Welcome to the latest edition of European Regulatory Radar
The new issue of European Regulatory Radar brings you the latest updates impacting financial services firms in the region. Complementing the UK Regulatory Radar series, European Regulatory Radar provides an overview of the wider economic and political environment, key updates from the last quarter and deep-dive articles.
The European Commission (EC) has issued its 2025 work programme, outlining ambitions to “boost competitiveness, enhance security, and bolster economic resilience”. This sits alongside the Commission’s plan to simplify the regulatory burden on firms – and consequently “rekindle productivity” – through its Competitiveness Compass and Omnibus initiatives.
This focus on growth and competitiveness is beginning to impact EU regulators’ objectives and priorities. EIOPA for example has published its approach to simplifying regulation and reducing administrative burdens for firms. And ESMA has committed to supporting the EC’s simplification agenda.
The current geopolitical environment has put regulators on alert for associated potential risks. The European Supervisory Authorities (ESAs) have published their Spring 2025 Joint Committee update on risks and vulnerabilities in the financial system. They warn that growing geopolitical tensions and rising cyber risks present significant challenges to financial stability, and entities and supervisors should stand ready to adapt to adverse developments. This has been accompanied by individual risk publications from the EBA, ESMA and EIOPA.
There’s no doubt these assessments will continue to evolve as the impacts of tariffs continue to play out.’
Further delay to FRTB? Although the majority of Basel III requirements became applicable in the EU from 1 January 2025, the EC is consulting on updating its approach to the Fundamental Review of the Trading Book (FRTB). This comes as a result of continuing implementation delays in other major jurisdictions, specifically the UK and US. The EC proposes three options - implementing as planned from 1 January 2026, delaying by a further year to 1 January 2027 or introducing temporary amendments for up to three years.
EU-wide bank stress test: The EBA has launched the 2025 EU-wide stress test to assess the resilience of the banking sector under baseline and adverse scenarios over a three-year time horizon. The adverse scenario involves a hypothetical worsening of geopolitical tensions, with persistent trade and confidence shocks affecting private consumption and investments, both domestically and globally. ECB supervisors will examine 51 of the largest banks as part of the EBA-coordinated initiative. In parallel, the ECB will carry out its own stress test of 45 mid-sized banks not covered by the EBA. Results of both exercises will be published in August 2025 and will be used to update banks’ Pillar 2 guidance as part of the Supervisory Review and Evaluation Process (SREP).
Liquidity treatment of SFTs: The EC has proposed to amend the Capital Requirements Regulation (CRR) to make permanent the current temporary treatment of short‑term securities financing transactions (SFTs) for the calculation of the net stable funding ratio (NSFR). This would avoid any lapse in the current treatment – which is due to end on 28 June 2025 – and help to ensure an international level playing field.
Internal model authorisation: The EBA has published final Implementing Technical Standards (ITS) amending the existing joint decision process for internal model authorisation under the CRR. Specifically, the revised ITS incorporate changes to the Advanced Measurement Approach (AMA) for operational risk.
Pillar 3 data hub: As part of the Banking Package, the EBA has published final draft ITS on the Pillar 3 data hub for “large and other institutions”. This will centralise prudential disclosures through a single electronic access point on the EBA website.
Data collection for 2026 benchmarking: The EBA is consulting on amendments to the Implementing Regulation on the benchmarking of credit risk, market risk and IFRS9 models for the 2026 exercise. Most of the significant changes relate to market risk, with only minor changes proposed for credit risk.
Methodology for supervisory equivalence: The EBA has updated its methodology for the assessment of regulatory and supervisory frameworks of non-EU countries. The changes reflect amendments to the CRR and Capital Requirements Directive (CRD). The methodology is based on a two-step questionnaire, available via the EBA website.
