-reaching changes to the SM&CR (i.e., to remove it from legislation).  Several features of the regime that drive cost with limited benefits, such as the requirement for annual recertification and the broad scope of functions to which the regime applies, derive from the requirements set out in primary legislation. The government intends to remove these requirements when Parliamentary time allows.
• Major changes to the legislation that sets the framework for the Senior Managers Regime, with a similar objective to increase flexibility and proportionality.  Core to the concerns around unnecessary burdens is the friction and the administrative cost imposed by the large number of senior manager roles for which pre-approval by the regulators is required before an appointment.  There is scope for reform to significantly reduce the number of pre-approvals that need to be sought from the regulators, without undermining the policy objectives of the SM&CR, and the government proposes two key changes to the legislative framework to support this. The first is to make changes to the legislation to provide regulators with greater flexibility in how they define Senior Management Functions. The second is to make it possible for regulators to focus pre-approval on some senior manager roles, while for others, firms could conduct checks themselves and notify regulators of new appointments.
• A number of proposals to ease the burden of the SM&CR, including changes in relation to Statements of Responsibilities and changes to the Conduct Rules.

Context

HMT has announced a significant new Consultation reviewing the Financial Ombudsman Service.  It sets out the findings and proposed reforms following the Economic Secretary’s Review of FOS, which was announced in March in the government’s Regulation Action Plan.  The Consultation proposes a package of reforms to the legislative framework in which the FOS operates, which are designed to “…stop FOS acting as a quasi-regulator and ensure that FOS is delivering its role as a simple, impartial dispute resolution service”.  Again, this is clearly an effort to ‘rein in’ FOS in issuing decisions in individual cases (which is what it is there to do) where such decisions will, by virtue of FCA requirements to take FOS decisions into account when deciding on courses of action, impact wider sections of the financial services sector.

Key points to note and next actions

• The announcement sets out that these reforms are intended to provide greater certainty and predictability for consumers and firms who use the FOS.
• The Consultation sets out the current statutory framework in which FOS operates but sets out concerns highlighted in an earlier review conducted by the Economic Secretary to the Treasury, including concerns about:
  • the framework in which the FOS operates which has resulted in it acting, at times, as a quasi-regulator;
  • whether the FOS is applying today’s standards to actions that have taken place in the past; and
  • the practices that have grown up over time on compensation.
• In summary, the Government will use changes to legislation, when Parliamentary time allows, to deliver the following reforms:
  • An adapted ‘Fair and Reasonable’ test – the FOS will be required to find that a firm’s conduct is fair and reasonable where it has complied with relevant FCA rules, in accordance with the FCA’s intent for those rules.
  • A framework which formalises the roles of the FOS and the FCA in providing regulatory certainty – where there is ambiguity in how the FCA’s rules apply, the FOS will be required to seek a view from the FCA and the FCA will be obliged to respond. Where appropriate, a party to a complaint will be able to request that the FOS seeks the FCA’s view on interpretation of rules.
  • A framework which provides clarity on the roles of the FCA and the FOS in relation to wider implications issues and mass redress events – the FOS will be obliged to refer potential wider implications issues or mass redress events to the FCA and the FCA will be obliged to consider those issues. Parties to a complaint will also be able to request the FOS refer such an issue to the FCA. It will be for the FCA to decide how those issues should be addressed.
  • A more flexible mass redress event framework – the FCA will be able to investigate and respond to mass redress events more easily, ensuring that, when needed, mass redress events can be considered and dealt with quickly and effectively, providing consistent outcomes for consumers and avoiding disruption to markets.
  • An absolute time limit for bringing complaints to the FOS – consistent with the aim of providing a simple, impartial dispute resolution service which deals quickly and effectively with complaints, an absolute time limit in legislation will require complaints to be brought within 10 years of the conduct complained of. This will avoid the risk of the FOS having to deal with a high number of historic cases, which can be challenging to resolve quickly and effectively.