Regulatory Risk and Rectification – January newsletter

The regulatory outlook for 2026

Consumer Duty

Although the consumer duty has been in place for over two years, the FCA remains focussed on ensuring that all firms fully embed the duty into their culture. While they acknowledge progress, the FCA will continue to focus on outcomes monitoring, fair value and consumer understanding, and how the requirements are met through the distribution chain. Firms’ approach to vulnerable customers is also likely to remain a key concern of the FCA. We consider it likely that the FCA will undertake further supervisory work on consumer duty embedding through individual firm engagement and multi-firm projects or thematic reviews.

Simplifying Investment Advice Rules

With the consumer duty now regarded as the key regulatory standard for delivering good consumer outcomes, and with the commitment to reduce the regulatory burden on firms, the FCA is planning to simplify and consolidate their investment advice rules and guidance. Changes include creating a clearer distinction between simplified and holistic advice and re-assessing the rules for ongoing advice services. This could provide greater flexibility for firms to provide services in different ways than has been permitted to date, leading to potential changes in advice processes and business models.  A Consultation Paper is expected in Q1 2026, with final rules in place by Q4 2026.

Targeted support

Delivery of targeted support for retail investments will be a top priority for the FCA in 2026. Designed to fill part of the ‘advice gap’ by enabling firms to provide a service for mass market non-advised customers, where suggestions for retail investments can be made for consumers in different segments, without having to comply with the full suitability rules for regulated advice. Near final rules were published in December 2025 and the authorisations gateway for firms looking to provide this service will run from January to March 2026, with the regime starting from April 2026.

Expanding Consumer Access to Investments

Aside from targeted support and the development of a new simplified advice regime, the FCA will continue to review the retail investment sector to consider barriers to investment and the risks associated with certain products and services. A discussion paper was published in December 2025, looking at how changes could be made to the regulatory framework for retail investments to help the market grow.  This covered: supporting innovation; a consistent regulatory framework for similar products (e.g. MPS and investment funds); access to high risk investments; and aiding consumer decision making with ‘positive frictions’.  In 2026 there will be further engagement with stakeholders on the risks to retail consumers across distribution methods, products and services where regulation may be misaligned with consumer risks. The FCA will also re-assess the regulatory tools it uses to mitigate risk and support growth in the sector.

Modernising the redress framework

Following consultation in 2025 on updating the redress framework, FCA is planning to issue new guidance on identifying harm and on conducting firm-led redress exercises in the first half of 2026. Alongside this, the Treasury is expected to confirm the outcome of its consultation which could see the introduction of a 10 year longstop for complaints to be raised with FOS, a framework for referral of issues with wider implications from FOS to FCA, and new tools for the FCA to better manage mass redress events.

Senior Managers and Certification Regime review

The Treasury, PRA and FCA intend to streamline the SMCR to reduce the burden on firms by 50%. The FCA consulted on changes to its rules and guidance in 2025 and expects to implement changes by mid-2026. This first stage of reform is expected to be followed by further changes which require legislation. The first phase could include: greater flexibility in providing temporary cover for senior manager posts, simplifying the approvals process, streamlined reporting requirements, more time to submit information, reducing the number of firms required to comply with the enhanced level, and providing more guidance.

Review of client categorisation and conflict of interest rules

The FCA issued a consultation paper in December 2025 with proposals on changing the rules on client categorisation and conflicts of interests, and it is expected that this will lead to changes in policy by mid-2026.

Client categorisation:

The FCA plan to improve the framework so that clients with appropriate experience and resources can opt out of retail client protections more easily, while ensuring that the genuine retail clients remain protected. It is proposed that wealthy individuals with more than £10M will be able to become elective professional clients (EPC) with no tests required. For those with fewer assets the EPC quantitative test will be dropped and the qualitative test enhanced. The FCA remains concerned that firms have allowed clients to self-certify that they meet the requirements and they are proposing that firms cannot solely rely on clients assertions, and they must obtain the information required for the qualitative test.

Conflicts of interest:

The FCA proposes to simplify the conflicts of interest rules by removing duplicative requirements in SYSC 10 where very similar provisions are worded differently for different activities, and consolidating the several different EU directive derived terminologies into a single terminology for all types of business.  This is intended to make the rules simpler, without changing the core obligations.

The contact details for our Regulatory Risk and Rectification team are listed below. We would be delighted to discuss the regulatory outlook for 2026 and any wider regulatory conduct, risk and remediation matters of interest to your firm.