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January 2026 has produced a regulatory inflection point. The PRA published the final Basel 3.1 rules on 20 January, confirming a one-year implementation delay to 1 January 2027 and setting out a fundamental recalibration of capital requirements for banks and investment firms. The new Public Offers and Admissions to Trading Regulations (POATRs) regime takes effect on 19 January, replacing the EU Prospectus Regulation and introducing a more permissive framework for public offers. Simultaneously, the FCA launched Part II of its crypto regulatory consultation (CP26/4) on 23 January, proposing comprehensive rules for cryptoasset activities including custody, trading, and staking. Three enforcement actions – Carillion officers Richard Adam (£232,800) and Zafar Khan (£138,900) on 7 January, Darren Anthony Reynolds (£2,037,892) on 12 January, and Bhavesh Hirani (£56,000) and Dipesh Kerai (£52,731) on 27 January – signal accelerating enforcement pace and broadening enforcement scope beyond financial reporting into dishonest pension advice and insider dealing. For fund managers, the regulatory architecture is shifting faster than any point since the FCA assumed its secondary growth and competitiveness objective. Basel 3.1 is not a banking story; it is an asset management story. Every fund that lends to, borrows from, or trades with a bank will feel the capital recalibration.
PRA PS1/26: Basel 3.1 Final Rules and the Capital Recalibrationdummyanimatedrotating
Published on 20 January 2026, PRA PS1/26 finalises the UK implementation of Basel 3.1 capital standards. The PRA confirmed a one-year implementation delay to 1 January 2027 (from the originally planned 1 January 2026), allowing time for rulebook transposition. The final rules cover IRB permissions, standardised approach requirements, the output floor, and the Fundamental Review of Trading Book (FRTB) Internal Model Approach, which takes effect from 1 January 2028. The rules apply to PRA-authorised banks, building societies, and PRA-designated investment firms.
- IRB approach changes: New conditions for IRB permission and continued use, including enhanced governance, model validation, and data quality requirements. The PRA has clarified that IRB permission is conditional and will be reviewed on a rolling basis.
- Standardised approach: Recalibrated risk weights for sovereigns, banks, corporate exposures, and retail portfolios. These changes materially increase capital requirements for certain exposures and will reshape counterparty credit cost allocation.
- Output floor: A binding floor constraint that capital requirements under internal models cannot fall below 72.5% of the standardised approach. This prevents excessive capital benefit from model-based calculations and is the single most significant constraint on IRB capital advantage.
- FRTB IMA: Implementation delayed to 1 January 2028 to allow firms to build trading book classification frameworks and model infrastructure. The Internal Model Approach replaces the Incremental Risk Charge and Comprehensive Risk Measure with integrated market risk calculations.
Basel 3.1 will reshape counterparty credit cost allocation across the financial system. Banks will pass the capital recalibration through to customers in the form of higher interest rates on lending facilities and wider bid-ask spreads on derivative products. Asset managers running leveraged strategies, synthetic prime brokerage programmes, or derivatives-heavy absolute return funds will face materially higher counterparty credit costs. Fund boards should be commissioning sensitivity analysis now on how funding costs and derivative pricing will respond to the output floor constraint. The firms that wait for the implementation date to understand the impact will be the firms caught off-guard.
The output floor is not a technical capital measure. It is a policy decision that limits the competitive advantage of banks that have invested heavily in proprietary models. For asset managers that rely on leverage or derivatives pricing from counterparties with advanced models, the floor fundamentally changes the economics of those services. CCOs should be mapping all material derivative and lending counterparties against the output floor impact and working with finance teams to model cost inflation.
Regulatory Updates
POATRs Regime Takes Effect: New Public Offers and Admissions to Trading Regulationsdummyanimatedrotating
On 19 January 2026, the new Public Offers and Admissions to Trading Regulations (POATRs) regime takes effect, replacing the EU Prospectus Regulation (1169/2011). The POATRs regime introduces a fundamentally different approach to public offers, moving from a presumptive permission model to an exemption-based framework where public offers are generally prohibited unless an explicit exemption applies. The regulator has simplified the IPO prospectus preparation period from six working days to three working days and consolidated the listing application process into a single tranche.
