The Red Tape Reform: Are UK Firms Prepared for Regulatory Freedom?

Skillcast surveyed 500 full-time employees in the UK across the banking/financial services and legal/law and HR industries in September 2025 to understand how UK businesses are responding to the Leeds Reforms.

Key takeaways from our red tape survey:

The red tape reform survey found that:

• Regulatory anxiety persists: Almost nine in every ten firms expressed some level of concern over the associated risks of lighter regulation.
• Investment patterns reveal caution: 55% of firms reported increased compliance spending in the past 12 months, but most changes fell within 1-20%.
• Internal controls lead: 58% of firms prioritise regular compliance training and internal policies over external controls, emphasising that self-governance is the new frontier in compliance.
• Banking and financial services firms embrace regulatory freedom: 58% of firms expect lighter regulation to benefit their operations, signalling strong optimism.
• However, Legal and HR firms are cautious: Almost two-fifths of firms express high concern about increased risks, while just 41% believe reduced red tape will support operations - and 40% remain unsure about the impact.

With the UK financial and professional services sector contributing £281 billion in real gross value added (GVA) in 2024, representing 12% of the total economic output, there is a clear economic imperative behind the proposed Leeds Reforms.

What are the Leeds Reforms?

Intended to make the UK a major destination for financial services businesses by 2035, the Leeds Reforms represent a dramatic shift towards attracting inward investment by reintroducing informed risk-taking and moving away from detailed rules.

At its core, the Leeds Reforms aim to make the UK a more competitive place to do business by removing unnecessary administrative barriers but maintaining essential protections for consumers, markets, and the economy.

This comes after a recent committee report warned that the burden of compliance in the UK was disproportionately high on financial services firms. Pervasive risk aversion, regulatory uncertainty, inefficiency in the regulatory system, and a lack of trust in the financial services sector were referenced as factors holding back sector competitiveness and growth.

Impact of Leeds Reforms on the financial services industry

As part of the wider Financial Services Growth and Competitiveness strategy, the Leeds Reforms will primarily impact financial services businesses by cutting the regulatory red tape, reducing the cost of regulation, and improving the pace of change.
To deliver a competitive regulatory environment, key reforms include:

• Reforming the Financial Ombudsman Service (FOS) - Ending FOS’ present position as a quasi-regulator to improve fairness and predictability in dispute resolution.
• Accelerating regulatory approvals - Shortening FCA and PRA application deadlines for new firms and senior management appointments with faster determination processes.
• Streamlining compliance frameworks - Reducing duplicative reporting requirements and simplifying regulatory processes to lower operational costs.
• Enhancing regulatory agility - Creating more flexible frameworks that can adapt quickly to market innovations and emerging business models.

However, the regulatory shift represents significant implications for firms’ compliance obligations and internal governance requirements.

The Red Tape Trade-Off Survey

To understand how UK businesses are responding to the Leeds Reforms regulatory overhaul, Skillcast conducted the ‘Red Tape Trade-Off Survey’, surveying 500 full-time employees in the UK across the banking/financial services and legal/law and HR industries in September 2025.

The study reviewed organisational and operational preparedness, investment patterns, and strategic approaches to managing increased autonomy to reveal a complex picture of adaptation and readiness for lighter regulation.

• Most firms are concerned about regulatory risk under lighter frameworks
• Financial and reputational damage are top concerns for firms
• Compliance investment is on the rise
• Internal controls under pressure
• Industry approaches to lighter regulation
• Why lighter regulation doesn’t mean less risk
• The price of skipping controls
• How to turn regulatory freedom into an advantage

Most firms are concerned about regulatory risk under lighter frameworks

While lighter frameworks are viewed as an opportunity for increased operational flexibility, our survey findings reveal a mixture of cautious optimism and significant concern from financial and professional services.

Approximately 47% of respondents expect lighter regulation to have a positive impact on their organisation and processes. However, almost one in five firms (19%) anticipate negative consequences, while a sizable 34% remain unsure.

This split highlights the challenge firms face in interpreting regulatory change. While the potential for operational freedom is appealing, there is a large uncertainty about how this will impact organisations, suggesting that businesses are struggling with the practical challenges of implementation.

