General regulatory update – A future provisional licences authorisation regime, benchmarks reform, regulation of ESG ratings providers, non-financial misconduct and the Mortgage Rule Review

Financial Institutions 360

Read other sections of this edition of the Financial Institutions 360:

• Asset management update

Future provisional licences authorisation regime

On 4 December, HM Treasury published a policy update, setting out its plans for establishing a provisional licences authorisation regime. This has arisen out of a FCA proposal to work together with the Treasury to create a legislative framework to enable firms in scope to conduct limited regulated activities with streamlined conditions.

The government notes that some financial services start-ups and early-stage firms find it challenging to meet the FCA's threshold conditions and secure authorisation. Under the provisional licence regime, such firms will be able to undertake limited regulated business under FCA supervision for a set period, with the aim of applying for full authorisation at the end of this period. The regime would be aimed at firms not already FCA authorised, and the FCA will determine eligibility for the regime.

The government will need to introduce primary legislation to establish the regime, and will do so when parliamentary time allows.

Benchmarks reform

On 18 December 2025 the Treasury published a consultation on the future regulatory regime for benchmarks and benchmark administrators. The government considers that the financial landscape has changed since the current Benchmarks Regulation came into force in 2018, and that reform is now necessary. It is therefore proposing to repeal the Benchmarks Regulation and replace it with a lighter touch regime which only regulates those benchmarks and administrators that may pose systemic risks to UK financial markets.

Under the proposed Specified Authorised Benchmark Regime, benchmarks and benchmark administrators will be designated by the Treasury, on the advice of the FCA. Only these designated firms will be subject to the new regime, and other benchmarks and benchmark administrators will not be regulated. The government estimates that the number of regulated benchmark administrator firms may fall by over 80%.

The consultation closes on 11 March 2026.

ESG ratings providers

On 1 December, the FCA published a consultation on its approach to the forthcoming regulation of ESG ratings providers.

In October the Government published legislation to bring ESG ratings into the perimeter, by creating a new regulated activity under the RAO: providing an ESG rating (the future new paragraph 63U). The Government has not yet confirmed when the legislation will be laid, which depends on Parliamentary time. 

There will be exemptions for intra-group ratings providers, and also for ratings that have a charitable or academic purpose (among other things).

The FCA is focusing on transparency, systems and controls, governance and conflicts of interest. Firms will need to comply with cross-sector requirements including PRIN, GEN and SYSC, and also rules relating to the following areas about which IOSCO had raised concerns in its report on the sector:

• Transparency: There will be minimum disclosure requirements for methodologies, data sources and objectives, to assist both users in understanding the ratings, and rated entities in understanding how they are assessed.
• Systems and Controls: Firms will be subject to requirements aimed at ensuring the integrity of the ratings process, including quality control, data validation and methodology reviews.
• Governance: Firms will be required to maintain oversight over their operations, including any processes which are outsourced, to ensure appropriate oversight and compliance with the regime.
• Conflicts of interest: The rules will require firms to identify, prevent, manage, and disclose conflicts of interest at the organisational and personnel level, to maintain the ratings’ independence and integrity.
• Stakeholder engagement: Rated entities will be given the opportunity to correct factual errors. Other stakeholders will also be able to provide feedback.  

The consultation closes on 31 March 2026. The authorisations gateway is due to open in June 2027, a year before the regime is due to go live in June 2028.

Final guidance published on non-financial misconduct

In July 2025 the FCA published final rules and draft Handbook guidance on non-financial misconduct, which we covered in our July briefing.

In December 2025, the FCA published Policy Statement PS 25/23: Tackling non‑financial misconduct in financial services Guidance in the Code of Conduct (COCON) and the Fit and Proper test for Employees and Senior Personnel (FIT) sourcebooks. This contains the finalised guidance.

The FCA has made minor changes to its proposed guidance as a result of the consultation, including more clearly aligning the proposals with employment law, providing new examples and flow diagrams, and clarifying that managers' accountability is relative to their knowledge and authority.

What happens next?

The new rule at COCON 1.17FR comes into force on 1 September 2026, and the guidance will come into force on the same date.

Mortgage Rule Review

In June 2025 the FCA invited stakeholder views on the mortgage market and how the rules could be simplified in a Discussion Paper DP 25/2: Mortgage Rule Review: the future of the mortgage market. The FCA had earlier in the year clarified the interest rate stress test rule, which has enabled providers to lend more, particularly to first-time buyers.

The FCA has now published Final Statement FS25/6, setting out its feedback on the discussion paper and providing a roadmap on its next steps.

The FCA's mortgages roadmap sets out its proposed actions under four themes, with proposed timings:

• Expanding access for first-time buyers and other underserved consumers, through targeted reforms (consultations on loan-to-income and responsible lending rules due summer 2026).
• Enhancing later-life lending, and ensuring readiness of the market to meet growing demand (consultation on retirement interest only mortgages due summer 2026).
• Modernising regulation to enable innovation and improve digital journeys (planned consultation on Consumer Duty requirements review – Disclosure due in 2026, and possible consultation on Disclosure framework due H1 2027)
• Protecting vulnerable consumers (possible consultation on debt consolidation due H1 2027).

We expect a significant number of FCA mortgage related publications in 2026, and will cover these in our webinar programme.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, December 2025