2025’s trends in financial services regulation: supervision, enforcement and the need to embrace outcomes focused conduct

This morning, I listened to a lengthy legal update on financial services regulatory disputes. The challenge in my mind: how to translate the gold-dust that I soaked up into a handful of quick to deliver practical observations for financial services business leaders.

The opening sessions of the update were dedicated to some of the most significant litigation in the financial services space that has tracked its way through the senior courts this year, including decisions relating to fiduciary duties, directors' duties, misrepresentation, and fraud. Discussion then moved to enforcement trends and to consumer outcomes, areas where it is perhaps easier to find readily deliverable practical insights that can impact, for the better, on the day to day of financial services business.

Overview

In a nutshell, expect:

• An assertive regulator that will use the full range of its supervisory tools to deliver better outcomes for consumers;
• Continued focus on non-financial misconduct with the intention of improving behaviour in the workplace, creating more places where people are respected and heard, and where diversity of opinion will drive positive outcomes for consumers; and
• No more “tick box” compliance. The Consumer Duty requires thoughtful leadership with the need for good outcomes embedded in every part of a business, and enforcement decisions with the Consumer Duty at their focus will likely conclude in 2026, delivering important learnings in their wake.

Enforcement trends

 The FCA's approach to enforcement has changed over the last couple of years. Notably:

• The FCA has been speeding up that part of the enforcement process that it controls with the result that fewer enforcement cases are in train, and those that are, are progressing at pace; and
• The regulator's supervisory style is more aggressive than previously, with an increasing use of section 166 (skilled person) reviews, voluntary (VREQ) and own initiative (OIREQ) requirements used as potential alternatives to enforcement actions.

The FCA's strategy is designed to make use of the full range of its supervisory powers (not just enforcement action) and to deliver outcomes that are impactful, timely, and highly relevant to the present day. It was observed, in relation to these “alternative” regulatory tools, that:

• The alternatives to enforcement may appear less onerous but are not necessarily that attractive and can still have a significant, often devastating, impact on a business; and
• It may well not be easy to comply with FCA proposed VREQ requirements, and it could be advantageous to engage, openly and co-operatively, on whether there are other ways to address the regulator's concerns.  

Financial services firms that encounter issues requiring supervisory engagement can expect to find a regulator that will be focused on the problems and on delivering a good outcome without delay. The FCA's tolerance of firms that fail to make proper use of the procedural time limits available is likely to be minimal, and the regulator is more likely than ever to keep its foot to the floor on fixing dates for interviews and insist on timely responses to requests. These are key parts of the FCA's strategy to keep active cases moving at pace towards a conclusion.

In the spotlight

Sitting underneath the regulator's enforcement spotlight are some well-known regulatory problem areas, including:

• Non-financial misconduct (with a significant and long-awaited decision coming early next year and a recognised beneficial “trickle down” effect on boardroom conduct);
• Financial crime (which has and will continue to be a major area of focus);
• Crypto (where the FCA currently has to make use of its overseas partners but will increasingly have its own jurisdictional hold);
• ESG (where there are active cases in the pipeline); and
• Market abuse (continuing a line of enforcement cases).

In addition, and more broadly, expect continued regulatory focus on good culture, given its undeniable link to good leadership. However, note the increasing regulatory focus on the need for firms to “live” a good culture and be able to demonstrate this. It will not be enough to show the regulator written policies, procedures and controls. Firms will need to provide real evidence of their good leadership and their ability to tackle and deal with poor behaviour (even in those cases where it may be commercially difficult, for example, where someone who is behaving badly might be a very profitable someone). 

Consumer Duty

With two and a half years of track record, we can expect that the FCA now likely has some cases relating to the Consumer Duty in the enforcement process and that will reach a conclusion at some point next year. These cases may act as drivers in the space where the UK has lessened the regulatory burden, with the intention of promoting growth that is promoted by good outcomes-focused regulation. A successful industry-wide Consumer Duty deployment is seen as having the potential to raise the bar and develop and grow a leading financial services industry. 

PR

A closing session on PR highlighted that a firm that finds itself navigating choppy waters might be advised to engage expert help to manage reputational risk, particularly around any issues that go to the central issues of trust, transparency or consumer harm. The best, albeit not immediately the easiest approach, is likely to involve addressing an issue that has arisen and putting things back on track. This may involve making apologies and dealing appropriately with people at the centre of any controversy. The regulator will favour transparency and openness and an approach that embraces this is likely to limit reputational damage which can often be worse, and endure longer, than the originating issues. 

Conclusions

All firms should expect the FCA to be focused on good conduct and good outcomes and address their minds as to how they would evidence their efforts in this regard should they be asked to do so. Firms should expect the regulator to be proactive in addressing problems that it finds during its supervisory work and for it to make use of regulatory tools that may place significant administrative and cost burdens onto them.  Under regulatory scrutiny, firms and individuals, should remember the imperative requirement of being open and cooperative with the regulator.

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