- Public offer framework: Public offers now generally prohibited unless exemption applies. Exemptions cover prospectus-exempt offers (minimum consideration per investor, total amount, and qualified investor thresholds) and offers where the promoter has already published an approved prospectus within 12 months.
- IPO prospectus timeline: Reduced from six working days to three working days, reflecting market practice in other jurisdictions and the FCA’s intent to support faster capital raises.
- Listing application consolidation: A single application covers both admission to trading and prospectus approval, eliminating the two-stage process under ESMA’s coordination model.
- Competence framework: The FCA has published guidance clarifying the competence and capability expectations for listing services firms supporting IPO processes under the compressed timeline.
The POATRs regime signals a strategic regulatory choice: the FCA is willing to accept greater exemption scope (fewer public offers requiring full prospectus) in exchange for faster capital market access. For fund managers considering listed fund launches or securitisation issuances, the regime creates optionality around timing and cost. A three-working-day prospectus timeline is materially tighter than the EU six-day expectation. Issuers and their advisers need to map their IPO critical path against the new timeline now, not during an active raise.
FCA CP26/4: Crypto Regime Consultation Part II – Comprehensive Cryptoasset Activity Rulesdummyanimatedrotating
Published on 23 January 2026, the FCA launched Part II of its crypto regulatory consultation (CP26/4). The consultation proposes comprehensive rules for firms conducting regulated cryptoasset activities, including custody, trading, intermediation, and staking. The consultation closes on 12 March 2026. The rules apply to firms designated for cryptoasset regulation under the FCA’s new designated investment business framework.
- Custody and safeguarding: CASS-aligned requirements for firm assets, operational resilience, and account separation. Custodians must demonstrate industry-grade custody infrastructure and documented risk management frameworks.
- Trading: Requirements for order execution, price transparency, conflict of interest management, and best execution principles adapted for digital assets. Algorithmic trading requirements comparable to equity and derivative frameworks.
- Intermediation: Dealing as agent, matched principal trading, and principal dealing arrangements. Capital and liquidity requirements calibrated to the illiquidity and volatility characteristics of cryptoassets relative to traditional instruments.
- Staking: A novel regulatory category. Proposed rules require disclosure of staking rewards, risk of stake forfeiture, validator risks, and lock-in periods. Firms offering staking services must document the mechanics of the underlying blockchain protocol and their role in that ecosystem.
The staking rules deserve particular attention. Staking is a financial service that did not exist a decade ago and still does not have a settled regulatory home across any major jurisdiction. The FCA’s approach requires staking service providers to disclose the technical mechanics of the underlying blockchain, their role in that ecosystem, and the consequences of that role for the staking consumer. For firms considering crypto asset services, the governance and disclosure infrastructure required by these rules is substantial. Compliance teams should be commissioning gap analyses of custody infrastructure and disclosure capabilities now, not waiting for final rules.
FCA GC26/2: Consumer Duty Application to Cryptoasset Firms – Guidance Consultationdummyanimatedrotating
Published on 23 January 2026 alongside CP26/4, the FCA launched guidance consultation GC26/2 clarifying how the Consumer Duty (PRIN 2A) applies to firms conducting regulated cryptoasset activities. The guidance confirms that cryptoasset firms face the same Consumer Duty expectations as any other regulated financial services firm, but with cryptoasset-specific applications concerning consumer understanding, conflicts of interest, and fair value assessment.
- Consumer understanding: Cryptoasset firms must assess whether retail consumers can understand the characteristics of digital assets, including volatility, custody arrangements, validator risks, and the absence of deposit protection schemes.
- Fair value: Expectations on how cryptoasset firms should assess whether they are delivering fair value when pricing execution, custody, or intermediation services in illiquid markets.
- Conflicts of interest: Requirements for managing conflicts where firms simultaneously offer custody, trading, and staking services and may have alignment incentives across those services.
PRA PS2/26: Retiring the Refined Methodology to Pillar 2Adummyanimatedrotating
Published on 20 January 2026, PS2/26 finalises the PRA’s policy on retiring the refined Pillar 2A methodology. The refined methodology will be phased out over a transition period as the PRA moves to a standardised Pillar 2 framework that applies consistent capital add-ons across the banking system. Implementation and transition details are set out in the policy statement.
