Update for banks and payments firms – Proposed changes to consumer credit and mortgage rules, and bringing cryptoassets into the regulatory perimeter
Financial Institutions 360: Regulatory update
Read other sections of this edition of the Financial Institutions 360:
Mortgages
On 7 May 2025, the FCA published a consultation CP25/11 on making changes to mortgage rules, as part of its Mortgage Rule Review. This is the first of two sets of proposals.
- This first set of proposals is intended to help consumers by making it easier, faster and cheaper to make certain changes to their mortgage.
- In June 2025, the FCA intends to launch a public discussion on the future of the mortgage market. This will consider what the market needs to deliver for different consumers at different stages in their lives and for the wider UK economy, and the role of regulation to deliver it.
The FCA is proposing certain changes to MCOB, including:
- Removing the requirement for customers to positively elect to proceed with an execution-only sale where there is an interactive dialogue with the firm.
- Removing the requirement that advice must be given whenever a transaction involves an interactive dialogue. This could result in firms saving the costs of providing advice and a more streamlined process for consumers.
- Removing the requirement for full affordability assessments when reducing the term of the mortgage.
- Making it easier to move to a new provider by amending the Mortgage Affordability Assessment.
The FCA is also proposing to retire FG13/7 on interest-only mortgages and FG24/2 on tailored support, which merely restates guidance already in the rules.
The consultation closes on 4 June, and the FCA is planning to publish a policy statement in Q3 2025 with its finalised rules.
Speech by Emad Aladhal, FCA director of retail banking
The FCA also published a speech by Emad Aladhal, FCA director of retail banking, given at the Building Societies Association Annual Conference, in which he made the following points of note:
- Less than 1% of mortgages originated since 2014 are in arrears.
- There were fewer than 1000 repossessions last year, fewest since pre-pandemic.
- The FCA’s data shows that first-time buyers present no additional risk or underperformance compared to other types of borrowers. The FCA is considering whether this safety has come at the expense of accessibility.
- There is around £9.1tn stored in the UK’s housing stock.
- In June the FCA will publish a DP on the future of the mortgage market which will explore:
- The market’s collective appetite for risk
- How the FCA can create space for innovation
- How customers are supported to access the market and make the right choices
- How to ensure preparedness for an increase in demand for later life lending.
Proposed amendment to Loan to Income flow limit in mortgage lending
On 3 April 2025, the FCA and PRA published a joint consultation paper CP 25/6 on amending the PRA Rulebook and FCA Guidance on the de minimis threshold for the Loan to Income (LTI) flow limit in mortgage lending. This is pursuant to the FPC’s recommendation in November 2024 that the LTI flow limit should be raised from £100m to £150m per year. The LTI flow limit refers to the proportion of new residential mortgages entered into by lenders which are at a LTI ratio of 4.5 or higher. Loans that exceeded this LTI flow limit could not exceed 15% of the total number of new mortgage loans. Lenders that extended residential mortgage lending under a de minimis threshold of £100m a year did not have to apply the LTI flow limit. This was part of the measures brought in following the 2008 financial crash to limit the amount of household indebtedness which could cause contagion in the event of a financial shock.
The LTI flow limit is also being raised due to inflation and prudential drag, which could lead to inadvertent regulatory tightening by subjecting smaller lenders to the limit.
Consumer Credit
Proposed reforms to consumer credit regime
On 19 May the Treasury published Phase 1 of its consultation on reforming the consumer credit regulatory regime, specifically the Consumer Credit Act 1974 (CCA). These are initial proposals, setting out the Government’s high-level approach to the new regime, as well as more specific proposals relating to information requirements, sanctions and criminal offences.
As part of its second phase, the Government will consult on how it intends to reform the scope of regulation, including consumer protection and rights under the CCA. This consultation will also cover key concepts including defining different types of credit agreements, and the regulatory perimeter.
The Treasury notes that stakeholders consider this to be a ‘once in a generation opportunity’ to design a new regulatory regime. The changes are likely to involve amendments to primary legislation, secondary legislation and changes to the FCA Handbook.
The current proposals relate to:
Information requirements: the Treasury is proposing to repeal all pre-contract information currently in legislation, including pre- and post-contractual requirements, and arrears default and forbearance information, and replace them with new requirements in the FCA Handbook. These could then be amended more easily and could be adapted for consumers in different situations.
Sanctions: the Treasury has undertaken an extensive review of the current sanctions regime, including unenforceability without a court order for certain breaches of the FCA, which it notes preceded the regulation of consumer credit by the FCA. The Treasury is proposing to remove the sanctions regime, as it considers the FCA’s powers should be sufficient to address most non-compliance by firms.
Criminal offences: The Treasury is seeking views on whether to retain the criminal offences in the CCA (such as relating to canvassing off trade premises), repeal them, or only retain certain offences.
