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IN BRIEF
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In 2025, the financial services sector will experience significant regulatory changes shaped by both the UK and EU governments. With a dual focus on enhancing competitiveness and ensuring financial stability, key areas of attention will include sustainable finance, consumer protection, and operational resilience. As regulatory frameworks evolve, firms will need to adapt to new measures affecting various aspects of their operational models, particularly in the realms of banking, insurance, and wealth management.
The financial services landscape in 2025 is set to undergo significant transformation driven by heightened regulatory pressures. With a focus on competitiveness and growth, firms are expected to navigate through new regulations aimed at bolstering financial stability while addressing emerging risks. This article outlines the key regulatory focuses that financial services firms need to prioritize in 2025, including Basel reforms, operational resilience, sustainability reporting, and the assimilation of digital finance regulations.
Implementation of Basel Reforms
As of January 1, 2025, the financial sector in Europe will witness the full implementation of the final Basel reforms under the amended Capital Requirements Regulation (CRR3). This includes the introduction of market risk (FRTB) standards starting January 1, 2026. Although the UK is expected to follow suit with its Basel 3.1 implementation by January 1, 2027, delays have been announced due to ongoing uncertainties regarding US regulations and their potential impacts on the global market. Given that banks appear to be well-capitalized, ongoing supervisory focus will remain on maintaining financial stability through stringent assessments of credit risk, liquidity monitoring, and stress testing.
Operational Resilience
2025 will bring several milestones focused on enhancing operational resilience within financial institutions. The EU’s Digital Operational Resilience Act (DORA), effective from January 17, will significantly influence financial entities operating in the region. Compliance with third-party risk management regulations will be critical, especially for entities that rely on critical third parties (CTPs). The PRA in the UK has set a deadline for firms to demonstrate their capacity to operate within stated impact tolerances during extreme stress scenarios by March 2025, emphasizing the need for robust governance and risk management frameworks.
Sustainability Reporting and Disclosures
In line with global trends, sustainability reporting and disclosures will remain a priority in 2025. Under the EU Corporate Sustainability Reporting Directive (CSRD), firms will be required to provide disclosures regarding their transition plans starting from January 1. As firms express concerns over the volume and complexity of reporting duties, a collective regulatory move towards a streamlined ‘omnibus’ regulation is anticipated. This combined regulation aims to reduce the overall reporting burden while maintaining adherence to sustainability objectives, as highlighted in discussions surrounding the regulatory changes in sustainable finance.
Consumer Duty and Protection
Heightened scrutiny regarding consumer protection will continue through 2025, primarily as the FCA pushes for compliance with the Consumer Duty. Previous years have shown significant supervisory intensity across sectors, revealing gaps in firms’ alignment with FCA expectations. Expect further investigations and enforcement actions as the FCA publishes its findings related to vulnerable customer considerations early in the year, which may necessitate recalibration efforts from firms to align practices with regulatory demands.
Focus on Digital Finance and Cryptocurrency Regulations
The digital finance sector will see notable progress in 2025, particularly with the EU’s Markets in Cryptoassets Regulation (MiCAR) transitioning into full effect from December 30, 2024. This regulatory framework aims to capture various cryptoactivities under a cohesive guideline. Meanwhile, the UK is set to adopt new regulated activities for cryptoassets that may align with traditional finance principles. The goal is to ensure compliance while promoting innovation within the financial services sector.
Capital Markets Regulations
With ongoing efforts to simplify listing processes, 2025 is expected to witness advancements in the regulatory framework governing capital markets. Revisions to the UK listing regime, including the creation of a singular listing category, will aim to enhance operational efficiency. Reforms related to transaction reporting will also be material, as firms prepare to adapt to regulatory updates, particularly emanating from the MiFIR review and the UK’s Wholesale Markets Review.
Emerging Risks and Challenges
Regulators are increasingly attentive to emerging risks, including those tied to geopolitical tensions and technological advancements. As institutions maneuver through evolving landscapes marked by systemic vulnerabilities, emphasis will be placed on fortifying frameworks that effectively address potential threats to financial stability. Maintaining a focus on risk data aggregation compliance (BCBS239) and high standards of regulatory reporting will be imperative for sustainable growth.
As firms strategize for the year ahead, recognizing and addressing these regulatory focuses will be crucial in maintaining compliance while capitalizing on growth opportunities within an increasingly complex financial landscape.
| Regulatory Focus | Description |
|---|---|
| Financial Stability | Enhancing supervisory focus on credit risk, liquidity monitoring, and stress testing. |
| Consumer Protection | Increased scrutiny on firms to ensure fair treatment and ethical practices. |
| Operational Resilience | Compliance with new DORA regulations and robust third-party risk management. |
| Sustainable Finance | Implementation of ESG reporting standards and guidance on sustainability disclosures. |
| Digital Finance Regulation | Full application of MiCAR for crypto assets and consultations on AI regulations. |
| Insurance Compliance | New requirements for insurers on liquidity reporting and solvent exit planning. |
| Market Reforms | Updates to listing regimes and transaction reporting requirements for market efficiency. |
| Pensions Oversight | Continuing focus on value for money and compliance with new Pension Dashboard connections. |
Overview
As the financial services industry navigates the complexities of regulatory environments, 2025 is poised to witness significant changes. This article outlines the key regulatory focuses, highlighting the pressing priorities of financial institutions and their implications for compliance and operational resilience. Organizations must prepare to adapt to these shifts while maintaining their commitment to innovation and customer protection.
