2025 Financial Services regulatory priorities

January 2025

The H2 2024 edition of the KPMG Regulatory Barometer found that regulatory pressure in the financial sector in the UK and EU is as high as it’s ever been. Looking ahead, competitiveness and growth are set to be key areas of focus. Firms may be hoping that this translates into a reduction in the regulatory burden on financial services. So, what can they expect in 2025?

2025 will see the new UK Government and European co-legislators determined to make their own imprints on the FS regulatory landscape.

As signalled in the Chancellor’s Mansion House speech, in spring 2025 the UK government will publish the first Financial Services Growth and Competitiveness Strategy, focusing on five priority growth opportunities - fintech, sustainable finance, asset management and wholesale services, insurance and reinsurance and capital markets (including retail investment). 

Meanwhile, the EU is similarly looking to revive the competitiveness of the EU, with the new FS Commissioner seeking to unlock the financing needed for the EU’s green, digital and social transition.

This does not, however, mean that regulators will take their primary objectives of financial stability and protecting consumers any less seriously. In-flight policy initiatives will continue on priorities including financial and operational resilience, consumer protection, ESG and digital finance, with heightened levels of supervisory intensity in some areas. Regulators will also be monitoring emerging risks including those arising from geopolitical tensions and technological innovation.

Firms will benefit from using the new year as an opportunity to review their regulatory change portfolios and identify areas that require greater focus – be it to remediate gaps or to seize opportunities.

Financial resilience - banking

1 January 2025 marks the start of implementation of the final Basel reforms in the EU, through the amended Capital Requirements Regulation (CRR3). The market risk component will follow on 1 January 2026, coinciding with the start of the UK’s Basel 3.1 implementation - for more on the PRA’s approach see here. With a new Administration, the US position is unclear, with final rules not yet proposed and potential for them to be substantially watered down compared to other jurisdictions, or even scrapped completely. Variations in local approaches will continue to present complexity for global banks.

Whilst both UK and EU banks currently appear well-capitalised, post-2023 concerns around financial stability will continue to drive key supervisory areas of focus, including credit risk, liquidity monitoring and stress testing. New approaches to the latter will seek to ensure that exercises remain fit for purpose whilst being proportionate and incorporating emerging risks. Both the PRA and ECB have warned that banks must do more on BCBS239 (risk data aggregation) compliance, regulatory reporting and data quality. Boards and executives are expected to ensure robust governance and accountability in all risk areas.

The ability to exit the market in an orderly manner will remain a priority. The PRA’s trading wind down deadline is in March and non-systemic banks and building societies will need to meet the solvent exit requirements by October.

On the back of mandates to support competitiveness, the UK banking sector will be hoping for concessions to reduce the regulatory burden. In 2025, the PRA has said it will outline plans to cut reporting requirements for banks. The Government has asked the PRA and FCA to assess the current mutuals landscape by the end of the year, to inform consideration of how best to support the sector to drive inclusive growth across the UK, including through effective and proportionate regulation. Work is also underway to streamline authorisations and SMF approvals. However, as prudential regulators’ hold firm on the need for vigilance to maintain financial stability, it remains to be seen whether there will be movement in other areas.

See also ESG and Operational Resilience below.

Financial resilience - Insurance

With UK Solvency II now in place, the PRA’s focus is shifting to other policy priorities. These include new rules requiring – almost all – insurers to plan for how they would execute a solvent exit from the market (see KPMG in the UKs practical tips for solvent exit planning) and extensive new requirements for liquidity reporting for some firms (see here for our analysis). The new liquidity reporting expectations aim to improve the PRA’s access to timely and consistent information on insurers’ liquidity positions – an issue that came to the fore during the gilt market stresses in 2022 – but represent a step change in requirements for the impacted firms.

The PRA’s ongoing scrutiny of life insurers’ Funded Reinsurance arrangements is increasingly viewed in the broader context of the changing structure in the life insurance industry (see our analysis here).  The Bank of England’s latest  Financial Stability Report raises alarm bells on the systemic vulnerabilities stemming from the interconnectedness between PE funds and (re)insurers. Given the concerns about the combination of credit exposure, higher risk appetite and leverage, it would not be surprising if the PRA starts taking a closer look at potential policy or supervisory options in 2025, with the life insurance stress test being the first such opportunity.

Meanwhile in Europe, EIOPA and the European Commission are busy developing the technical details that will sit underneath the revamped Solvency II Directive and the new Insurance Resolution and Recovery Directive (IRDD). Despite the backdrop of calls to improve growth and competitiveness, EIOPA is anxious to remind that risk and evidence-based capital requirements are necessary to maintain stability, particularly during uncertain times.

Wealth and asset management

2025 will be a year of refinement for asset managers around their approach to sustainable finance. The phased roll out of the FCA’s Sustainability Disclosure Requirements (SDR) will continue while EU firms will be grappling with the implications of ESMA’s Q&A on its fund names rule. UK wealth managers will need to prepare to be brought into the SDR regime for the first time.

