European Regulatory Radar

Further delay to FRTB: The majority of the Basel III requirements became applicable in the EU from 1 January 2025, with the output floor to be phased in over several years. However, for a second time, the European Commission (EC) has adopted a delegated act postponing the date of application of the market risk rules (FRTB) – this time to 1 January 2027. This further delay brings implementation of FRTB in the EU and UK back in line which will likely be welcomed by international banks. The delegated act is currently being reviewed by the European Parliament and Council.

ICAAP assessments: The ECB has enhanced its assessment of banks' Internal Capital Adequacy Assessment Processes (ICAAPs) to improve efficiency and effectiveness. The new approach uses a multi-year assessment strategy, allowing for in-depth reviews over time, with annual assessments of capital plans. While no longer used for calibrating Pillar 2 requirements, a sound ICAAP significantly impacts the level of capital requirements set during the Supervisory Review and Evaluation Process (SREP).

Liquidity coverage ratio and net stable funding ratio: The EBA has updated its report on the monitoring of the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) in the EU. The update follows the banking turmoil experienced in March 2023, which highlighted the need for enhanced supervision of various liquidity aspects due to changes in the interest rate environment and related trends in deposit behaviour and concentrations. The EBA will continue to monitor specific aspects of the LCR and NSFR in close cooperation with competent authorities. It will also evaluate whether any updates are needed to the liquidity/funding part of the SREP framework.

Treatment of short-term securities financing transactions (SFTs): The Council has approved the amendment of the CRR to make permanent the temporary treatment of short‑term SFTs with financial customers for the calculation of the NSFR – this was due to end 28 June 2025. This is intended to help ensure an international level playing field in the treatment of short‑term SFTs. The US, UK, Japan and Switzerland currently have similar permanent rules in place – therefore this is intended to help ensure an international level playing field in the treatment of short‑term SFTs.

Market and credit risk benchmarking: The EBA has published its 2024 report on the annual market and credit risk benchmarking exercises. For the first time, it also released a specific report on the FRTB Alternative Standardised Approach (FRTB ASA). The exercises are intended to monitor the consistency of risk weighted assets (RWAs) across all EU institutions authorised to use internal approaches for the calculation of capital requirements.

Operational risk capital: The EBA has published three final draft technical standards on operational risk capital requirements and related supervisory reporting. These will allow supervisors to monitor institutions’ compliance. In Q4 2025, the EBA will publish a technical package to be used by institutions to submit supervisory reporting information to supervisors. The first applicable reference date will be 31 March 2026.

Performance of deposit guarantee schemes: The EBA’s latest Peer Review on the performance of stress tests by seven deposit guarantee schemes (DGSs) across the EU found that all had effectively developed their stress testing programmes in line with EBA guidelines, with only minor shortcomings. The report includes follow-up measures for all EU DGSs to consider. The EBA will conduct a follow-up peer review of the implementation of these measures in two years, to ensure that the findings and recommendations have been addressed effectively.

CDMI deal: The Council and Parliament have reached a deal on strengthening the EU crisis management and deposit insurance (CMDI) framework. The framework was originally established in the aftermath of the 2008 financial crisis, and a significant overhaul was proposed by the EC in April 2023. The agreed changes will improve the resolution process for small and medium-sized banks, giving them access to industry-funded safety nets as an additional resolution-financing tool.

Securitisation framework: The EC has adopted a package of measures under the Savings and Investments Union (SIU) Strategy to simplify the EU securitisation framework and make it fit for purpose, and to boost the EU securitisation market which currently lags other major jurisdictions. There are two main elements to the package:

• Amendments to the Securitisation Regulation to reduce high operational costs for issuers and investors – these include reducing reporting fields by at least 35%, simplifying due diligence requirements and changes to the homogeneity requirements for STS securitisations. 
• Under the more risk sensitive prudential framework introduced by CRR3, capital requirements will better reflect the actual risk of securitisation portfolios. Further amendments to the LCR have been proposed, in a four-week consultation, on eligibility criteria for securitisations to be included in banks’ liquidity buffers.

Call for Evidence on retail participation: ESMA is seeking input on how retail investors experience key aspects of the investment process and whether regulatory requirements support or hinder their engagement with capital markets. The goal is to assess whether current investor protection measures remain effective and proportionate in a digitalised investment environment. This is in the context of the Commission's proposed Savings and Investment Union (SIU) which aims to support long-term investment. In Q3 2025, ESMA will use responses to the CfE to assess whether specific regulatory adjustments or clarifications may be needed to enhance investor protection and retail engagement in financial markets.

EU savings and investments account ‘blueprint’: As part of its strategy for the SIU, the European Commission published a Call for Evidence on the development of a ‘blueprint’ for EU savings and investments accounts to better facilitate retail investors’ participation in EU capital markets. The publication cites observed good practice that it expects to draw on, which includes where accounts are easy to use, are designed with a digital interface, offer access to a wide range of products and can offer preferential tax treatment.

Collecting data from investment funds: ESMA has published a discussion paper to gather views on the regulatory data to be collected from UCITS and AIFs, including in the context of the AIFMD II reforms and incoming reporting requirements. The paper takes stock of existing reporting frameworks, assesses potential overlaps and inconsistencies between them, and explores options and priorities for further integrating reporting obligations for fund managers under different regimes. ESMA will publish a final report to the Commission in Q2 2026.

UCITS eligible assets: Following its 2024 Call for Evidence, ESMA published its technical advice to the European Commission on the review of the UCITS Eligible Assets Directive. ESMA’s proposals cover several areas. Most notably, its suggestions could ultimately result in changes that would require EU managers to do more analysis on listed securities before investing, and to ‘look-through’ certain assets to underlying assets that their performance relates to.

