HM Treasury FS Sector Strategy: Regulatory Environment – Cross-Cutting Reforms

Overview

HM Treasury has published its FS Sector Strategy: Regulatory Environment – Cross-Cutting Reforms consultation, focusing on reforms to the overarching regulatory framework. The consultation is part of the government’s Financial Services Growth and Competitiveness Strategy, which was published on 15 July 2025.

These reforms aim to make regulation more proportionate, transparent, and innovation-friendly, while maintaining high standards of consumer protection and financial stability.HM Treasury are looking at key areas, including streamlining authorisation, regulators’ long-term strategies, regulator reporting requirements, and several of the FCA and PRA’s Key Performance Indicators.

This consultation has been published alongside the Reforming the Senior Managers & Certification Regime consultation.

The consultation is open until 9 September 2025. ABCUL is requesting members’ feedback to be submitted by 5 September 2025

Why HM Treasury Is Consulting

HM Treasury is consulting in response to:

• Feedback from its Call for Evidence on the financial services regulatory framework.
• Concerns that the current system is too slow, too rigid, and insufficiently tailored to different types of firms.
• A desire to rebalance the UK’s regulatory risk appetite to support innovation and growth.
• The need to ensure that regulators are strategically aligned with government priorities, including the secondary objectives introduced in the Financial Services and Markets Act 2023.

Key Objectives

The consultation aims to:

1. Accelerate regulatory decision-making, particularly for authorisations and senior manager approvals – HM Treasury proposes to shorten statutory deadlines for authorisations.
2. Introduce proportionality into the regulatory framework, especially for smaller and lower-risk firms.
3. Encourage innovation by supporting responsible and informed risk-taking.
4. Improve strategic oversight by requiring regulators to publish long-term strategies.
5. Streamline regulatory principles and reporting to reduce duplication and improve transparency.

Proposed Scope

The consultation covers:

• Statutory and non-statutory deadlines for regulatory approvals.
• A new provisional licensing regime for start-ups.
• Requirements for long-term strategic planning by the FCA and PRA.
• Reform of the “have regards” framework that guides regulatory decision-making.
• A review of regulatory reporting obligations to reduce complexity and improve scrutiny.

Main Proposals

Shortening Authorisation Timelines

• New firm authorisations: reduced from 6 to 4 months (complete application), 12 to 10 months for incomplete application
• Variations of permissions: reduced from 6 to 4 months for complete application, 12 to 10 months for incomplete application.
• Senior manager approvals: reduced from 3 to 2 months – Target of 35-day average for the FCA and 45-day average for the PRA.
• Non-statutory targets: additional performance metrics to encourage faster processing.

Provisional Licensing Regime

• A new regime (sometimes referred to as “L-Plates”) would allow innovative start-ups to conduct limited regulated activities under specific conditions.
• Aimed at reducing barriers to entry while maintaining appropriate safeguards.

Mandatory Long-Term Strategies for Regulators

• The FCA recently published its 5-year strategy, shifting from its previous 3-year strategy. It was generally well-received, and the government aims to continue with this positive momentum.
• The government will legislate to require the FCA and the PRA to set out their long-term strategies.
• These strategies will then have to be reviewed at least once every 5 years.

Review of Regulator Reporting Requirements

• The FCA and PRA are currently subject to a large number of reporting obligations.
• The government proposes to rationalise these requirements to reduce duplication and focus on core functions and objectives.
• HM Treasury is proposing to improve the accessibility and usefulness of reports, making them clearer, concise, and accessible.

Policy Framework and Justification

These reforms are grounded in:

• The Financial Services and Markets Act 2023 introduced secondary objectives for regulators to promote growth and international competitiveness.
• The Regulation Action Plan (March 2025), which sets out the government’s ambition for a regulatory system that is:
  • Supportive of growth
  • Targeted and proportionate
  • Transparent and predictable
  • Adaptable to innovation

The government believes that the current framework does not sufficiently support these goals, particularly for smaller firms and new entrants.

Anticipated Outcomes

If implemented, the reforms are expected to:

• Improve the speed and efficiency of regulatory processes.
• Provide greater clarity and predictability for firms.
• Enable more proportionate regulation for smaller institutions like credit unions.
• Support innovation and responsible risk-taking.
• Enhance the strategic alignment between regulators and government policy.

What could this mean for credit unions?

Whilst there are significantly fewer new credit unions starting, the proposed reduction in statutory deadlines from 6 months to 4 months for complete application and incomplete application from 12 to 10 months could shorten the authorisation time for credit unions.

Shorter Authorisation time for Senior Managers – proposed reduction from 3 months to 2 months for credit unions seeking SMCR approvals. Substantially quicker determinations of applicants.

Consultation Questions Include

1. Proposals to shorten authorisation deadlines

2. proposed statutory deadlines for various application
3. requiring regulators to produce long-term strategies
4. Streamlining the “have regards” framework by linking it to long-term strategies
5. Published documents from the PRA or FCA: what are most helpful and what are considered most important?

ABCUL’s View:

Whilst there are very small numbers of new firm authorisations within the credit union sector currently, ABCUL welcomes the proposed changes to shorten authorisation timelines from 6 to 4 months and for incomplete application from 12 to 10 months.

In areas that more directly impact our member credit unions, ABCUL welcomes the SMCR’s proposed changes, which would reduce the statutory deadlines for SMCR-approved persons from three to two months and provide clearer approval timelines. If successful, we hope these changes will decrease delays in filling key roles and enhance operational effectiveness. ABCUL does, however, recommend that the target to complete 50% of cases within the FCA and PRA should be aligned, rather than 35 days or 45 da, ys respectively. This will prevent regulatory confusion regarding timelines or approval deadlines. ABCUL also urges that the same thorough process in authorisation is maintained, and that robust regulatory scrutiny continues to be upheld.

ABCUL welcomes the increased focus on proportional regulation based on firm size and risk. ABCUL has consistently argued for credit unions to operate within a proportionate regulatory framework. Proposals for the FCA and the PRA to publish long-term strategies could improve predictability for credit unions.

ABCUL notes that there is a risk when focusing on competitiveness, as it could lead to favouring much larger, growth-oriented firms. Ensuring credit unions are integrated into broader long-term strategies can support, rather than hinder, the government’s aim for economic growth and competitiveness. Additionally, promoting financial inclusivity also fosters ethical and inclusive economic growth.

Next Steps

• HM Treasury seeks feedback by 9 September 2025

ABCUL is eager to hear our member credit unions’ views on the proposals and asks that all responses be sent to advocacy@abcul.org and received by the close of business on Friday, 5 September 2025