What 2025 Means for Challenger Firms and Building Societies Amid Regulatory Shifts

The UK is introducing simpler rules for smaller banks and building societies to reduce the burden of regulation while keeping the system safe. These firms are in a good position to benefit, but there are worries that some risks being removed in one area of the rules might just be added back in elsewhere. Differences between UK, EU, and US rules could also make things more complicated, especially for firms that do business in more than one country.

Suade recently hosted a webinar to explore this topic in more depth.

Getting Ready for the Strong and Simple Regime

Most building societies that qualify have already decided to adopt the Strong and Simple regime. Many smaller challenger firms are also following this path. It makes sense. These firms already have simple business models and focus on lower-risk products like mortgages.

But joining the regime is not the end of the story. Firms also need to think about the future. Will they still qualify in two or three years? Growth plans, new products or acquisitions might change that. This is why planning ahead is so important. Some firms may even decide to simplify further if it helps them stay within the rules and avoid extra costs.

Basel 3.1 Delay: A Relief or a Risk?

The rules for Basel 3.1 have been delayed until at least January 2027. Some firms are pleased to have more time. Others feel frustrated. The delay creates confusion and makes long-term planning harder.

One possible solution is to bring in the Strong and Simple regime at the same time as Basel 3.1. If both sets of rules start together, there is no need for a temporary fix in between. That would save time, effort and cost. But this depends on whether both can be finalised and approved in time.

Is the Regime Really Simple?

While the Strong and Simple rules are a step in the right direction, there are still concerns. Some of the changes look simple at first but still require a lot of work behind the scenes.

For example, the new method for calculating operational risk may seem easier. But firms still have to do a full analysis before being placed in a category. The way these categories are decided is not clear. This creates a risk of unexpected capital increases.

Another issue is the capital buffer. A new single buffer is being introduced, but the way it is calculated is still uncertain. If the final number is the same every year, some believe it would be easier to just publish that number instead of asking firms to run stress tests to find it.

There is also a cultural challenge. Many firms may continue to follow old habits, even when the rules have changed. This could come from internal teams, external auditors or regulators. True simplification will require a shift in thinking across the entire industry.

What About Reporting?

The Strong and Simple regime does reduce the number of reports firms have to submit. Some templates are being removed. Others are becoming shorter and less detailed. This is a welcome change for firms that do not carry complex risks.

However, not all time-consuming reports have been removed. Key reports like the PRA 110 still need to be completed. Further changes may be on the way, but it is not yet clear how much of a difference they will make.

Looking for More Proportionality

There are other areas where regulation could be made more proportional. Some outdated rules are still in place, even though they are no longer relevant. These could be removed.

It is also important to recognise that building societies are not the same as listed banks. Their structure is different, and their risks are different. But they are often treated the same. There is a clear opportunity to tailor the rules more fairly.

Technology can also help. Better systems and digital tools can reduce the cost of staying compliant. Open conversations between regulators and firms will also be key. The more feedback is shared, the better the rules will reflect what firms actually need.

Final Thoughts

Despite the uncertainty, many firms are choosing to continue with their transformation plans. This approach may bring more benefits in the long run than waiting for full clarity.

The future of regulation is still being written. Firms that stay alert, stay flexible and keep engaging will be in the best position to succeed.

Missed the webinar? Watch the full conversation here.