PRA PS3/26: Restatement of CRR Requirements – 2027 Rulebook Integrationdummyanimatedrotating
Published on 20 January 2026, PS3/26 finalises the restatement of Capital Requirements Regulation (CRR) requirements into the PRA Rulebook. The policy is part of the PRA’s ongoing programme to consolidate UK regulatory requirements into a single rulebook. Implementation is scheduled for 1 January 2027, alongside Basel 3.1 implementation.
Basel 3.1 is not a banking story. It is an asset management story. Every fund that lends to, borrows from, or trades with a bank will feel the capital recalibration.Asad Bukhory
PRA Developments
PRA PS4/26: Strong and Simple Framework – Simplified Capital Regime for Small Domestic Deposit Takersdummyanimatedrotating
Published on 20 January 2026, PS4/26 finalises the PRA’s Strong and Simple framework, introducing a simplified capital regime for Small Domestic Deposit Takers (SDDTs). The regime applies to smaller UK banks and building societies that meet the SDDT eligibility criteria: less than £30 billion in total assets, deposit-funded business model, primarily UK domestic focus, and simple business structures.
- Capital simplification: SDDTs will use simplified Pillar 1 capital calculations based on standardised approach requirements without IRB permission, reducing the compliance burden for smaller banks that historically lacked the infrastructure to support advanced models.
- Pillar 2A methodology: SDDTs subject to a simplified Pillar 2A add-on calculated using the PRA’s standardised methodology rather than the individualised refined approach used for larger banks.
- Supervisory advantage: Smaller banks can now access proportionate capital frameworks, improving their competitive position relative to larger institutions while maintaining prudential consistency.
The Strong and Simple framework is a regulatory recognition that the post-Basel 3.1 environment creates disproportionate compliance burden on smaller institutions. The simplified regime reflects the PRA’s intent to maintain a proportionate supervisory approach as capital rules become more complex. For asset managers that work with smaller banks and building societies on lending relationships or derivative services, the SDDT framework matters: smaller banks in the SDDT category will have different capital cost structures than larger peers.
PRA Insurance Supervision: 2026 Priorities Letter and Banking Supervision Lettersdummyanimatedrotating
Published on 15 January 2026, the PRA published supervisory priorities letters setting out the regulator’s supervisory agenda for 2026. Three letters were published: the insurance supervision priorities letter from Charlotte Gerken and Laura Wallis; the UK Deposit Takers priorities letter from Rebecca Jackson and Alison Scott; and the International Banks priorities letter covering the same content as the UK Deposit Takers letter but addressed to international bank branches and subsidiaries.
- Insurance priorities: The letter covers prudential supervision, conduct and governance, and financial crime themes. Specific focus areas include integration of new Solvency II frameworks, resilience stress testing schedules, and environmental risk assessment for insurance liabilities.
- Banking priorities: The letters cover operational resilience, financial crime controls, governance and culture, and prudential risk management. The letters emphasise the importance of third-party risk management and the supervisory expectations for incident reporting under the new operational resilience framework.
Fund Launches
UBS Nuclear Economies UCITS ETF – Uranium and Nuclear Energy Exposure Launchdummyanimatedrotating
On 30 January 2026, UBS launched the Nuclear Economies UCITS ETF, providing regulated fund exposure to uranium and nuclear energy companies. The launch reflects growing institutional investor appetite for nuclear energy as a core component of the global energy transition. The ETF targets companies across the nuclear fuel cycle, from uranium mining through reactor manufacturers and utilities operating nuclear generation capacity.
- Thematic rationale: Nuclear energy has moved from a marginal energy source to a central component of net-zero transition strategies. Major economies including the EU, UK, and US are committing capital to nuclear capacity expansion. The ETF captures institutional investor exposure to this transition theme.
- Fund structure: UCITS fund structure ensures the fund is available to European institutional and retail investors through standard distribution channels.