UK wealth and asset managers will need to meet the FCA’s evolving expectations on the Consumer Duty (see below). They will also be getting to grips with proposals on advice and guidance (see Pensions) and will need to prepare for implementation of the new retail disclosure regime once the FCA’s final rules are published later this year. For EU firms, the proposed Retail Investment Strategy is at a crossroads and the shape of any final package remains to be seen.

International regulatory efforts to reduce potential systemic risks are now transitioning from fund liquidity management to leverage. Further clarity will emerge on the European T+1 transition over the year (see Capital Markets). And private asset managers can expect further scrutiny, particularly on valuation, while implementation work on AIFMD II will move into execution mode ahead of the 2026 deadline.

Capital markets

In primary markets, the simplification of the UK listing regime, including a move to a single listing category, went live in July 2024. The FCA aims to finalise rules by H2 2025 for the new Public Offers and Admissions to Trading Regime (POATR) that will replace the UK Prospectus Regime. In the EU, following publication of the Listing Act package in the Official Journal, Member States are required to transpose the changes to the Listing Directive and MiFID II into national law by 6 June 2026 and for the multiple-vote shares directive by 5 December 2026. Amendments to the Prospectus Regulation and Market Abuse Regulation have already come into effect, subject to exceptions. Both jurisdictions are hoping these measures will revive their stock markets.

In the secondary markets, firms will need to manage the complexity of implementing changes to trade and transaction reporting starting to apply both in the EU and the UK emanating from the MiFIR review and the Wholesale Markets Review respectively. EU RTSs will be updated throughout 2025. In the UK, changes to the bonds and derivatives transparency regime will apply from 1 December 2025. Both jurisdictions have started tender processes for bond consolidated tapes.

EMIR 3.0 requirements for EU counterparties to have active accounts at EU CCPs will apply from end June 2025. Trade associations are asking the Commission to extend the equivalence decision for UK CCPs (which expires at end of June 2025) in a non-time-limited manner and well in advance of 31 March 2025 to avoid market stress and disruption.

Firms can expect the final recommendations of the UK Accelerated Settlement Taskforce to be published in early 2025. It is likely to match ESMA’s recommendation to move to T+ 1 in Q4 2027, giving firms across the European capital markets just under two years to increase automation in settlement processes in order to meet the compressed settlement time frame.

Consumer Duty

2024 saw an unprecedented level of supervisory intensity across all sectors to assess whether firms had appropriately aligned their implementation of the Duty to FCA expectations. Sadly, in many areas such as outcomes testing, price and fair value, complaints and the board report itself, the FCA is still making fundamental findings - see related article here. This situation will likely drive further supervisory intensity and increased investigation and enforcement activity.

At the tail end of 2024, the FCA appeared to start to lose patience with some firms in the insurance sector and invoke more of its investigative powers (e.g. s166s and formal attestation requirements). KPMG in the UK expect this trend to continue into other sectors, in some cases translating into referrals into FCA enforcement activity in 2025.

In Q1, the FCA will publish its findings from a wide-ranging review on how firms have implemented consideration of vulnerable customers. Given the materiality of the likely findings, recalibration may require significant time and resource for some firms in 2025. The FCA will also publish its findings relating to customer support (Q1 2025) and implementation of the Duty for closed products (H1 2025).

Operational resilience

There are several key operational resilience milestones in 2025 as regulators and supervisors continue to focus on ensuring that the financial sector can respond appropriately to threats and disruptions.

The EU Digital Operational resilience Act (DORA) takes full effect on 17 January and will have a significant impact on many financial entities either based or operating in the EU. Third party risk management, and more specifically critical third parties (CTPs), will increasingly be in the spotlight. In the EU, CTPs will be captured under DORA. The UK final rules for CTPs – for more see here – came into effect on 1 January and will apply as soon as a third party is designated as critical by HMT.

By 9 February, UK FMIs must also comply with the relevant BoE statements or codes of practice on outsourcing and third-party risk management. And firms in scope of the PRA and FCA operational resilience requirements should now have completed or be nearing the end of their implementation and testing programmes. The final hurdle is to demonstrate, by March 2025, that they can remain within stated impact tolerances when under “severe but plausible” stress scenarios.

Payments

There will be no let-up in the volume of regulatory developments affecting the payments ecosystem in 2025.

Although the PSR’s Authorised Push Payment (APP) fraud and scam reimbursement rules are now in force, regulators will be focused on their effective implementation and the impacts on consumer outcomes. The UK National Payments Vision (NPV) was published in Q4 2024, providing much needed clarity and strategic direction - for more see here. The NPV establishes a clearer regulatory strategy for Open Banking  and many will hope that 2025 is the year the full benefits of Open Banking will start to be realised. The NPV will also enable the move towards a more agile and flexible approach to delivering the UK’s payments infrastructure. The newly established Payments Vision Delivery Committee is working with regulators to clarify the upgrades required to the existing Faster Payments System, assess longer-term requirements and set out an approach by no later than Q2 2025.