When asked specifically about concerns over increased legal liability or regulatory risk under lighter-touch frameworks, the responses emphasised a widespread sense of caution:

• High concern (41%) -“concerned” (28%) or “very concerned” (13%)
• Moderate concern (47%) - “moderate” (30%) or “slightly” concerned (18%)
• A small minority expressed no concern - “not concerned” (12%)

This reveals significant uncertainty across the financial and professional services landscape, with almost nine in every ten firms expressing some level of concern over the associated risks of regulatory freedom.

The high levels of caution and uncertainty likely stem from the shift in responsibility from external regulatory oversight to internal governance, where mistakes and oversights now carry direct consequences for leadership, compliance teams, and the wider organisation.

Financial and reputational damage are top concerns for firms

Embracing regulatory freedom is one thing, but managing and understanding the risks it brings to the forefront is another thing altogether.

Survey respondents were asked to rank the associated risks of lighter regulation in order of which they believe poses the greatest threat to their organisation, revealing a clear concern:

Top three perceived risks under lighter regulation:

1. Regulatory penalties (mean: 4.1)
2. Financial loss (4.1)
3. Reputational damage (4.2)

Secondary concerns around lighter-touch regulations:

4. Data or privacy breaches (4.3)

5. Legal liability (4.4)

6. Fraud or financial crime exposure (4.6)

These secondary risks, while still significant, are perceived as slightly less immediate threats to firms, possibly due to existing controls or a focus on more tangible financial and reputational threats.

Potential blind spots

7. Operational disruption (4.7)
8. Employee or HR challenges (5.6)

However, operational disruption and employee or HR challenges were consistently ranked as lesser threats, signalling potential blind spots in long-term planning. Without due diligence, underestimating these risks could cascade into operational or cultural misalignments under lighter regulation and create inefficiencies or gaps in compliance.

Overall, the findings underscore that lighter regulation does not equal lower stakes, and firms will need to adopt risk-aware mindsets in order to balance immediate threats with longer-term operational and cultural resilience.

Compliance investment is on the rise

Over the past 12 months, 55% of firms reported increasing compliance spending, reflecting a more proactive approach to managing new risks. However, the scale of that investment varied, indicating a range of preparedness:

How has your organisation’s investment in compliance (staffing, technology, or budget) changed in readiness for lighter regulation:

• Increased by more than 20% - 9% of firms
• Increased moderately (1-20%) - 46% of firms
• Investment stayed the same - 32% of firms
• Decreased moderately (1-20%) - 8% of firms
• 0% of firms decreased investment by more than 20%
• 5% of respondents were unsure

Compliance investment by industry

Compliance spending in Banking and Financial Services:

In the past year, 69% of banking and financial services firms reported increased compliance spending (10% by more than 20%, 59% by 1-20%). Only 21% of firms maintained static budgets, while 8% reported moderate decreases, with 0% of firms decreasing investment by over 20%.

This proactive investment aligns with the sector’s high-stakes risk profile, where firms identified financial loss (#1), regulatory penalties (#2) and data or privacy breaches (#3) as their biggest threats under lighter regulation.

Legal sector sees compliance investment at a standstill

In contrast, the legal sector (170 respondents) revealed a far more conservative approach to compliance spending, with 44% of firms reporting unchanged compliance investment while only 42% increased investment (7% by more than 20%, 35% moderately).

A further 7% of legal firms decreased compliance investment by 1-20%.

This cautious stance may reflect the sector’s lower perceived risk profile, as 47% of legal firms remained unsure about the impact of lighter regulation, while 18% expressed no concern about increased legal liability or regulatory risk.

However, the ranking of legal liability (mean: 4.1) and regulatory penalties (4.2) as the sector’s two main perceived risks suggests that firms are not entirely unaware of the looming threats, but their limited investment may leave them vulnerable.

Majority of HR firms play it safe

HR firms (made up of 80 respondents) reported a mixed risk profile, with 61% of HR firms saying they have increased compliance spending (16% by more than 20%, 45% moderately).

However, 26% reported compliance investment staying the same over the past 12 months, while 6% reported being unsure of any changes.

To that, the HR sector was the only one to report compliance investment decreasing by more than 20% (1% of firms), while an additional 5% decreased investment moderately (1-20%).

This comes despite HR firms ranking reputational damage (mean: 4.1), financial loss (4.1) and operational disruption (4.2) as their top threats, while over half expressed high concern (53%) over increased risks under lighter regulation.