Hedge Fund Launch Acceleration into 2026 – Record Capital and AUM Levels Driving Investor Demanddummyanimatedrotating
According to HFR data, hedge fund launches are accelerating into 2026 on the back of record industry capital levels and increasing investor demand for alternative return strategies. The hedge fund industry AUM stands at $4.98 trillion, with 344 funds in development pipeline as of the first nine months of 2025. The launch acceleration reflects a combination of strong institutional capital inflows, growing interest in differentiated return strategies in the context of geopolitical uncertainty, and attractive formation economics for new fund sponsors.
- Capital dynamics: Record AUM levels mean many existing funds face capital gating and side-pocket constraints. Institutional investors seeking hedge fund exposure are increasingly willing to back new fund launches by experienced sponsors rather than commit additional capital to closed legacy funds.
- Strategy specialisation: The launch pipeline is concentrated in specialised strategies (emerging market debt, AI-related trading, geopolitical macro) rather than broad-mandate multi-strategy vehicles, reflecting investor preference for focused thematic exposure.
Enforcement
Carillion Enforcement: Richard Adam (£232,800) and Zafar Khan (£138,900) – Breach of Market Abuse Regulation and Listing Rulesdummyanimatedrotating
On 7 January 2026, the FCA concluded eight-year enforcement investigation into Carillion PLC, resulting in fines against two officers: Richard Adam, former Group Chief Executive, was fined £232,800; and Zafar Khan, former Group Finance Director, was fined £138,900. Both officers had knowing concern in breaches of Market Abuse Regulation (MAR) Article 15 (insider dealing notification requirements), Listing Rule 1.3.3R, LP1 (Listing Principle 1), and PLP2 (Pre-listing Principle 2). Carillion itself would have been fined £37,910,000 under current penalty frameworks had it not entered liquidation in 2018.
- Enforcement timeline: The investigation opened following Carillion’s collapse in January 2018. The eight-year investigation timeline exemplifies the resource intensity of complex corporate enforcement and raises questions about enforcement speed when the perpetrator has since liquidated.
- Conduct focus: The officers’ failures to comply with insider dealing notification requirements and to disclose material information through the listing disclosure regime allowed information asymmetries to persist in the market. The breaches created reputational risk for the listing regime itself.
- Penalty calibration: Despite having concerns in multiple serious breaches, the penalty quantum reflects the officers’ limited personal benefit from the conduct and the FCA’s judgment that the officers were not motivated by financial gain but by failure to understand regulatory obligations.
The Carillion enforcement took eight years to conclude. During that time, Carillion itself liquidated, executive officers have likely moved on to other roles, and the market impact of the collapse has long since been absorbed. The penalty quantum for officers (£232,800 and £138,900) is modest relative to the £37.9 million potential company fine. If the FCA’s stated ambition is faster enforcement, the Carillion timeline should provoke serious questions about whether the regulator has allocated adequate resources to close investigations faster. The contrast with the nine-month Wood Group investigation in 2026 suggests enforcement speed is still highly variable, dependent on investigation complexity and resource availability.
For listed company boards, the Carillion case is a reminder that breaches of insider dealing notification and listing disclosure obligations are systemic governance failures. The officers did not breach the rules due to intentional misconduct but due to failure to build processes that captured the obligation. NEDs responsible for governance should be asking: does our board explicitly own compliance with MAR Article 15 notification requirements, or is that buried in a compliance manual somewhere? Does our disclosure committee have a process that captures pre-announcement information movement? The absence of process is the breach.
Darren Anthony Reynolds: £2,037,892 Fine – Dishonest Pension Transfer Advice and Document Falsificationdummyanimatedrotating
On 12 January 2026, the FCA fined Darren Anthony Reynolds £2,037,892 for breach of Statement of Principle 1 (integrity). Reynolds provided pension transfer advice to British Steel Pension Scheme members that was dishonest, self-interested, and caused quantifiable harm. The FCA found evidence that Reynolds had falsified documents provided to scheme members to secure agreement to transfers he had recommended. The enforcement action centred on transfers that moved pension members out of the BSPS into less secure arrangements, exposing them to investment risk they could not afford.
- Conduct findings: Reynolds recommended pension transfers motivated by his own financial benefit from transfer fees rather than by the consumer’s best interest. He falsified documents to obtain scheme member consent. The transfers exposed members to investment risk in volatile assets inappropriate for their risk capacity and created liquidity constraints incompatible with their retirement timeline.
