Top 10 priorities for FCA/PRA-regulated employers in 2026 

The Employment Rights Act 2025 (ERA 2025) will introduce significant changes throughout 2026–27. For FCA and PRA-regulated firms, these employment law reforms intersect with supervisory expectations on culture, governance, prudential soundness, Conduct Rules, and SMCR accountability. 

The Government’s timetable currently remains aligned with its July 2025 roadmap, but timings may move.  

This briefing highlights the most relevant core reforms and their specific implications for regulated financial services firms. 

1. Build your 2026–27 ERA implementation plan with SMCR alignment 

The ERA 2025 is the largest shift in UK employment law in decades. Key changes, changes to unfair dismissal rights, strengthened trade union rights, dayone family rights, SSP reforms and limits on fireandrehire, require documented governance, which is a regulatory expectation in any case. 

Use our Employment Rights Act 2025 summary table to help create an implementation plan for your organisation in line with the Government’s roadmap. 

Actions for financial services firms 

• Ensure ERA implementation planning aligns with SMF (Senior Manager Function) accountability, particularly SMF1/SMF2 (CEO/Executive Director) and SMF18 (Other Overall Responsibility). 
• Update the Firm’s Management Responsibilities Map where relevant policy ownership or decision routes change. 
• Ensure HR policy changes support the FCA’s emphasis on healthy culture, psychological safety and good people risk management (general regulatory expectation). 
• Map each ERA measure against policies, systems and templates and staff training.  
• Track future consultations and commencement regulations.  

2. Review recruitment and probationary processes ahead of unfair dismissal changes (expected 1 Jan 2027) 

From 1 January 2027, the qualifying period for ordinary unfair dismissal is expected to reduce from two years to six months, and the compensatory award cap for successful unfair dismissal claims will be removed. It will affect all staff with a minimum of six months’ service by 1 January 2027, including those recruited on or before 1 July 2026. 

Employers should use the first half of 2026 to tighten recruitment and induction procedures, performance management and probation reviews, so dismissal decisions are made well within six months. 

The removal of the compensatory cap might incentivise more senior and highly paid employees to bring unfair dismissal claims, meaning employers should ensure fair dismissal processes are followed for these staff. 

Actions for financial services firms 

• Most financial services roles involve extensive due diligence during onboarding; recruitment processes must front-load assessment, including Conduct Rule awareness. 

• Probation management will need to be more structured, given the much earlier liability point. 
• Senior individuals may be more inclined to litigate—regulatory references must remain accurate and properly governed. 
• Standardise probation reviews and train managers to more robustly enforce probations; update exit strategies.  

3. Strengthened harassment and sexual harassment prevention (expected Oct 2026) 

The ERA 2025 introduces a strengthened statutory duty on employers to take ‘all reasonable steps’ to prevent sexual harassment, plus a new liability for third-party harassment (of any kind involving any protected characteristic). This makes it even more important for employers to be able to show evidence of proactive harassment prevention. A finding that this proactive duty has not been met could lead to a 25% uplift in compensation.  

In addition, from April 2026, sexual harassment disclosures will be added as an extra category of ‘qualifying disclosure’ for the purpose of whistleblowing protections. As a result, workers will have an additional legal mechanism to pursue a claim for sexual harassment. 

This reform is particularly significant in financial services because: 

• whistleblowing arrangements are subject to higher regulatory expectations 
• sexual harassment concerns can have cultural and governance implications relevant to FCA/PRA supervision 
• nonfinancial misconduct is relevant to fitness and propriety assessments. From 1 September 2026, serious non-financial misconduct (e.g. bullying, harassment) will constitute a regulatory breach under the FCA Conduct Rules 
• mishandling disclosures brings both legal and regulatory risk 
• SMCR accountability frameworks demand clear ownership, escalation and evidence.  

Actions for financial services firms 

• Regulatory focus on culture means poor harassment controls may have regulatory consequences, particularly for senior individuals. 
• Review risks in customer-facing environments (e.g. wealth management, retail banking branches) and conduct a tailored risk assessment based on the particular areas of risk in your firm. 
• Ensure Conduct Rules training incorporates new harassmentrelated whistleblowing protections. 
• Conduct risk audits; update policies, training and evidence logs.  

4. NDAs/confidentiality clauses in settlement agreements  

The Government introduced a proposed amendment to the ERA in July 2025 to prevent NDAs from being used to cover up workplace misconduct. This is currently subject to consultation.  