Competitiveness and Growth Strategies
In 2025, both the UK and EU governments will emphasize growth and competitiveness in the financial services sector. The UK government is set to release its first Financial Services Growth and Competitiveness Strategy, which will focus on key areas such as fintech, sustainable finance, and capital markets. This strategy aims to expand opportunities while ensuring that core objectives of financial stability and consumer protection are not compromised.
Implementation of Basel Reforms
The final Basel reforms, which commenced on January 1, 2025 in the EU, are set to reshape the landscape of banking regulations. With the implementation of the amended Capital Requirements Regulation (CRR3), institutions will face new market risk components starting January 2026. The UK has decided to delay its implementation until 2027 to address ongoing uncertainties, creating an atmosphere of tension around maintaining a level playing field in regulatory compliance.
Insurance Regulations and Liquidity Reporting
The introduction of new liquidity reporting requirements for insurance firms signals a shift in focus for the PRA. This shift aims to enhance access to timely information on liquidity positions, particularly in light of past market stresses. Regulatory expectations will likely increase scrutiny on life insurers’ Funded Reinsurance arrangements as the PRA seeks to address systemic vulnerabilities within the industry.
Sustainable Finance and ESG Reporting
As sustainability becomes a focal point, financial institutions will need to adapt to evolving expectations regarding sustainability reporting under the EU Corporate Sustainability Reporting Directive (CSRD). Firms are expected to disclose transition plans and may benefit from a new omnibus regulation that seeks to streamline reporting obligations. The shift towards Enterprise Environmental, Social, and Governance (ESG) standards will require rigorous compliance mechanisms, impacting risk measurement practices.
Operational Resilience Milestones
2025 will mark critical milestones in operational resilience, particularly with the full effect of the EU Digital Operational Resilience Act (DORA) commencing on January 17. Financial entities must prioritize risk management, especially concerning third-party risks. By demonstrating compliance with the PRA and FCA operational resilience requirements, firms will ensure they can withstand significant disruptions.
Consumer Duty and Supervisory Intensity
With the intensified focus on Consumer Duty, regulatory bodies will increase their supervision across all sectors. In 2024, early findings revealed discrepancies in how firms met FCA expectations, and this scrutiny is set to continue into 2025. Enhanced investigations aimed at ensuring that firms meet their obligations related to vulnerable customers and fair treatment will be a priority for the FCA.
Digital Finance and Crypto Regulations
The regulatory framework surrounding cryptoassets is set to evolve dramatically. The EU’s Markets in Cryptoassets Regulation (MiCAR) will fully apply, which will require thorough adaptation and compliance from financial institutions engaging with cryptoassets. Meanwhile, the UK is anticipated to issue new regulations, including the establishment of a Digital Securities Sandbox to guide digital finance initiatives.
Future Trends and Compliance Strategies
As firms look to 2025, implementing effective compliance strategies will be vital. Financial institutions should regularly assess their regulatory change portfolios, identifying areas that require focus to not only remediate gaps but also capitalize on opportunities for growth. This proactive approach, alongside developing robust governance mechanisms, will support the long-term sustainability and competitiveness of firms in the evolving regulatory landscape.
For more details on financial services regulatory outlooks, opportunities for effective business leadership, and the implications of new regulations, further reading can be found through the following links:
EY Financial Services Outlook,
Crafting Regulatory Policies,
Regulatory Standards Bill Concerns,
PwC Regulatory Insights,
Priority Regulatory Issues,
Regulatory Foresight,
Sustainable Aviation Fuels,
Trends in Regulatory Reporting,
Navigating Regulatory Compliance,
Deloitte Financial Services Industry Outlook.
- Financial Resilience – Implementation of Basel III reforms and market exit strategies.
- Operational Resilience – Emphasis on compliance with EU’s Digital Operational Resilience Act (DORA).
- Consumer Protection – Enhanced oversight following the Consumer Duty implementation.
- Sustainable Finance – Compliance with EU Corporate Sustainability Reporting Directive (CSRD).
- Digital Finance – Regulation of cryptoassets under the Markets in Cryptoassets Regulation (MiCAR).
- Liquidity Reporting – New demands for insurance liquidity assessments and transparency.
- Capital Markets – Revision of market reporting requirements and regulatory framework.
- ESG Compliance – Assessment of capital charges related to climate risks for financial firms.
- Pension Reforms – Focus on value for money and compliance within the pensions landscape.
- Fintech Growth – Strategic support for innovation in financial technologies and services.
Overview of Key Regulatory Focuses for Financial Services in 2025
The regulatory landscape for financial services is set to evolve significantly in 2025, with firms operating in the UK and EU facing intense scrutiny and new requirements from regulators. Companies must prioritize areas such as financial resilience, sustainable finance, and operational resilience to ensure compliance and competitive viability in the coming year. This text highlights the critical focal points for firms to consider in adapting to the 2025 regulatory framework.