- Harm quantification: The FCA quantified harm by comparing actual pension fund values post-transfer to counterfactual pension income had scheme members remained in BSPS. The quantum of harm directly informed penalty calculation.
- Penalty framework: The £2,037,892 penalty reflected an initial calculation based on profit generated and harm caused, with uplifts for dishonesty and document falsification, and downlifts for cooperation and early mitigation.
The Reynolds enforcement illustrates a critical truth about pension transfer advice: transparency in fee disclosure does not eliminate conflict of interest. Reynolds was likely fully transparent with scheme members about his transfer fee. The problem was not opacity; it was dishonest advice. For IFAs and restricted advisers still operating pension transfer practice, the lesson is straightforward: fee transparency is not sufficient. You must be able to demonstrate that your advice was genuinely in the consumer’s interest despite the fee incentive. If you cannot make that demonstration with evidence, you should not be giving the advice.
Bhavesh Hirani (£56,000) and Dipesh Kerai (£52,731) – Insider Dealing Breaches of MAR Articles 14(a) and 14(c)dummyanimatedrotating
On 27 January 2026, the FCA concluded enforcement action against two individuals, Bhavesh Hirani and Dipesh Kerai, for insider dealing. Hirani was fined £56,000 and Kerai was fined £52,731 for breaches of UK Market Abuse Regulation (MAR) Articles 14(a) and 14(c), which prohibit trading in financial instruments on the basis of inside information and unlawfully disclosing inside information to others. The enforcement action covered trading activity in specific financial instruments while in possession of material non-public information.
- Information asymmetry: Both individuals had access to material non-public information by virtue of their roles in proximity to listed companies or their advisers. They traded or tipped others in breach of the prohibition on trading on that information.
- Regulatory scope: The FCA’s insider dealing enforcement continues to focus on individuals with clear information asymmetries, testing whether those individuals have built adequate Chinese walls and information barriers to prevent trading on the basis of that asymmetry.
Market Developments
FCA Stablecoin and Payments Priority 2026 – Sandbox Testing and Regulatory Framework Developmentdummyanimatedrotating
The FCA has outlined its 2026 priorities for stablecoins and payment services, including acceleration of stablecoin testing through the regulatory sandbox, development of a stablecoin regulatory framework aligned with international standards, and continued monitoring of payment system fragmentation. The FCA’s Payments and Digital Finance division is prioritising cross-border payments infrastructure and the role stablecoins could play in accelerating settlement.
- Sandbox acceleration: The FCA is actively recruiting firms for stablecoin and digital asset payment testing, with an emphasis on use cases that address specific UK payment infrastructure gaps.
- Regulatory framework: The stablecoin regulatory framework is expected to be developed in tandem with international standard-setting bodies, ensuring UK framework alignment with emerging global expectations.
PRA 2026 Supervisory Priorities Letters – Banking, Insurance, and International Bank Supervision Agendadummyanimatedrotating
As part of its quarterly communication refresh, the PRA published supervisory priorities letters on 15 January 2026 setting out the regulator’s agenda for 2026. The letters cover three constituencies: UK Deposit Takers, International Banks, and Insurance. The letters signal the PRA’s supervisory focus areas and provide firms with guidance on which risk areas will receive supervisory attention during the year.
- Common themes: Across all three letters, common supervisory priorities include operational resilience, financial crime controls, capital adequacy (particularly in light of Basel 3.1 implementation), and governance quality.
- Differentiated focus: Insurance letters emphasise Solvency II integration and climate risk assessment. Banking letters emphasise third-party risk management and incident reporting capabilities.
FCA Five-Year Strategy – Trust as Cornerstone with Growth and Competitiveness as Secondary Objectivedummyanimatedrotating
The FCA’s Five-Year Strategy, updated and restated at the start of 2026, articulates four core priorities: support growth and competitiveness of the UK financial services industry; be a smarter regulator with enhanced analytical capability; help consumers navigate their financial lives and make good decisions; and fight financial crime. The strategy explicitly positions trust as the cornerstone underlying all four priorities, with growth and competitiveness as a secondary (not primary) objective that shapes regulatory policy formation.
