UK regulatory outlook 2026 - Q1

Executive overview

The opening phase of 2026 represents a shift in the UK regulatory cycle. Following an extended period of consultation, framework design and political signalling around competitiveness and growth, regulators are now moving into supervisory delivery.

While limited new regimes formally commence at the start of the year, supervisory attention is increasingly focused on whether firms have operationalised regulatory change introduced across 2024 and 2025, and whether those frameworks are delivering effective outcomes in practice.

Early supervisory engagement, data submissions and incident handling will therefore play a critical role in shaping supervisory intensity and regulatory relationships throughout the remainder of the year.

Policy backdrop and regulatory accountability

The UK Government’s Financial Services Growth and Competitiveness Strategy, published in 2025, continues to shape regulatory expectations. This is reinforced through the Regulation Action Plan, under which HM Treasury is assessing whether regulators are delivering against growth, proportionality and efficiency objectives.

Central to this framework are strengthened accountability mechanisms, including a public Regulator Performance Dashboard with defined KPIs and the potential use of independent expert reviews where delivery is deemed insufficient.

Alongside this, structural reform of the regulatory architecture is underway. In the payments space, the Payment Systems Regulator (PSR) is expected to be consolidated into the Financial Conduct Authority during 2026, reflecting a broader effort to streamline oversight, reduce duplication and improve regulatory coherence.

Cross-cutting regulatory priorities

Financial crime and AML

Financial crime remains a cornerstone of the FCA’s 2025–2030 Strategy, with expectations continuing to intensify rather than ease.

Key developments shaping supervisory focus include:

• Ongoing scrutiny of fraud controls, including those linked to authorised push payment (APP) reimbursement requirements
• Early supervisory testing of governance and accountability under the failure to prevent fraud offence, introduced by the Economic Crime and Corporate Transparency Act and effective from September 2025
• Heightened AML supervision following HM Treasury reforms to the UK AML supervisory regime, which expand and formalise the FCA’s remit
• Continued scrutiny of firms’ use of advanced analytics and artificial intelligence in financial crime prevention

Regulatory emphasis remains firmly on demonstrable effectiveness of controls, governance and senior management ownership.

Operational resilience and cyber risk

With the UK operational resilience framework fully in force, supervisory attention has shifted decisively to testing and assurance.

Key regulatory components in scope include:

• Incoming UK operational incident and third-party reporting requirements
• Expanded third-party risk management expectations under updated PRA supervisory statements, including non-outsourcing arrangements
• Implementation of the regime for Critical Third Parties (CTPs) under the Financial Services and Markets Act 2023
• Continued use of cyber stress testing, threat-led penetration testing and supervisory questionnaires by the PRA

Operational resilience and cyber risk are treated as principal risks requiring sustained board-level ownership.

AI in compliance and decisioning

Regulators have confirmed that AI will be supervised within existing regulatory frameworks, rather than through a bespoke AI rulebook.

Supervisory expectations include:

• Governance, accountability and explainability of AI systems
  
• Demonstrable alignment of AI-driven outcomes with the Consumer Duty
  
• Compliance oversight of increasingly autonomous and agentic AI systems used in areas such as fraud detection, monitoring, credit decisioning and customer interaction
  
• Ongoing engagement through the Bank of England / FCA Artificial Intelligence Consortium, established in 2025

AI deployment is now firmly within the scope of routine supervisory assessment.

Market integrity, reporting and data quality

As the UK seeks to promote capital markets growth, regulators have made clear that this will not be achieved at the expense of market integrity.

Supervisory expectations remain anchored in the accuracy of trade and transaction reporting under UK MiFIR, effective market abuse surveillance and management of inside information under the UK Market Abuse Regulation, and strong data governance supporting regulatory reporting and supervisory engagement.

This focus is reinforced by the refreshed Skilled Persons framework, effective from April 2026, which introduces:

• Standalone Lots for Market Abuse and Trade and Transaction Reporting
• A lower threshold for deploying section 166 reviews in these areas
• Increased relevance for UK-authorised banks, investment firms, asset managers and trading firms with material trading activity, transaction reporting obligations or data-intensive control frameworks

Prudential and capital supervision

Basel 3.1

In late 2025, the Bank of England’s Financial Policy Committee (FPC) published its assessment of the appropriate level of capital requirements for the banking system.

Against this backdrop, supervisory attention in early 2026 is expected to move from framework finalisation to firms’ preparedness for implementation. This focus is reinforced by the PRA’s final policy statement on Basel 3.1, expected in January 2026, which will set the basis for transition ahead of the January 2027 implementation date. 

Supervisory dialogue is expected to centre on:

• Capital strategy and transition planning, including the use of internal models
• Liquidity and funding assumptions, and alignment with the PRA’s evolving supervisory expectations
• Implications of international divergence, including interaction with the Fundamental Review of the Trading Book (FRTB)

Payments and market infrastructure

National Payments Vision

The National Payments Vision, published by HM Treasury, continues to shape regulatory priorities across payments infrastructure, access and innovation. 

Key elements moving into delivery include:

• Establishment of the industry-led Delivery Company
• Merchant fee reform
• Digital identity alignment
• Continued enhancements to the Faster Payments Service and variable recurring payments

Firms must balance UK priorities with evolving EU requirements under PSD3 and the Financial Data Access framework (FiDA).

Closing perspective

The early part of 2026 will favour firms that can demonstrate that regulatory frameworks are operating effectively in practice, supported by high-quality data, credible incident response, and clear governance and senior management accountability. Proactive identification and remediation of control weaknesses will be critical to maintaining supervisory confidence. 

More broadly, the regulatory environment in 2026 is defined less by new rule-making and more by supervisory judgement. Regulators are assessing whether recent reforms have delivered resilient institutions, well-governed markets and fair consumer outcomes. Firms that can evidence this clearly will be best placed to navigate supervisory engagement through the year ahead.

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