Financial Resilience: Banking and Insurance
Starting January 1, 2025, the final Basel reforms will be implemented in the EU, emphasizing the need for banks to enhance their capital requirements. The UK’s adherence to these regulations will commence in 2027, which means that banks must proactively manage their credit risk, liquidity monitoring, and stress testing to adapt to the evolving expectations of both local and international regulators. Additionally, banks will be urged to ensure compliance with BCBS239 on risk data aggregation to maintain the integrity of their risk management practices.
For the insurance sector, the focus will shift towards developing robust solvent exit plans and enhancing liquidity reporting. With the diverse expectations from regulators, insurers must prioritize transparent liquidity positions to demonstrate resilience, particularly in light of previous market stresses.
Sustainable Finance Initiatives
2025 will mark a pivotal moment for environmental, social, and governance (ESG) efforts within financial services. Organizations must align with the phased rollout of the FCA’s Sustainability Disclosure Requirements (SDR) and the implications of the EU’s Corporate Sustainability Reporting Directive (CSRD). These regulations will require firms to navigate the complexities of sustainability reporting effectively and transparently.
To stay competitive, firms should prepare for further scrutiny regarding their investment strategies and the integration of ESG factors into their portfolios. The PRA and EIOPA expect firms to enhance their frameworks for measuring and managing climate-related risks, ensuring that long-term sustainability aligns with business objectives.
Operational Resilience and Third-Party Risk
The implementation of the EU Digital Operational Resilience Act (DORA) will be crucial, and firms must ensure compliance by January 2025. This regulation will demand enhanced management of third-party risks, particularly concerning critical third parties (CTPs). Financial entities need to establish robust mechanisms to maintain operational integrity amidst potential disruptions.
Firms in the UK will also need to demonstrate their ability to meet impact tolerances set forth by the PRA and FCA regarding operational resilience by March 2025. Effective testing under “severe but plausible” scenarios will be essential in ensuring preparedness for unforeseen circumstances.
Consumer Protection and Governance
In 2025, the Consumer Duty will remain a central focus, necessitating firms to examine their alignment with FCA expectations diligently. Heightened supervisory intensity will likely lead to increased investigations and enforcement actions against firms failing to adequately address vulnerable customers.
Additionally, organizations must ensure robust governance structures in risk management across all sectors. The need for effective communication, proper documentation, and accountability measures will be essential to meet regulatory expectations.
As 2025 approaches, financial service firms face a multitude of regulatory challenges and expectations. By focusing on financial resilience, sustainable finance, operational resilience, and consumer protection, organizations can navigate the complexities of the regulatory environment effectively.
How will the EU address competitiveness in 2025? The EU will work to revive its competitiveness under the leadership of the new FS Commissioner, who will seek to unlock financing necessary for green, digital, and social transitions.
Will regulatory pressure on financial services decrease in 2025? No, regulators will continue to prioritize financial stability and consumer protection, maintaining or even increasing supervisory intensity in key areas.
What changes will occur in banking regulations in 2025? The implementation of the final Basel reforms in the EU will begin, while the UK is expected to delay its Basel 3.1 implementation to January 2027 due to ongoing uncertainties.
What is the focus for insurance regulations in 2025? The PRA will shift focus to new rules requiring insurers to plan for solvent market exits along with extensive new liquidity reporting requirements.
What should asset managers expect in 2025 regarding sustainable finance? Asset managers will refine their approaches to sustainable finance with the ongoing rollout of the FCA’s Sustainability Disclosure Requirements and increased oversight of consumer duty expectations.
What changes will occur in the capital markets in 2025? Simplifications to the UK listing regime will be implemented, and adjustments to trade and transaction reporting regulations will take effect as both jurisdictions aim to revive their stock markets.
What regulatory focus will be placed on consumer protection in 2025? Increased supervisory intensity is expected as firms will be scrutinized for aligning their practices with the FCA Consumer Duty requirements, leading to potential investigations and enforcement actions.
How will operational resilience be addressed in 2025? The EU Digital Operational resilience Act will come into full effect, emphasizing third-party risk management and demonstrating impact tolerances in stress scenarios.
What are the expected developments in payments regulation in 2025? Regulators will focus on effective implementation of the UK’s Authorised Push Payment fraud rules and the finalization of Payment Services Directive 3 in the EU, all aimed at enhancing consumer outcomes in the payments ecosystem.
What is the significance of environmental, social, and governance (ESG) reporting in 2025? Sustainability reporting will remain a priority, with firms required to adhere to various new directives and standards that emphasize climate-related risk management and transparency.
What can we expect regarding digital finance regulations in 2025? Significant regulations around cryptoassets will continue, including the full application of the EU Markets in Cryptoassets Regulation and ongoing consultations in the UK regarding cryptoasset activities.
What will happen with pensions regulation in 2025? While major structural reforms face uncertainty, regulatory attention will be on value for money and the implementation of the Pensions Dashboards Programme as the connection phase for larger schemes begins.
