UK Regulator Cautions That Weakening Rules Could Lead to Increased Failures

Deep Reforms on the Horizon: How FCA Changes Will Impact Mortgage Rules and Anti-Money Laundering Checks

In a significant move to support economic growth, the Financial Conduct Authority (FCA) has announced a series of deep reforms aimed at simplifying mortgage lending and advice rules, as well as streamlining anti-money laundering (AML) checks. These changes, outlined by FCA Chief Executive Nikhil Rathi, are set to have a profound impact on the financial sector and home ownership in the UK.

Simplifying Mortgage Lending and Advice Rules

The FCA is responding to government calls to boost the mortgage market by introducing several key regulatory changes in 2025. At the heart of these reforms is the simplification of responsible lending and advice rules for mortgages. This move is designed to support home ownership by potentially allowing borrowers to access more credit, although it also comes with the acknowledgement that easing these rules could lead to an increase in defaults and fraud.

Rathi has emphasised the need for a balanced approach between increasing access to lending and managing the risk of defaults. The FCA plans to consult on removing outdated guidance, such as rules related to maturing interest-only mortgages, and will work with the government to eliminate overlapping standards like the Mortgage Charter. Additionally, the regulator will streamline its handbook, reduce reporting burdens for firms, and make the Senior Managers and Certification Regime more flexible.

The Balance Between Access and Risk

While the intention is to make home ownership more accessible, the FCA is also cautious about the potential risks. Rathi has urged politicians to define what constitutes acceptable consumer harm, highlighting that some level of risk is inevitable when easing mortgage rules. This balanced approach is crucial to ensuring that the benefits of increased lending do not come at the cost of significant consumer detriment.

Enhancements to Anti-Money Laundering Checks

Alongside the reforms in mortgage lending, the FCA and the UK government are also focusing on improving the effectiveness of AML and counter-terrorism financing (CTF) supervisory systems. As part of the Economic Crime Plan 2023–26, HM Treasury is consulting on structural reforms to enhance the supervision and enforcement of AML and CTF requirements.

The current consultation considers granting new powers to the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) to enhance the effectiveness of professional body supervisors. This includes potential reforms to sanctions supervision, given the increased complexity of UK sanctions following recent geopolitical events.

Improving Customer Due Diligence

The Money Laundering Regulations 2017 (MLRs) are a cornerstone of the UK’s AML regime, and the government is consulting on how to make these regulations more effective. Key areas of focus include making customer due diligence (CDD) more proportionate and effective, strengthening system coordination, providing clarity on the scope of the MLRs, and reforming registration requirements for the Trust Registration Service.

Firms will be required to carry out risk assessments to identify and assess the risks of money laundering and terrorist financing, appoint nominated officers, screen relevant employees, and establish independent audit functions. These measures are designed to ensure that businesses are better equipped to prevent and detect economic crime.

Implications for Businesses and Homeowners

For businesses, these reforms mean a more streamlined regulatory environment. The FCA’s plans to reduce reporting burdens and make regulatory regimes more flexible will help firms operate more efficiently. However, it is crucial for businesses to remain vigilant and ensure their financial crime systems and controls are aligned with the updated regulations.

For homeowners and potential buyers, the simplified mortgage lending rules could open up new opportunities for accessing credit. However, it is important to be aware of the potential risks associated with easier lending criteria and to approach any new mortgage applications with a clear understanding of the terms and implications.

Conclusion

The FCA’s commitment to deep reforms in mortgage lending and AML checks marks a significant shift in regulatory policy. While these changes aim to boost economic growth and support home ownership, they also underscore the importance of balancing access to credit with prudent risk management.

As these reforms unfold, it will be essential for both businesses and consumers to stay informed and adapt to the new regulatory landscape.

At Cutts & Co Accountancy, we are dedicated to helping our clients navigate these changes and ensure compliance with the evolving regulatory requirements. Whether you are a business looking to streamline your operations or an individual seeking to understand the implications of these reforms on your mortgage, our expert advice and guidance are here to support you every step of the way.