It seems strange to me that the main service panel is 200 amps and the distribution panel is only 125 amps. Can anyone enlighten me here?
Phil Wise
How did you determine that the distribution panel is 125A?
Based on what I can see in the photos, the distribution panel has the same overcurrent protection as the service panel. I cannot see the conductor material for the service panel (distribution panel feeders are copper and I suspect the service panel feeders are too) or AWG of the conductors. Are you saying that the conductors are undersized for the OCD (they look about the right size for 2/0 copper) or that the distribution panel is not rated for more than 125A? Either of these conditions would be a defect.
So the rating of the subpanel is only 125 amps? That’s a problem because the main CB protecting that panel is 200 amps. Also in the service panel (next to the meter) I don’t see that the neutral is bonded to the enclosure. There are multiple conductors terminated at the ground lug, the bare GEC appears to be too small and there should not be an EGC in the nipple with the service entrance conductors from the meter.
While we’re at it the small red conductor is not permitted to be re-identified as a neutral conductor with white tape. 
Thanks for your help Chuck and Robert. Yes, the distribution panel is rated 125 amps.
Then it needs overcurrent protection either at the origin of the feeder (service panel) or at the end of the feeder (sub-panel). A 125 main in the sub would solve the problem.