King’s Speech confirms financial services regulatory reforms

The government has confirmed plans to reform the UK financial services regulatory framework following today’s King’s Speech, including changes to the Financial Ombudsman Service (FOS), a significant reduction in the burden of the Senior Managers and Certification Regime (SMCR), and new measures designed to improve SME lending and tackle late payments.

Background briefing documents published alongside the King’s Speech on 13 May said increasing global competition had contributed to slower growth in the UK financial services sector.

The government said: “We want Britain to be more competitive globally, and to harness the UK’s global leadership in financial services, so it is better able to support UK businesses and consumers.”

Under the proposed Enhancing Financial Services Bill, ministers said the sector’s regulatory framework would be “modernised” to improve competitiveness, encourage investment and support economic growth.

A key element of the reforms is a package of changes to the Financial Ombudsman Service aimed at increasing “consistency and clarity” in decision making.

The reforms include introducing a 10-year time limit for complaints brought to the ombudsman and adapting the FOS “fair and reasonable” test so that it aligns more closely with rules and guidance set by the Financial Conduct Authority.

The bill also proposes reducing the overall burden of the Senior Managers and Certification Regime by 50 per cent. The SMCR was introduced in 2016 to strengthen accountability within financial services firms and improve consumer protection and market integrity.

The government said regulators would consult on further rule changes as part of a second phase of reforms once legislation is introduced.

It added that the reforms are intended to ensure administrative requirements placed on firms remain “proportionate without compromising” consumer protections.

The government said the changes would maintain “a focus on accountability of the most senior figures in financial services; freeing up firms to focus on serving customers and invest in growth, rather than dealing with overly burdensome compliance processes.”

The legislation will also see the Payment Systems Regulator consolidated within the Financial Conduct Authority, with the government arguing that firms will benefit from dealing with fewer overlapping regulators.

Alongside the wider regulatory reforms, the government also confirmed plans to update ring-fencing legislation through the Enhancing Financial Services Bill. The changes are intended to ease SME lending requirements and allow shared essential back-office functions across ring-fenced retail banking operations and trading arms, increasing operational flexibility and competitiveness for banks.

The King’s Speech also outlined plans for a new Small Business Protections (Late Payments) Bill, which has been described as the strongest legal framework in the G7 for tackling late payments — an issue estimated to cost the UK economy £11 billion annually.

Late payments currently contribute to 38 business closures every day, equivalent to around 14,000 firms each year.

Under the proposed legislation, businesses will face a maximum payment term of 60 days, while late payments will automatically incur interest charges set at 8 per cent above the Bank of England base rate.

The reforms will also strengthen the powers of the Office of the Small Business Commissioner, enabling it to investigate and fine persistent late payment offenders.

Amarasekara said: “Today’s legislative programme reflects the importance of growth, investment and modernisation at a time when businesses and consumers are navigating significant economic and technological change.

“Measures focused on regulatory reform, innovation, access to finance and investment confidence are particularly important for sectors that support day-to-day economic activity across the UK.

“As policymakers consider how regulation evolves in the years ahead, it will be important to ensure that frameworks remain proportionate, predictable and capable of supporting both innovation and consumer confidence.

“The FLA welcomes the emphasis on growth and modernisation reflected in today’s Speech and looks forward to engaging constructively with government, regulators and industry on the practical implementation of these reforms.

“Across asset finance, consumer finance and motor finance, there is a significant opportunity to support investment, productivity and economic participation across the UK economy.”