Consumer Trend Report: The EBA has published its latest Consumer Trend Report covering retail banking products and services. The most important issues affecting EU consumers were identified as: (i) payment fraud (an increase in unauthorised transactions and a rise in cryptoasset scams), (ii) indebtedness (with inadequate creditworthiness assessment procedures and implications of the rising cost of living), and (iii) unwarranted de-risking (consumers facing increased difficulties accessing bank accounts). The EBA will now consider what actions to take to address the issues identified.
EC strategy for a Savings and Investments Union: Please see analysis of this publication and a comparison with UK initiatives in the detailed article below.
ESMA reprioritisation of 2025 deliverables: ESMA has written to the EC to notify it that several of its 2025 deliverables will be delayed as it has undertaken a reprioritisation exercise. This is due to several legislative file reviews needing to be carried out at the same time, and the need for ESMA to prepare for implementing new responsibilities. This is a useful letter that firms will want to read closely as it will help them prioritise their own regulatory change programmes and resources.
ESMA publishes package on liquidity management tools: ESMA has published draft RTS and final guidelines for asset managers on liquidity management tools to complement the revised rules under the AIFMD II package that will take effect from April 2026. These follow on from ESMA’s July 2024 consultation and provide additional detail on the definition, activation and calibration of liquidity management tools for UCITS and AIFs. The EC now has three months to decide whether to adopt the RTS. ESMA will translate the guidelines after the EC adopts the draft RTS.
T+1 settlement: The EC has published a proposal to reduce the EU trade settlement cycle from T+2 to T+1. The transition would take place on 11 October 2027 - this would be required from a regulatory perspective by amending the Central Securities Depositories Regulation (CSDR). The drivers behind the move are to increase settlement efficiency and to avoid diverging approaches around the world, given the US has already moved to T+1. The intention is also to align the timing of the transition with the UK and Switzerland - who are expected to transition on the same date.
MiFID II / MiFIR Review: As part of the MiFIR Review, ESMA has published a final report with three draft technical standards on:
Investment firms’ execution policies: Following consultation, ESMA has published a final report with draft technical standards on how investment firms should establish and assess the effectiveness their order execution policies. The standards provide more granular detail on firms’ policies, procedures and monitoring criteria, as well as circumstances where specific client instructions need to be dealt with. ESMA has sent the standards to the Commission for adoption.
ESMA’s fourth MiFIR Review consultation package: ESMA is asking for feedback on the amended transparency regime for derivatives, amendments to the ‘package order RTS’ and a new RTS on input/output data for the OTC derivatives consolidated tape provider (CTP).
EU consolidated tape for bonds: ESMA has clarified the timing around the consolidated tape (CT) for bonds. It is intending to select a provider in July 2025 and then will start the authorisation procedure. ESMA is expecting the Commission to adopt the relevant RTS shortly and encourages market participants to use the draft RTS now to prepare for the launch of the CT.
ESMA advice to the Commission on investment research: Following consultation in October 2024, ESMA has published its technical advice to the Commission on amendments to the investment research provisions in the MiFID II Delegated Directive in the context of the EU Listing Act. The goal of the recommendations is to help revitalise the market for investment research whilst balancing this objective with investor protection.
CSDR Refit: ESMA is consulting on amending the technical standards on settlement discipline. Specifically, the proposals cover i) reduced timeframes for allocations and confirmations, ii) the use of electronic, machine-readable allocations and confirmations according to international standards, and iii) the implementation of hold and release and partial settlement by all central securities depositories. ESMA is also seeking views on enhancing settlement efficiency.
Draft RTS on the supervision of central securities depositories: ESMA has published final reports on draft RTSs on various items related to the supervision of central securities depositories, including information that has to be shared with NCAs and ESMA.
ESMA consultations on EMIR 3: ESMA has issued a series of consultations under EMIR 3 including:
Temporary equivalence extension for UK CCPs: The European Commission has extended its temporary equivalence decision on UK legal and supervisory arrangements for CCPs allowing EU clearing members and trading venues to use UK CCPs to clear until June 2028.