As such, the varied investment suggests a potentially overly cautious and inconsistent approach, with sector-level awareness not fully matching resource allocation.

Internal controls under pressure

With regulatory bodies stepping back, firms will be reliant on their own internal governance structures, increasing the burden and expectation on compliance teams and robust internal controls to mitigate gaps and risks.

As a result, firms identified the following top three factors to ensure compliance under lighter regulation:

1. Regular compliance training for employees (58% of firms)
2. Clear internal policies and procedures (50%)
3. Access to compliance tools and technology (37%)

Over half of firms prioritising regular compliance training for staff indicate a proactive approach to equipping staff with the knowledge and skills needed to manage lighter regulation. The added emphasis on clear internal policies and access to corporate compliance tools further reflects a focus on establishing robust frameworks and leveraging technology to ensure compliance.

However, this focus is slightly at odds with the three deprioritised factors:

1. Support from external advisors or auditors (19% of firms)
2. Strong organisational culture and ethical standards (29%)
3. Ongoing monitoring and risk assessments (31%)

Reduced focus on ongoing monitoring could weaken firms’ ability to detect emerging risks, while underinvestment in organisational culture and ethical stands may hinder long-term compliance resilience.

These gaps highlight the need for a balanced approach that integrates the technical and procedural with necessary cultural elements to sustain compliance in an environment with less external oversight.

Industry approaches to lighter regulation

Banking and Financial Services: Embracing freedom with caution

The banking and financial services industry shows cautious optimism overall about lighter regulation under the Leeds Reforms. A majority of firms (58%) expect lighter regulation to benefit their processes and operations, compared to 19% who fear negative consequences and 22% that remain unsure.

This confidence is aided by the sector’s proactive compliance spending, while firms are particularly focused on the threats of financial loss (mean: 3.9), regulatory penalties (4.1), and data and privacy breaches (4.1) - reflecting a strategic approach to balancing regulatory freedom with risk management.

Top factors banking and financial services firms are prioritising to maintain compliance:

1. Regular compliance training for employees (57% of firms)
2. Clear internal policies and procedures (54%)
3. Access to compliance tools and technology (39%)

Yet, only 28% of firms view ongoing monitoring and risk assessments as a main priority. This blind spot could leave institutions vulnerable, especially given the heightened exposure to cybersecurity threats as more than four in 10 businesses have reported a cyberattack in the last 12 months, representing over 612,000 companies.

To that, the survey revealed ‘fraud or financial crime exposure’ (mean: 4.7) ranked as a lower priority threat, despite the introduction of the new ECCTA “failure to prevent fraud” provision in September 2025. This comes as our ECCTA Readiness Report revealed the financial services sector was among the least prepared for ECCTA compliance, with many firms exhibiting high non-compliance risk.

This gap indicates that while the banking and financial services industry is investing in compliance and prioritising staff training, it may need to recalibrate its focus to strengthen and reinforce ongoing monitoring and fraud prevention - or risk falling behind under lighter regulation.

Legal and HR: Measured moves under reduced oversight

In comparison, the Legal and HR sectors combined show a more reserved stance to lighter regulation overall.

In the legal industry, nearly half of firms (47%) remain unsure about how lighter regulation will affect them, while only 35% anticipate positive outcomes on operations and processes, and 18% expect a negative impact.

Compliance investment has largely stayed the same, with top risk concerns centring on legal liability (mean: 4.1) and regulatory penalties (4.2), suggesting the sector is deeply cautious about liability exposure as a result of the Leeds Reforms.

Legal firms’ top internal controls priorities to maintain compliance:

1. Regular compliance training (59% of respondents)
2. Clear internal policies (51%)
3. Dedicated internal compliance teams (34%)

However, just 31% of firms prioritised ongoing monitoring, exposing vulnerabilities in forward-looking risk management.

HR firms, meanwhile, showed greater confidence, with 55% expecting lighter regulation to improve processes and operations (compared to 19% negative, 26% unsure). The moderate increase in compliance investment of 61% for HR firms also indicates a heightened awareness of risk, particularly as 53% reported high concern levels.

In contrast to the other sectors, HR firms ranked operational disruption (mean: 4.2) as a top risk alongside reputational damage (4.1) and financial loss (4.1), pointing to their focus on day-to-day workforce management and internal operations.

Compliance priorities included regular compliance training (63%), access to compliance tools (48%) and clear internal policies (44%), suggesting a larger emphasis on technology and training to support internal controls. However, dedicated internal compliance teams (26%) and ongoing monitoring and risk management (29%) fell at the lower end.

While both legal and HR firms recognise the risks, they also highlight significant gaps in addressing fraud, monitoring, and cultural transformation, suggesting that their current approach may fall short in sustaining compliance resilience under lighter-touch oversight.

Why lighter regulation doesn’t mean less risk

The challenge is clear: With regulatory freedom comes the responsibility to self-govern effectively, and firms will need to invest more heavily in internal controls when external oversight decreases.

Despite the survey finding increased compliance investment across the board, gaps in preparation are noticeable, particularly around the less imminent but still critical governance risks.

With companies expected to bear greater responsibility for designing, implementing and monitoring their own internal controls frameworks, demonstrating outcomes-based compliance will require:

• Enhanced internal governance
  Firms will need to develop sophisticated risk management frameworks that can operate effectively with reduced external guidance, while maintaining regulatory standards.
• Transformation into a culture of compliance
  Moving from rule-following to principles-based decision-making requires embedding ethical considerations, risk awareness, and compliance throughout the firm.
• Investment in capabilities
  Companies will need stronger internal expertise, policy management tools, monitoring systems, and governance structures to fill the gaps left by reduced regulatory oversight.

The price of skipping internal controls

While reduced rules may seem like a burden lifted, responsibilities and accountability actually transfer from external bodies to internal governance structures, creating new risk categories for firms.

Legal liability and financial loss risks grow as companies become more directly accountable for their decisions and outcomes. Reputational damage also becomes more severe as governance failures will reflect directly on corporate leadership rather than regulatory gaps.

Operational disruption is another critical concern. Firms will need to build and maintain compliance systems that were previously guided or mandated by regulators. As such, the complexity of managing these responsibilities internally may exceed the administrative burden of following external rules.

Importantly, existing frameworks, such as the Senior Managers and Certification Regime (SMCR), remain in full force, meaning firms cannot simply abandon established accountability structures.

How to turn regulatory freedom into an advantage

Rather than viewing lighter regulation as simply reducing oversight burden, forward-thinking organisations can use this transition to layer new self-governance responsibilities on top of existing regulatory requirements. To turn this into an advantage, firms should focus on two key areas:

1 - Investing in compliance training and strong internal policies

Successful transformation goes beyond basic awareness to implementing sophisticated role-specific compliance training, reinforcing a culture of continuous learning, and leveraging advanced tools to monitor and manage compliance effectively.

Findings from a recent Skillcast survey further show that a majority of employees believe effective compliance learning must go beyond traditional e-learning. Instead, over a third of those polled recognise the value of alternative formats such as videos, AI-powered chatbots, microlearning modules, or podcasts.

Others highlighted policy documents (19%), webinars (16%) and job aids / self-checklists (2%), signalling a strong preference for blended learning approaches.

Firms should also consider:

• Conducting regular compliance audits to assess the strength of their preparations, security policies, and user access controls, making it easy to identify gaps and weaknesses in existing frameworks.
• Using advanced analytics and reporting tools to identify gaps and demonstrate due diligence proactively.

2 - Ensuring investment alignment with greater regulatory freedom

Resources also need to be matched with the autonomy granted by lighter regulation. Firms need to consider:

• Scaling compliance budgets and staffing to meet the increased internal responsibilities.
• Strengthen monitoring systems to ensure ongoing governance rather than relying on reactive oversight.
• Foster an ethical and accountable culture, investing in compliance to make it a core part of business operations from the top down, rather than a procedural formality.

In doing so, firms can capitalise on regulatory freedom as a strategic opportunity, rather than a cost-saving measure, to enhance resilience, reduce and manage risk exposure, and differentiate themselves in the market.

Methodology

Skillcast conducted a survey in September 2025 to assess how UK firms are responding to the Leeds Reforms and lighter regulation. The survey captured insights from 500 full-time employees across the banking and financial services sector (250 respondents) and the legal/law and HR sector (250 respondents) via Pollfish.

Respondents were asked a total of five questions designed to measure and assess expectations, risk perceptions, and compliance readiness. Where possible, the data has been stratified to ensure representative distribution across the workforce.