Buy-Now, Pay-Later
On 19 May 2025, the Treasury also published the response to its consultation on regulating Buy-Now, Pay-Later products (BNPL). This was further to a short consultation published last year on the draft legislation which will bring BNPL into regulation, which it intends to lay imminently . The Government makes the following points of note in its response:
- In line with the original proposals, the scope of the legislation will only cover third-party lenders offering instalments, and not merchants offering instalment payment options, which will continue to be exempt under article 60F(2) of the RAO.
- The CCA information disclosure requirements will be disapplied, and the FCA will have powers to draft a bespoke regime.
- Most merchants will be exempted from the requirement to apply for credit broking permissions from the FCA.
- There will be a temporary permissions regime for firms which are not yet authorised, to enable them to continue their activities while their authorisation applications are being considered.
- The FCA will shortly publish a consultation on its proposed rules for the BNPL sector.
Deposit protection limit: proposed increase
On 31 March 2025, the PRA published a consultation paper CP4/25 on raising the limit for FSCS deposit protection limit to £110,000. The consultation also covers rules to facilitate the implementation of proposals in the Bank Resolution (Recapitalisation) Bill. The PRA is proposing to increase the limit on 1 December 2025, subject to the outcome of the consultation and Treasury approval. The PRA is also proposing to raise the ‘temporary high balances’ limit from £1m to £1.4m.
The limit has not been increased since 2017 (when it was set at £85,000). The new proposed limit is broadly in line with inflation and the CPI index.
The investment limit of FSCS compensation is set to stay at £85,000 for now.
No changes have been announced re the APP fraud reimbursement limit, currently set at £85,000.
Cryptoassets
On 29 April, the Treasury published the draft FSMA 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025, purely for technical checks, alongside a policy paper. This will, among other things, amend the RAO to define qualifying cryptoassets and qualifying stablecoins as the principal classes of crypto to which the amendments apply. They will be classified as specified investments, and certain activities relating to the investments will be regulated activities, so persons carrying out these activities will need to be FCA authorised.
Under the Crypto Roadmap the FCA published last year, there will be further DPs and consultations published during the course of this year, with a view to publishing the policy statements and final rules next year. The regime will then go live once the rules are in place, with a date yet to be set.
On 2 May the FCA published Discussion Paper DP 25/1 on how the FCA is proposing to regulate cryptoasset activities.
The FCA is seeking views on its proposals relating to:
- Cryptoasset trading platforms (CATPs).
- Intermediaries, including those that will be authorised to deal in qualifying cryptoassets as principal, deal in qualifying cryptoassets as agent and arrange deals in qualifying cryptoassets.
- Cryptoasset lending and cryptoasset borrowing. Operating a cryptoasset lending platform and cryptoasset lending and borrowing will fall under the regulated activities of cryptoasset dealing as principal and arranging.
- Decentralised finance (DeFi). DeFi activities will be covered by the new regime where they involve cryptoasset regulated activities and there is a clear controlling person(s) carrying on an activity.
The FCA is exploring whether to impose restrictions on firms from accepting credit as a means for consumers to buy cryptoassets but potentially exempting qualifying stablecoins issued by an FCA-authorised stablecoin issuer.
Payment account terminations
On Monday 28 April, the Treasury published the long-awaited SI amending both the Payment Services Regulations 2017 (PSRs) and also the Payment Account Regulations 2015. The SI is called the Payment Services and Payment Accounts (Contract Termination) (Amendment) Regulations 2025. The changes to the PSRs made by the Regulations will require firms to:
- Provide a reason for terminating a framework contract which is “sufficiently detailed and specific to enable the payment service user to understand why the framework contract is being terminated”. There are certain exceptions to this requirement in relation to money laundering and immigration requirements. For example, a payment service provider does not have to provide a reason for terminating a framework contract where it has reasonable grounds to suspect a payment service provided under the framework contract has, is or will be used in connection with a serious crime; and
- Provide a notice of termination at least 90 days before the termination is to take effect. There are exceptions to this in relation to certain public order offences.
The Regulations come into force on 28 April 2026 and apply to all framework contracts concluded for an indefinite period and entered into on or after this date. Framework contracts entered into before 28 April 2026 can still be terminated by giving at least two months’ notice if the framework contract provides for this.
FCA review of firms’ treatment of customers in vulnerable circumstances Part 2: bereavement and power of attorney
On 12 April, the FCA published the findings of its multi-firm review of retail banks’ treatment of customers in vulnerable circumstances that involve bereavement and power of attorney. This was part of the FCA’s wider review of how firms support customers in vulnerable circumstances, the findings of which were published in March.
The FCA found that overall, firms had improved their approach to vulnerable consumers since the introduction of the Consumer Duty. They noted that firms needed to find a balance between preventing fraud and allowing customers access to funds.
As previously communicated, the FCA also emphasised that firms should have systems in place so that customers do not need to repeat their circumstances to different parts of the business.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, May 2025