This amendment means that any NDA or settlement agreement (or employment contract) will be void if it prevents a worker from making an allegation of harassment or discrimination or if it prevents them from disclosing information relating to harassment or discrimination allegations.  

It will therefore prevent workers from being “gagged” about reporting discrimination or harassment suffered by themselves or their colleagues, and committed by the employer or another colleague, but not harassment by or against third parties. 

The new provisions will not apply to an “excepted agreement”, which has been suggested may include NDAs requested by a worker.   

Actions for financial services firms 

• This proposed change would make it much harder for firms to settle claims or disputes involving any allegations of discrimination or harassment. It also acts as a disincentive to employers to settle disputes.  
• NDAs/confidentiality clause wording in settlement agreements should be reviewed and considered on a case-by-case basis, whether to include at all if there has been an allegation of discrimination or harassment raised. 
• Current confidentiality clause wording should already include exceptions to comply with the FCA’s regulatory requirements, e.g. disclosures can still be made in regulatory references, or to the regulator.

 5. Extended time limits for employees to bring tribunal claims (October 2026) 

In October 2026, the time limitation period for employees to bring a tribunal claim will be extended from three months to six months. 

In addition, the ACAS early conciliation period has already been extended from six to twelve weeks, with effect from 1 December 2025. During any ACAS early conciliation period, the time limit for bringing a tribunal claim is paused to allow time to explore a settlement.  

Taken together, these changes will mean that employees could have as long as 10 months in which to bring an employment tribunal claim.  

Longer limitation periods will increase the likelihood of claims arising months after key decisions have been taken, and, as a result, we expect to see a large increase in the number of claims brought.  

Actions for financial services firms 

• Tighten record‑keeping and investigations: extend document‑retention periods and improve evidence‑gathering as memories will fade over longer periods.  
• Improve early dispute management: strengthen grievance handling and manager training to reduce the likelihood of matters escalating into claims, especially given the expected increase in tribunal volumes.  
• Align HR and regulatory processes: ensure SMCR, disciplinary and whistleblowing procedures are well‑documented and defensible over a longer time period.  
• Prepare for more litigation and longer timelines: adjust legal budgets, plan for increased tribunal activity, and anticipate delays caused by system backlogs.  
• Enhance readiness for ACAS Early Conciliation: establish rapid response procedures for conciliation notices, given the move to 12‑week conciliation and known ACAS notification delays.  
• Plan for high‑risk claim categories: stress‑test approaches to whistleblowing, discrimination, misconduct and bonus‑related disputes, which are likely to arise more frequently under extended timelines.  

6. Collective redundancy changes (April 2026) 

From April 2026, the maximum protective award for breaches of collective consultation obligations will double from 90 to 180 days’ gross pay per employee. This will significantly increase the financial risks of non-compliance, meaning that careful and comprehensive forward planning of redundancy and restructuring programmes will be crucial. 

Later in 2026, following consultation, a second threshold for triggering collective consultation obligations will apply based on total redundancies across the whole employing entity, not just a single establishment; details will be set out in regulations.  

Actions for financial services firms 

• Redundancy processes involving certified staff must continue to meet fit and proper requirements (e.g., conduct history, performance evidence). 
• Ensure governance aligns with SMCR expectations, redundancy-driven changes to org charts must be reflected in responsibilities maps. 
• Educate managers on triggers, timelines and scope of collective consultation requirements (including restructures and contractual changes regarded as ‘redundancy’ under collective consultation rules).  
• Strengthen governance for HR1 notifications, timetables and consultation records to mitigate the risk of high awards.  

7. Additional dismissal protections for maternity returners  

The Government is proposing to enhance dismissal protection for women during their ‘protected period’. The intention behind this is to ensure protections are “meaningfully strengthened” for pregnant women and new mothers. This new protection will apply to all dismissals for any reason, not just redundancies.

The Government’s consultation closed on 15 January 2026. The Government is considering two options: 

1. a stricter test of ‘fairness’ to apply to the existing five fair reason for dismissal 
2. narrowed scope (or removal) of the existing five fair reasons for dismissal.  

The ‘protected period’ is likely to be extended to end 18 months after the child’s birth.  

The Government is concerned about the possibility that enhanced legal protections may lead to employers being more hesitant to hire women, particularly those of childbearing age. The consultation asks for views on the unintended consequences of the enhanced protections and on actions that could be taken to mitigate them, including guidance, training, and support for employers.  

The implementing regulations are expected to come into force in 2027, and these will provide us with further details.  

8. Equality action plans and disability/ethnicity pay gap reporting (April 2026) 

The ERA introduces a requirement for large employers (with 250+ employees) to publish an Equality Action Plan, to target their gender pay gap and provide menopause support. 