In the EU, early 2025 should see the finalisation of Payment Services Directive 3 (PSD3) and the Payment Services Regulation (PSR). Payment service providers will need to identify the changes needed to implement the new rules and plan for compliance by a likely 2026 implementation date. Developments in Open Finance are also expected to pick up pace, with the European Council’s agreement on the Financial Data and Access Regulation (FIDA) in late December 2024 paving the way for final negotiations to begin on the regulation in early 2025.

ESG and Sustainable Finance

Sustainability reporting and disclosures will continue to be a key priority in 2025. First reporting under the EU Corporate Sustainability Reporting Directive (CSRD) started from 1 January 2025. Disclosure of transition plans will be required under the CSRD, the ISSB standards and from 2026/27 the EU Corporate Sustainability Due Diligence Directive (CSDDD).

Firms have been vocal about the complexity and volume of reporting and whether it will achieve the intended outcomes. In a move to reduce the reporting burden, a new “omnibus” regulation combining CSRD, CSDDD and the EU Taxonomy Regulation is expected from the European Commission by mid-year.

Meanwhile, the UK is gearing up to endorse the two existing ISSB standards. A government consultation on the proposed UK Sustainability Reporting Standards (UK SRS) is due in March, with few UK deviations anticipated. And the BCBS is consulting on proposals for integrating climate-related risk into Pillar 3 disclosures to complement the ISSB framework and provide a common baseline for internationally active banks.

Prudential supervisors will expect continuing improvement in the measurement and management of climate-related risk. The PRA is due to consult in Q1 on revisions to SS3/19 which will likely mirror some of the enhancements already introduced by the ECB and require further uplift from firms. The Chancellor’s November remit letter also asked the UK Prudential Regulation Committee to consider nature-related risks. The ECB is likely to continue to take a hard line where banks are not deemed to have made sufficient progress against its expectations.

In 2025, EIOPA’s recommendations for capital charges for insurance firms holding equities and bonds in fossil fuel sectors will be considered by the European Commission – see article here. Final policy is also expected on its approach to biodiversity risk management. The IAIS will issue final materials, following four climate risk consultations, on changes to the Insurance Core Principles (ICPs), supporting materials on scenario analysis and market conduct, materials on enterprise risk management and public disclosures.

Digital finance

Major progress was made in 2024 on the regulation of cryptoassets, with more to come in 2025. The EU Markets in Cryptoassets Regulation (MiCAR) applied fully from 30 December. Financial regulators published a raft of supporting technical standards ahead of this and will continue to provide ongoing guidance during the initial transitional period as Member States move from applicable national law onto the MiCAR regime – to note, the transitional period will vary by state, up to and including 1 July 2026.

The new UK Government has committed to following through on proposals made by the previous Government, with some adjustments. In short, a number of new cryptoasset regulated activities will be created based on equivalents in traditional finance. However, this work will now be combined into a single phase, rather than addressing stablecoins separately.

The latest FCA roadmap indicates that 2025 will be a year of consultations, with final policy statements to follow in 2026. The government has also announced plans to issue a digital gilt (DIGIT) within the recently-launched Digital Securities Sandbox.

The EU remains a first mover on AI, with the AI Act to be fully operational by late summer 2026. Supplementary guidance will continue to be issued by the financial regulators to complement the cross-sectoral framework.

The UK has so far pursued a more principles-based approach, with a focus on industry-led best practice. In 2024, existing regulators were delegated responsibility to enforce five AI principles. However, a new AI Bill could formalise rules for the developers of certain high-risk systems. In early 2025, the Financial Policy Committee is set to publish its assessment of AI’s impact on financial stability.

Pensions

Significant reforms of the UK’s pension landscape to address fragmentation, facilitate scale, improve governance and unlock increased private investment were expected in 2025. However, the Government’s decision to delay the second stage of the Pensions Review until further notice has created uncertainty about the speed and extent of reforms and the delivery of the Pension Schemes Bill. 

Regardless of the progress of major structural reforms, regulatory focus on value for money and the delivery of the Pensions Dashboards Programme will continue. The FCA, DWP and TPR’s joint framework for workplace defined contribution schemes should be finalised this year following consultation last August. TPR will continue to monitor compliance with its assessment of value rules for defined contribution schemes. Based on the DWP’s staged Pensions Dashboard connection timetable, the connection phase for larger schemes starts on 30 April 2025.The FCA’s end-2024  proposals for a new targeted support regime, stemming from the Advice Guidance Boundary review, will give individuals making pension decisions greater flexibility and allow firms to better indicate and ‘nudge’ suggested actions for them to consider. The regime will likely pose opportunities and challenges for pensions firms in 2025 as it evolves. For more on targeted support see here.