Securitisation Regulation: ESMA has launched a consultation on revising the disclosure framework for private securitisations under the Securitisation Regulation (SECR). This proposes a simplified disclosure template for private securitisations. ESMA plans submit the draft technical standards to the EC for endorsement by Q2 2025.
ESMA Common Supervisory Action (CSA) on asset managers' compliance and internal audit functions: ESMA has launched its latest CSA with EU National Competent Authorities. This CSA will focus on the adequacy of compliance and internal audit functions of EU UCITS Man Cos and AIFMs. ESMA will publish a report with the results of the exercise in 2026.
EIOPA Solvency II consultations: EIOPA has published three consultations as part of the Solvency II review. These focus on group supervision and criteria for exclusion, related undertakings, and dynamic volatility adjustments in internal models. The first consultation outlines five guidelines on the conditions for and regular review of exclusion decisions. The remaining two consultations are not expected to have a material impact on firms. All three have a deadline of 26 June 2025.
Solvency II proportionality framework: EIOPA has provided technical advice to the EC on the new proportionality framework in the revised Solvency II Directive. The framework introduces a set of objective criteria to classify insurers as 'small and non-complex undertakings' (SNCU) in relation to the nature, scale and complexity of their risks. The framework also empowers supervisory authorities to apply some of the proportionality measures to firms that do not meet the SNCU criteria but have an appropriate risk profile.
Capital treatment of insurers’ exposures to central clearing counterparties (CCPs): EIOPA has provided technical advice to the EC focusing on ensuring greater consistency in the treatment of insurers' exposures to CCPs. Specifically, EIOPA recommends aligning the treatment of direct exposure to qualifying CCPs under Solvency II with their treatment under the CRR.
Determining market shares for limited reporting requirements: EIOPA has published its consultation on revised guidelines to determining market share for limited reporting requirements. EIOPA proposes to simplify the existing guidelines, especially around informing firms of any reporting limitations or exemptions they have been granted or when they are about to expire. EIOPA hopes this will promote the use of exemptions and reduced reporting requirements to achieve a level playing field.
Deduction of foreseeable dividends: EIOPA has published its Supervisory Statement on the deduction of foreseeable dividends from insurers' own funds under Solvency II. EIOPA advises supervisory authorities to favour the "quarterly accrued approach" for deducting foreseeable dividends, as it provides a more accurate and realistic reflection of an undertaking's financial health.
EIOPA launches stress test exercise for IORPS: EIOPA has launched a 2025 stress test for institutions for occupational retirement provision (IORPs) to evaluate their liquidity vulnerabilities under two stress scenarios: "yield curve up" and "yield curve down". This stress test supports the regulator’s goal of monitoring how geopolitical tension and resulting uncertainty may impact the sector.
DORA - CTPP roadmap: The ESAs have published a roadmap for implementing the pan-European oversight framework of critical ICT third-party service providers (CTPPs) under the Digital Operational Resilience Act (DORA). Final designation and oversight will begin from end-2025.
Subcontracting under DORA: The ESAs have issued an opinion on the EC's rejection of draft RTS on subcontracting under DORA. The EC rejected the original RTS - which specified additional elements that financial entities must assess when subcontracting ICT services that support “critical or important functions” - on the grounds that it exceeded the ESAs' powers. The ESAs’ opinion now confirms the EC’s assessment and proposed amendments.
Capital requirements for insurers’ crypto holdings: EIOPA has recommended to the EC that EU insurers holding cryptoassets apply a one-to-one capital requirement. EIOPA considers these assets to be inherently risky and highly volatile, hence recommending the 100% haircut to the assets in the standard formula. The EC will consider the proposals as part of its wider review of Level 2 Solvency II provisions.
