Signals of Change: AI, Regulation, and the Shrinking Financial Services Workforce Q1 → Q2 2025
FCA data reveals how automation, regulation and market pressures are already reshaping firms and jobs in UK financial services.
“Research from tovodata.co.uk shows UK financial services are contracting sharply, with FCA authorised firms down -1.7% and regulated individuals down -4.1% between Q1 and Q2 2025. The steepest declines were in Consumer Credit (-10.5% individuals) and Mortgage & Home Finance (-11.6% individuals), reflecting tighter regulation, consolidation, and housing market pressures. This is part of a wider trend across the industry, where traditional regulated roles are shrinking: Banking individuals fell -4.4%, Investments -4.9%, Insurance -4.1%, and Payment Services & E-Money -10.1%. Analysts point to AI and automation reducing the need for certain regulated roles, as firms increasingly shift from people to processes to meet compliance and operational demands.”
Summary
Between February and June 2025, UK financial services experienced a marked contraction in regulated roles and permissions. The sharpest shifts were in Mortgage & Home Finance, where regulated individuals dropped -11.6%, and in Consumer Credit, down -10.5% in just four months.
This is part of a wider industry trend:
Active firms overall declined by -1.7%
Registered individuals fell by -4.1%
Most major permission categories saw declines, including Investments (-4.9% individuals), Insurance (-4.1% individuals), and Banking (-4.4% individuals).
Client Money permissions also weakened. Firm counts were broadly flat, but the number of individuals authorised to hold, control, or oversee client money dropped significantly — with “hold and control” roles down -7.9% and “control but not hold” roles down -4.0%.
This raises critical questions:
Is AI and automation already reducing demand for regulated individuals?
Are regulatory changes accelerating consolidation and exits?
Or is this part of a broader market contraction in financial services?
1. Overall Change
Q1 to Q2 2025
Active Firms: 72,220 → 71,028 (-1.7%)
Individuals: 209,905 → 201,196 (-4.1%)
“When we analysed FCA permissions data from Q1 to Q2, we found Mortgage & Home Finance roles had shrunk by 11.6%, the sharpest drop across the industry. This is part of a wider contraction in regulated financial services roles, with Consumer Credit and Payment Services & E-Money also down double digits. Our specialists point to automation, regulatory change, and economic pressure as the forces behind this shift. Clear signals that the financial services workforce is being reshaped.”
2. Breakdown by FCA Permissions
Banking
Companies: 1,088 → 1,077 (-1.0%)
Individuals: 44,116 → 42, 164 (-4.4%)
Theme: A contraction in individuals suggests restructuring and automation in banking.
“A 14.5% drop in regulated banking roles shows a structural shift — from traditional headcount to technology-driven horsepower. What we’re seeing now is not experimentation but acceleration: banks are embedding (and must) AI and automation at scale, transforming the way value is created. The winners will be those who don’t just cut costs but reimagine processes and to end, forging the right partnerships with fintechs to build a more resilient, agile financial system. At Frinbridge Global, we see this as an opportunity to shape a future where talent, technology, and collaboration work hand in hand, as partnership is key.”
Consumer Credit
Companies: 28,683 → 27,245 (-5.0%)
Individuals: 120,547 → 107,871 (-10.5%)
Theme: Significant contraction, reflecting tighter regulation and consolidation.
“The sharp decline in consumer credit authorisations reflects the strain firms are under as regulation tightens and economic pressures mount. At the same time, demand for credit is not disappearing, but rapidly evolving. No longer limited to one-off purchases, credit is now woven into everyday spending through channels like BNPL and embedded finance, resulting in smaller but more frequent transactions and fragmented risk exposures. Existing credit models and monthly credit files are struggling to keep pace with this shift.
In her recent article on the future of credit Alison Walters, Director of Consumer Finance at the FCA, talked of the importance of supporting vulnerable customers, stating that ‘The difference between recovery and crisis often lies in how firms respond’. There is also a massive problem with timing of the responses - in too many cases response and support comes after the crisis; mainly because, many firms simply do not have tools to predict.
To thrive in this environment, lenders need real-time tools that are able to timely and accurately predict and detect risk across different touch points, supporting customers in need as well as vulnerability.
At Serene, we use the AI-powered engine to bring behavioural insights into transactional data, detecting early signs of vulnerability and predicting risk of harm. Serene solutions offer both triaging and recommendations for support, as well as escalation of cases that require human intervention. This approach enables lenders to adapt to new market conditions and ensure the right support reaches the right customers at the right time, helping firms balance growth with customer protection.
From our work at Serene, we see a tremendous difference when our clients, using Serene predictive powers, are able to offer relevant support to their customers and prevent crisis happening in the first place.”
