The year 2025 marks an important moment in the evolution of the UK’s financial regulatory framework. Five years after Brexit was formally completed, British regulators and policymakers are asserting greater independence from the EU’s legislative shadow. Nowhere is this more evident than in the Financial Conduct Authority’s (FCA) reform agenda, the UK Government’s structural regulatory overhauls, and a sharpened strategic focus on growth, competitiveness, and digital innovation.
Since the UK left the European Union, policymakers have grappled with a fundamental question: how closely should the UK align with EU regulation versus carving its path? In 2025, they found an answer: independence. With nearly 50 distinct actions proposed in a letter from the FCA to the Prime Minister, the UK is crafting a distinctly British version of financial oversight, one that aims to be simpler, more flexible, and designed to unlock economic growth.
One of the most substantial areas of reform lies in the FCA’s initiative to reshape regulations for alternative asset managers. The UK is poised to move away from the EU’s Alternative Investment Fund Managers Directive (AIFMD), a long-standing framework that has governed hedge funds, private equity firms, and other alternative managers. These rules, long viewed as overly prescriptive by UK-based firms, are being scrapped in favour of a more flexible, tailored framework. The FCA’s proposals would repeal many firm-level obligations inherited from the AIFMD, replacing them with a UK-tailored rulebook better aligned with domestic priorities.
The regulator is also exploring bespoke frameworks for investment trusts and venture capital firms, two sectors seen as critical to innovation and growth. These changes are part of a broader effort to simplify regulation, reduce barriers to entry, and encourage a more agile and competitive asset management industry within UK borders.
In another shift from the EU, the UK is finalising legislation to bring cryptocurrency firms under formal financial regulation, taking cues from the US Securities and Exchange Commission. This move treats most cryptoassets as financial instruments subject to standard conduct rules, signalling a departure from the EU’s fragmented approach in favour of better institutional trust and investor protection.
The upcoming legislation, based on 2023 proposals, covers exchanges, wallet providers, and stablecoin issuers. The FCA is also developing an authorisation regime for crypto firms, with full implementation expected by 2026. This regime will introduce stricter standards for disclosure, prudential soundness, and market conduct, replacing the current AML registration system.
HM Treasury's draft digital asset legislation introduces a clear framework for cryptoassets, bringing activities like trading platforms, custody, staking, and stablecoin issuance under the UK regulatory perimeter. Stablecoin issuers will be required to meet rigorous standards for reserves, liquidity, and reporting. The new rules aim to ensure the stability of these assets, improving trust and consumer protection.
The framework also clarifies that DeFi activities without identifiable controlling parties will fall outside the regulatory perimeter, while the FCA will assess whether a controlling entity requires authorisation. Discussion papers like DP24/4 are shaping a distinct UK approach to crypto, focusing on market integrity and investor protection.
The UK has been making notable changes to its payment systems as part of its broader regulatory reforms. A significant shift came with the revocation of Specific Direction 3 (SD3) by the Payment Systems Regulator (PSR). Previously, SD3 imposed obligations on certain payment systems, but its removal now allows the National Payments Vision (NPV) to progress without these constraints.
In addition, a consultation is ongoing regarding the potential revocation of Specific Direction 2 (SD2), which would further unravel the regulatory framework. These developments reflect the UK’s broader efforts to modernise and simplify the payments landscape, with plans to shift more oversight responsibilities from the PSR to the FCA.
One of the most significant changes, however, is the proposal to abolish the PSR entirely. Established in 2015, the PSR has played a key role in overseeing major systems such as Faster Payments and Mastercard, helping to open access to non-bank payment providers and ensuring competition. The government's proposal to absorb these responsibilities into the FCA, as part of its ‘Plan for Change,’ aims to reduce regulatory complexity and the compliance burden on smaller firms.
This move has sparked some debate. Critics argue that removing the PSR could dilute the focus on payments-specific issues like pricing, dispute resolution, and systemic risk in real-time payment infrastructures. The FCA, with its broader mandate, may not prioritise payments in the same way, leading to concerns about overstretched resources and weaker market monitoring.
On the other hand, supporters believe consolidating regulatory oversight under the FCA could lead to greater coherence, particularly as the lines between payment systems, financial services, and digital finance continue to blur. A unified regulatory approach could enhance efficiency and reduce uncertainty for firms operating across sectors. However, the proposal is still under consideration, and it remains to be seen whether the FCA will be equipped to maintain the same level of focus on payments.
In practical terms, firms regulated by the PSR can expect a transition period with regulatory handovers and potential re-registrations. This restructuring could particularly impact smaller payment service providers, fintechs, and third-party providers under the Open Banking framework, who have relied on the PSR's advocacy to access core infrastructure.
As the operational resilience transition period ended on 31 March 2025, regulators are sharpening their focus. The FCA, Prudential Regulation Authority (PRA), and Bank of England have all launched consultations on third-party risk management, outsourcing arrangements, and incident reporting.
Firms will now face new requirements to maintain registers of critical suppliers, report material incidents, and demonstrate that they can withstand service disruptions. These obligations are designed to strengthen market infrastructure and consumer protection in an increasingly digital and interconnected environment.
Additionally, the long-awaited Private Intermittent Securities and Capital Exchange System (PISCES) will take centre stage in the second half of 2025. Aimed at improving access to capital for private companies, this new market infrastructure reflects the UK’s ambition to build innovative financial tools outside of the EU framework.
The PRA, for its part, has signalled a more patient approach. Implementation of Basel 3.1 standards has been delayed allowing for more reflection on the competitiveness implications. Consultations are also underway on removing the Certification Regime, a long-standing pillar of individual accountability under the Senior Managers & Certification Regime (SM&CR).
Meanwhile, the UK is pressing ahead with Solvency UK – a tailored version of the EU’s Solvency II directive- and devoting increased attention to exposures in the non-bank financial intermediation (NBFI) sector.
As 2025 progresses, it is clear that the UK is no longer content to tweak the legacy of EU regulation. Instead, it is systematically rebuilding its regulatory regime from the ground up, focusing on simplicity, innovation, and competitive advantage. The changes being enacted today may well define the next decade of UK financial services.
Yet, these moves are not without trade-offs. Simplification may improve efficiency, but it can also mean reduced specialisation. The challenge for UK authorities will be to maintain high standards of consumer protection, operational resilience, and financial stability while shifting towards a more growth-oriented, innovation-friendly regime.
If 2024 was the year of consultation, 2025 is shaping up to be the year of implementation. The decisions made this year will define not only the UK's financial regulatory model, but its global credibility as a financial centre.
About Claudia Pincovski
Claudia is a News Lead Editor at The Paypers. Holding a bachelor’s degree in Journalism, she is very passionate about exploring the latest news on financial inclusion, financial literacy, digital banking, and Open Finance. Claudia is a diligent researcher, a meticulous editor, and an active advocate for diversity and inclusion.
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