 These plans, aimed at improving gender equality, will be voluntary started from 6 April 2026, but are expected to become mandatory by spring 2027.

  These equality action plans are intended to build on existing gender pay gap reporting requirements. The Government also intends to introduce mandatory pay gap reporting based on employees’ race and disability under the proposed Equality (Race and Disability) Bill. The Government’s consultation on the Bill closed in June 2025 and will apply to employers with 250 or more employees.  

There is a growing requirement for pay transparency across Europe. The EU Pay Transparency Directive requires member states to implement legislation by 7 June 2026 to mandate salary range disclosures for job seekers and pay gap reporting for companies with 100+ employees. These new pieces of legislation aim to tackle workplace inequalities by making pay disparities visible.  

Actions for financial services firms 

• Calculate existing pay gaps to understand the current situation and identify potential risks. 
• Review role grading and job levelling to ensure accurate comparisons and equitable pay structures.  
• Collect and clean ethnicity and disability data, aiming for high disclosure rates (around 80%). There are challenges associated with data collection and data privacy for certain sensitive ‘special category’ data.  
• Contact a specialist pay gap reporting data tech consultancy to assist with gathering, analysing and advising on the Firm’s pay gap data. Birketts has contacts they can put you in touch with, so please contact Lara Small for further information.  

9. Restrictions on fire and rehire (expected Oct 2026)

 
Dismissals linked to the refusal of employees to agree to substantial contractual changes, referred to as ‘fire and rehire’, will become automatically unfair save for a very limited ‘severe financial hardship’ exception. The restrictions will also apply where the employer is seeking to employ or engage another employee, or to re-engage the employee under a varied contract of employment to carry out substantially the same role. The current Code of Practice on dismissal and re-engagement will be updated to reflect these new restrictions. 

Employers will need to be able to show that financial difficulties were affecting their future viability and that the need to make contractual changes was unavoidable, in order to avoid the risk of a finding of automatic unfair dismissal. 

Actions for financial services firms 

• Contractual change programmes, often used to address regulatory change, risk management, or outsourcing shifts, will carry higher litigation risk. 
• Early engagement and good documentation will support both ERA compliance and SMCR accountability. 
• Consider pre-implementation steps; review employment contracts and ensure flexible wording is included to limit the need to make contractual changes in future.  

10. Strengthened trade union and industrial action rules (from Feb 2026) 

From Feb 2026, industrial action rules change, including simplified balloting, shorter notice periods and enhanced dismissal protections. 

 For many financial services firms with UK operations or unionised service centres, this impacts operational resilience, an FCA Supervision priority. 

Even for those financial services firms with no recognised trade union, the Government proposals include a requirement on firms to inform its employees about their right to join a trade union, in a written statement. Care will need to be taken around how to implement this.  

Actions for financial services firms 

• Assess whether increased union activity could affect important business services under operational resilience frameworks. 
• Rehearse contingency plans where industrial action could affect customer-facing or regulated processes. 
• Where trade union access rights apply from Oct 2026, ensure controls for confidential or regulated environments (e.g. dealing floors, data rooms). 
• Review employee relations strategies. 
• Prepare for compliance with new access rights and how to approach statements of union rights to be given to employees.  
• Maintain dialogue and assess voluntary recognition options.  

ERA 2025 checklist  

1. Align policies, governance and SMCR: update policies, systems, templates and Responsibilities Maps to reflect all ERA 2025 reforms and maintain board/committee oversight. 
2.  Strengthen recruitment, probation and performance: front‑load assessment, tighten probation reviews and ensure dismissal decisions occur well before the new six‑month unfair‑dismissal threshold. 
3.  Enhance harassment prevention and whistleblowing frameworks: meet the strengthened “all reasonable steps” duty, incorporate harassment‑related whistleblowing protections, and reinforce conduct rules training. 
4.  Prepare for extended tribunal timelines: improve record‑keeping, early dispute resolution and ACAS conciliation readiness, anticipating claims up to 10 months after events. 
5.  Plan for restructuring, pay transparency and contract change risks: manage higher protective‑award exposure, begin equality action plans, prepare for ethnicity/disability pay‑gap reporting and review fire‑and‑rehire processes. 
6.  Assess industrial action and union‑engagement impacts: review operational resilience, plan for new union information requirements, and implement appropriate access controls for regulated environments.

Our financial services team are well-placed to advise if you need assistance in preparing for the ERA changes in your firm.