Simplification of transaction reporting: ESMA has launched a call for evidence on an approach to simplify transaction reporting under MiFIR, EMIR, SFTR and REMIT. ESMA asks for stakeholders’ feedback on two options for simplification: removal of duplication in current frameworks or a ‘report once’ principle. Given this plan to simplify, ESMA has decided not to implement changes to RTS 22 on transaction data reporting and RTS 24 on order book data that it consulted upon in October 2024 as part of the MIFIR review. Instead, ESMA has published the feedback in a final report to use as an input as part of the comprehensive review. This also applies to ESMA’s consultation on RTS 23 on reference data (consulted upon in May 2024) – with ESMA’s final report just summarising feedback. ESMA has also published the fifth edition of its Report on the Quality and Use of Data which now includes ESEF and short-selling data and reports on the EMIR REFIT go-live.

Consolidated tapes: ESMA has selected Ediphy (fairCT) as the first Consolidated Tape Provider (CTP) for bonds in the EU. Ediphy will now have to apply for authorization and the tape is expected to go-live in 2026. ESMA has just launched its selection procedure for a CTP for shares and exchange-traded funds (ETFs) with the selection procedure for OTC derivatives to be launched in early 2026.

T+1: The EU T+1 Industry Committee has published its High-Level Roadmap of recommendations to move the EU to T+1 settlement by 11 October 2027. It recognises the need to invest in further automation of post-trade processes. In parallel, political agreement has been reached on the legislative proposal to amend CSDR to require T+1 settlement and ESMA has consulted upon the potential amendments to the Level 2 text of CSDR.

CSDR – scope of settlement discipline: ESMA has published its final report on further specifying the scope of the CSDR settlement discipline regime to try to streamline the regime under CSDR Refit. In the report, ESMA proposes types of settlement fails that should not be attributable to participants, e.g. system outages at the CSD, and those caused by payment systems being closed. These should be handled by ex-post claims. ESMA also proposes operations that should not be considered as trading and therefore would be out of scope, e.g. market claims and corporate actions on stock, and share registration. ESMA advises CSDs to apply ex-ante filters to these cases. The Commission will consider ESMA’s technical advice when preparing a new delegated act to supplement CSDR.

EMIR 3: ESMA has published its final report on the EMIR 3 Active Account Requirements (AAR). These include stress testing, representativeness obligation (relevant classes of derivatives, different trade size and maturity ranges etc) and reporting requirements. In relation to EMIR 3, ESMA is consulting on draft RTS on margin transparency requirements both by CCPS towards their clearing members and by the Clearing Service Providers towards their clients. ESMA is also consulting on draft RTS requiring clearing members/Clearing Service Providers to disclose, in a clear and understandable manner, the fees to be charged to clients for the provision of clearing services and any other fees charged. These would include fees charged to clients which pass on costs, and other associated costs related to the provisions of clearing services.

Recovery and resolution: EIOPA has published six consultation papers on recovery and resolution for insurers. Linked to the Insurance Recovery and Resolution Directive (IRRD), EIOPA is consulting on: content of pre-emptive recovery plans; pre-emptive recovery plan criteria and methods to determine market shares; content of resolution plans; identification of critical functions; assessment of resolvability; and addressing impediments to resolvability. All consultation papers have a deadline of 31 July 2025, and the requirements of the IRRD will be applicable from January 2027.

Supervisory review process: EIOPA has published a consultation on revised guidelines on the supervisory review process, which is the guidance used by supervisors to assess risks and develop remediation plans for regulated insurers. The current guidelines have applied since 2015, and EIOPA has updated them to help achieve two objectives: to ensure alignment with the latest advancements and best supervisory practice, and to deal with emerging risks and trends that have gained prominence since the initial guidelines were developed. EIOPA notes that in line with its commitment to regulatory simplification, it has deliberately limited the amendments to those that are strictly necessary. The consultation closes on 24 September 2025.

EIOPA approach to simplification: EIOPA has published its approach to supporting the objective of simplifying regulation and reducing administrative burdens for enhanced EU competitiveness. EIOPA calls for smarter, more harmonised regulation alongside more effective supervision at the EU level. As part of this approach, EIOPA proposes starting simplification early in the EU legislative process to address industry obligations and supervisory responsibilities. EIOPA suggests that it should have more involvement during Level 1 negotiations, especially for horizontal legislation, to provide robust technical input to co-legislators. Further harmonisation in certain areas could reduce fragmentation and barriers to entry.

EIOPA Financial Stability Report: EIOPA has published its Financial Stability Report, outlining risks from the external environment such as exchange rate volatility and sensitivity to tariffs, and other thematic issues such as risks from cyber, AI, climate, and alternative assets. There are no immediate actions for firms, though insurers will want to consider whether any of the sensitivities and risks outlined by EIOPA have a material impact on their own business models.

EIOPA consultation package on Solvency II: EIOPA has published a new consultation package on amendments to supervisory reporting and public disclosure requirements under Solvency II, with the aim of easing the reporting burden on (re)insurers.  This is in line with the European Commission's objective, as part of its competitiveness agenda, to reduce the reporting burden by at least 25% across all sectors (35% for SME).  In addition to amendments to the ITS on supervisory reporting and on public disclosure, EIOPA has also published Draft revised Guidelines on reporting for financial stability purposes and Draft revised Guidelines on the supervision of branches of third country insurance undertakings. 

EIOPA Opinion on IORPS liquidity: EIOPA issued an Opinion on the supervision of liquidity risk management of Institutions for Occupational Retirement Provision (IORPs). This is aimed at enhancing the monitoring, assessment and management of liquidity risks, particularly around margin and collateral calls on derivatives. