A Guide to UK Identity-Centric Banking and Finance Regulations

The UK’s financial regulatory landscape is known for its comprehensive oversight, securing consumer interests and rights, and focus on maintaining fair, competitive markets. While the country’s financial rules aim to protect consumers and ensure market stability, they also emphasise innovation, particularly in the post-Brexit era. Central to this regulatory framework are identity-related requirements, which are crucial for compliance and consumer protection.

In today's digital age, data privacy also has become an essential component of consumer protection. In Ping Identity’s 2024 consumer survey, almost three-quarters of British respondents said they felt they will never be in control of their personal data. That represents a critical problem, as data privacy fundamentally is about responsible handling, processing and storage of personal information, and evidently the missing part is that users do not have enough control or visibility into who their data is being shared with, which is something that organisations need to correct.

With the increasing prevalence of cyber threats and identity theft, robust privacy practices are vital for protecting individuals' sensitive information. In the financial sector, where identity verification and customer data are key to operations, these protections are even more crucial. Adhering to data privacy laws helps prevent fraud, secure customer identities, and support the wider regulatory framework, ensuring fair and transparent practices across the financial industry.

In this blog, we break down the key regulations shaping the UK’s financial sector, focusing on how they impact identity management. 

1. Financial Services and Markets Act (FSMA)

The Financial Services and Markets Act (FSMA), passed in 2000, is the backbone of the UK's financial regulation. It created a single regulatory framework, overseen by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). These bodies enforce key rules around Anti-Money Laundering (AML) and Know Your Customer (KYC), requiring firms to implement robust identity verification and assurance checks to ensure consumer data protection and prevent fraud. This comes in light of 88% of UK consumers feeling concerned over identity theft and fraud in general, according to the previously mentioned survey, which is something that enterprises must get on the right side of to ensure consumer trust is firmly established.

2. Future of Payments Review (2023)

The Future of Payments Review, commissioned by HM Treasury, evaluates the future of payments in the UK and offers recommendations to enhance fintech competitiveness. One key focus is improving Strong Customer Authentication (SCA). The review suggests making SCA more flexible to reduce fraud and improve the customer experience, allowing firms to take a risk-based approach when authenticating transactions.

Additionally, a new rule effective in October 2024 will require UK Payment Service Providers to reimburse customers who fall victim to authorised push payment (APP) scams, reflecting the increasing importance of secure identity verification in digital transactions.

3. UK Consumer Duty

The UK Consumer Duty, introduced in 2022 and enforced from July 2023, mandates that financial service providers deliver fair outcomes and protect customers from foreseeable risks. While not explicitly targeting identity management, the Consumer Duty’s emphasis on protecting consumers highlights the need for firms to strengthen their cybersecurity and authentication measures to prevent unauthorised access to sensitive information. Also, Consumer Duty goes further by also mandating that providers take appropriate provisions to ensure equity of access into their services by giving consumers choice of how they interact with said services.

4. Open Banking

The UK’s Open Banking initiative, initially introduced alongside the EU’s PSD2 in 2018, is evolving with the upcoming Payment Services Regulation (PSR1) and Payment Services Directive 3 (PSD3). These new regulations aim to further enhance consumer protection and innovation in financial services. PSR1 and PSD3 will strengthen security requirements for data sharing and introduce more robust consent management frameworks. Firms will need to implement advanced authentication processes and comply with stricter rules around customer data access. 

Additionally, the Financial Information Data Access (FIDA) regulation will mandate a clearer, safer framework for sharing financial data, giving consumers even greater control and ensuring third-party providers maintain high standards of security and transparency. These updates are designed to promote competition while safeguarding sensitive financial information in an increasingly digital economy.

5. FCA Handbook

The FCA Handbook compiles the rules and guidelines financial firms must follow to stay compliant. It includes specific requirements around Strong Customer Authentication (SCA), ensuring that firms use advanced identity verification methods to safeguard customer identities and maintain trust in the financial markets.

Streamlining compliance with IAM

The UK’s regulatory framework for financial services is designed to protect consumers while fostering innovation. From FSMA’s foundational rules to the forward-looking recommendations of the Future of Payments Review, these regulations are increasingly focused on identity management and security. 

With 60% of UK consumers saying they are unaware of how many companies have access to their data, according to the previously mentioned survey, the need for more robust controls couldn’t come sooner. By adopting robust Identity and Access Management (IAM) solutions, financial service providers can stay compliant with evolving regulations, protect customer data, lower cost and effort all while delivering a seamless user experience.