- Trust framework: The FCA defines trust through three components: consumer trust (that the regulator protects their interests), firm trust (that the regulator is fair and proportionate), and market trust (that the regulator maintains market integrity).
- Growth secondary objective: The growth objective explicitly shapes the FCA’s design of new regulatory frameworks (such as LTAF, crypto, stablecoins). However, the FCA is explicit that growth cannot come at the expense of trust. When growth and trust conflict, trust prevails.
The positioning of trust as the cornerstone is significant. It means the FCA will make regulatory choices that constrain growth if those choices are necessary to maintain market trust. For fund managers pursuing novel strategies or structures, the constraint is not the regulator’s willingness to innovate; it is the regulator’s need to maintain market trust. Strategies that require extensive consumer disclosure or investor sophistication screening are likely to receive proportionate regulatory treatment. Strategies that rely on opacity or information asymmetry are likely to face regulatory resistance.
Calendar
February 2026
- 4 Feb Bank of England Monetary Policy Committee rate decision
- 11 Feb FCA PS26/1 published: Buy Now Pay Later regulation final rules
- 17 Feb FCA CP26/6 and PRA CP2/26 published: Securitisation reforms consultation
March 2026
- 4 Mar FCA Consumer Investments Regulatory Priorities report published
- 12 Mar FCA CP26/4 (Crypto Regime Consultation Part II) closes
- 20 Mar FCA CP26/5 (Sustainability Disclosures) consultation closes
April – June 2026
- 6 Apr FCA PS25/20 Contingency Credit Institutions regime takes effect
- 15 May – 1 Jul Buy Now Pay Later Temporary Permissions Regime window open for applications
Key Dates Later in 2026 and Beyond
- 15 Jul BNPL Regulation Day – end of transition period for BNPL firms
- 1 Sep Non-Financial Misconduct rules take effect
- 1 Jan 2027 Basel 3.1 implementation for PRA-regulated firms
- 1 Jan 2028 FRTB Internal Model Approach takes effect
The Carillion enforcement took eight years to conclude and resulted in a fine the company cannot pay because it no longer exists. If the FCA’s stated ambition is faster enforcement, what does an eight-year timeline tell you about the gap between aspiration and capability – and what does the nine-month Wood Group case in 2026 suggest about whether that gap is closing?
We’d welcome your perspective. The best responses may feature in a future edition.
January 2026 has produced a regulatory inflection point. Basel 3.1 final rules, the POATRs regime, crypto consultations, and the Carillion enforcement conclusions collectively signal that the UK post-Brexit regulatory architecture is now being built in earnest. Fund managers who planned for a slow evolution should recalibrate. The pace of structural change in 2026 will exceed anything seen since the FCA assumed its secondary competitiveness objective.
The Basel 3.1 final rules exemplify this shift. The PRA has confirmed a one-year implementation delay to 1 January 2027, but only because the regulator needs time to transpose the standards into UK rulebook language. The substance is non-negotiable: a 12-month transition to new capital calibration, output floor constraints, and the Fundamental Review of Trading Book (FRTB) Internal Model Approach framework. For banks, this is a solvency story. For asset managers, it is an operational story. Every lending relationship, derivative exposure, and collateralised trade with a bank counterparty will feel the capital recalibration. Fund governance teams should be stress-testing counterparty credit cost inflation now, not after the rules take effect.
The POATRs regime and crypto consultations tell the same story: the regulator is no longer iterating on EU frameworks. It is building its own. The new prospectus regime moves from a default prohibition model (public offers generally prohibited except where exempt) to an explicit exemption framework, reducing the IPO prospectus period from six working days to three and consolidating the listing application into a single tranche. The crypto consultation (CP26/4, closing 12 March 2026) proposes comprehensive rules for designated investment business covering custody, trading, intermediation, and staking, with the companion Consumer Duty guidance (GC26/2) clarifying that cryptoasset firms must treat consumers with the same duty as any other financial services firm. These are not marginal adjustments to existing regimes. They are architectural decisions about which activities the UK will permit and how it will supervise them. Fund boards should map their exposure to all three regulatory developments within 30 days and assign accountability for each to a specific governance committee. The regulator has told you what it is building. The question is whether your governance framework is built to operate within it.
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