Mortgage & Home Finance
Companies: 5,377 → 5,283 (-1.7%)
Individuals: 77,595 → 68,567 (-11.6%)
Theme: One of the steepest individual declines, tied to mortgage market pressures.
“The contraction we’re seeing in mortgage and home finance isn’t surprising given the impact of sustained high interest rates. Many firms are pulling back, and fewer advisers are staying authorised during a period when activity levels are suppressed. But this won’t last forever. There’s a significant amount of pent-up demand in the housing market. Once rates start to fall, we expect a strong bounce back as borrowers return and intermediaries are needed in greater numbers. The long-term fundamentals of specialist lending remain sound, and firms that can weather this period will be well-positioned to grow quickly when the market turns”
Investments
Companies: 15,969 → 15,641 (-2.1%)
Individuals: 177,276 → 170,057 (-4.1%)
Theme: Decline points to fewer advisory roles and consolidation in asset management.
“We’re seeing advisory roles squeezed across the industry, not because advice is becoming less valuable, but because the way it’s delivered is changing. Firms using AI to reduce manual tasks are actually growing while reducing headcount. The drops in advisory roles aren’t a contraction. They’re the industry finally admitting that most financial services work was expensive typing”
Insurance
Companies: 15,684 → 15,353 (-2.1%)
Individuals: 175,821 → 168,547 (-4.1%)
Theme: Decline in individuals suggests automation in underwriting and claims.
“The fall in insurance authorisations reflects the growing pressure on firms to balance compliance demands with efficiency. Rising operational costs and regulatory complexity are prompting many firms to rethink their models. Those that can embrace automation and strong governance frameworks will be best placed to thrive in a leaner, more competitive insurance market.”
Payment Services & E-Money
Companies: 305 → 278 (-8.9%)
Individuals: 733 → 659 (-10.1%)
Theme: Among the sharpest firm-level declines, reflecting fintech regulation.
Pensions
Companies: 15,595 → 15,264 (-2.1%)
Individuals: 175,314 → 168,087 (-4.1%)
Theme: Steady decline in both firms and individuals.
3. Client Money Permissions
Not hold and not control client money
Companies: 15,595 → 15,264 (-2.1%)
Individuals: 175,314 → 168,087 (-4.1%)
Theme: A broad decline, reflecting contraction in advisory roles.
Definition: Firms that neither hold nor control client money—typically advisory firms that provide regulated services but do not handle funds directly.
Examples: Financial advisers, mortgage brokers, small advisory partnerships.
Hold and control client money
Companies: 2,869 → 2,773 (-3.3%)
Individuals: 40,367 → 37,184 (-7.9%)
Theme: Declines in both firms and individuals suggest consolidation paired with tighter oversight and cost pressures on client money operations.
Definition: Firms authorised to both hold and control client money—commonly banks, investment firms, and custodians.
Examples: High-street banks, asset managers, custodians.
Control and not hold client money
Companies: 1,891 → 1,900 (+0.5%)
Individuals: 49,826 → 47,852 (-4.0%)
Theme: While the number of firms edged up slightly, the decline in individuals points to consolidation of oversight roles into fewer positions or increased reliance on automation in monitoring functions.
Definition: Firms that control but do not actually hold client money—often outsourcing custody but retaining oversight responsibilities.
Examples: Investment advisers, discretionary portfolio managers.
4. Discussion & Analysis
The Q1–Q2 data shows a systemic contraction across almost every corner of UK financial services:
Fewer firms are active,
Fewer individuals are authorised,
And every major permissions category has declined.
Three forces are driving this:
AI & Automation — reducing the need for large compliance and operations teams, particularly in banking and investment oversight.
Regulatory Pressure — tighter FCA scrutiny, especially around consumer credit, payments, and client money, is forcing consolidation.
Market Conditions — sustained high interest rates, cost pressures, and housing market weakness are suppressing demand in lending and mortgages.
5. Conclusion & Outlook
The data from Q1 to Q2 2025 shows that the UK financial services industry is contracting across firms, individuals, and permissions. Consumer Credit, Mortgages and Payments & E-Money saw the sharpest declines in headcount, while Client Money roles also fell significantly, underscoring the scale of structural change underway.
Looking ahead, three dynamics will define the outlook:
Technology adoption — AI and automation are already reshaping how compliance, advisory, and operational roles are delivered, and their impact will only accelerate.
Regulatory evolution — with tighter scrutiny on consumer duty, client money, and payments, firms unable to keep pace with FCA expectations will continue to exit or consolidate.
Macro conditions — high interest rates, cost pressures, and housing market weakness will keep the industry under strain, but easing rates could unlock pent-up demand, particularly in lending and mortgages.
The contraction seen this quarter may prove to be a short-term correction — or the start of a longer-term rebalancing of the sector. What is clear is that firms combining resilience, compliance strength, and smart use of technology will be best positioned to thrive in the next phase of the market cycle.
