Horizon Scanning Q1 2025 Report - Risks and Regulations for the Financial Services Sector
· Posted on: May 9th 2025 · read
Navigating the Financial Services Landscape: MHA Horizon Scan Q1 2025/26
Welcome to the Q1 2025/26 edition of the MHA Horizon Scanning Bulletin, your essential guide to the evolving regulatory and risk landscape impacting the UK financial services sector over the next 18 months.
In a period marked by significant market volatility and a deteriorating global risk environment, staying ahead of regulatory change and understanding emerging risks is paramount. This bulletin provides a focused analysis of key developments and themes to help your organisation navigate the complexities ahead.
A central theme this quarter is the continued focus on prudential strength and orderly market conduct. The Prudential Regulation Authority (PRA) has introduced significant requirements around Solvent Exit Planning for non-systemic banks and building societies, with firms needing to produce a Solvent Exit Analysis (SEA) by 1 October 2025. This involves assessing actions, indicators, barriers, resources, communication, governance, and assurance related to ceasing PRA-regulated activities whilst remaining solvent. This bulletin offers a detailed briefing on these new expectations.
Simultaneously, the Financial Conduct Authority (FCA) has published its ambitious 2025-2030 Strategy, centred on deepening trust, rebalancing risk, supporting growth, and improving lives. Key priorities include leveraging technology like AI, enhancing competitiveness, adapting to global uncertainty, and bolstering financial resilience. Areas of focus involve smarter regulation, consumer protection, combating financial crime, managing risk, harnessing data through open finance, and international regulatory co-operation.
The Consumer Duty remains a critical area, with the FCA reviewing firms' treatment of vulnerable customers and the effectiveness of consumer support outcomes. Firms must ensure fairness is embedded in their culture and processes, improving alignment between support and target markets, making post-sale support as accessible as pre-sale, and monitoring a broader range of outcomes. Ongoing attention to FCA guidance in this area is crucial.
Other significant regulatory developments include:
- Basel 3.1: Implementation has been delayed to 1 January 2027, allowing firms more time, although the finalised rules remain unchanged.
- Liquidity Risk Management: The FCA's review highlighted the need for robust frameworks, particularly for wholesale trading firms under IFPR.
- AI Regulation: The FCA and ICO are actively engaging with industry on the responsible adoption of AI.
- FSCS Limit Increase: The PRA is consulting on increasing the deposit protection limit to £110,000 from 1 December 2025.
- Recovery Planning: Firms must ensure effective calculation of recovery capacity following PRA feedback.
Financial stability concerns also persist, with the Financial Policy Committee (FPC) highlighting vulnerabilities in market-based finance, risks associated with private markets, and the need for effective AI risk monitoring, whilst maintaining the UK CCyB rate at 2%.
This Q1 2025 Horizon Scan provides valuable insights into these critical areas, offering clarity on regulatory timelines and expectations.
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