Assessment of competence under MiCA: ESMA has launched a consultation on Guidelines for the criteria on the assessment of knowledge and competence under the Markets in Crypto Assets Regulation (MiCA). The Guidelines aim to ensure staff advising on cryptoassets or cryptoasset services have a minimum level of knowledge and competence, enhancing investor protection. ESMA expects to publish a final report (for submission to the EC) in Q3 2025. This consultation runs alongside various other Level 2 guideline and RTS packages that continue to be published – see full list here.
AI in insurance: EIOPA has published a consultation on its Opinion on AI governance and risk management. It does not impose new expectations on firms but rather maps out how existing requirements under Solvency II, the Insurance Distribution Directive and DORA should be applied to AI. To avoid overlap with the EU AI Act, the consultation focuses on non-high risk use cases.
EU Omnibus Initiative on Sustainability Reporting: The EC has published its first ‘Omnibus’ initiative, containing a series of proposals to simplify sustainability reporting and disclosures. The “stop the clock” component has already been published in the Official Journal, following approval by both the European Council and Parliament, and delays reporting obligations under the Corporate Sustainability Reporting Directive (CRSD) and the Corporate Sustainability Due Diligence Directive (CSDDD). Member States need to transpose the directive into national law, with a transposition deadline of 31 December 2025. Other proposals that are still being considered relate to reductions in the scope and simplification of reporting requirements. For more information, see the deep-dive article below.
Simplification of ESRS: In line with the Omnibus initiative, the EC has tasked EFRAG (the European Financial Reporting Advisory Group) to propose simplifications to the European Sustainability Reporting Standards (ESRS). EFRAG has launched a call for input which runs until 6 May, and is expected to deliver its technical advice to the EC by 31 October.
European Green Bond Regulation: ESMA is consulting until 30 May on further technical standards on the European Green Bond Regulation. Topics covered include the requirements for systems, resources, compliance functions, internal policies, information quality, and the application and notification processes. The final report is expected in Q4 with submission of the draft technical standards to the EC for endorsement by 21 December.
ESG data for credit risk: The EBA has published a report assessing the availability of ESG risk data and the feasibility of a standardised methodology for identifying and qualifying banking book credit exposures to ESG risks. The report considers the potential for using existing elements such as sustainability disclosure frameworks, supervisory stress testing and ESG scores in credit risk ratings to support a common methodology.
Nat Cat standard formula recalibration: Following a reassessment exercise and consultation in 2023 and 2024, EIOPA has recommended new risk factors for the calibration of the natural catastrophe (nat cat) component of the standard formula (SF). These include adding seven countries to the parameters for flood risk and addressing other perils such as hail, earthquake, windstorm and subsidence. EIOPA is also analysing whether natural hazards like wildfire, coastal flood and droughts are material enough to be included in the SF calibration. The recommendations will now be considered by the EC.
ESG disclosures under EU Benchmarks Regulation: ESMA has summarised its review of ESG disclosures required under the Benchmarks Regulation (BMR). Key findings include divergent practices in calculating and disclosing ESG factors due to a lack of specific guidance, inconsistent underlying assumptions, and low data coverage for certain social factors. The report clarifies transparency expectations, provides guidance on definitions and methodologies for calculating ESG factors, and makes recommendations for potential amendments to the BMR to streamline disclosure requirements while ensuring data quality and comparability. ESMA also advocates for aligning ESG factor calculations with other regulations and standards, such as the CSRD, SFDR and EU Taxonomy, to ensure consistency and comparability.
ESMA analysis of ESG-related changes and their impact on investment flows: ESMA has published a report exploring how the decision to incorporate ESG or sustainability-related terms in a fund's name can lead to additional investor interest - potentially incentivising greenwashing behaviour. ESMA found that adding an ESG term can significantly boost fund inflows, with environmental-related terms showing the most substantial effect on inflows. ESMA plans to continue to monitor fund market trends and the impact of its naming guidelines (fully effective from 21 May 2025) on EU funds.
The articles below provide more detailed insights on some of the most significant developments. Click on the links to read more:
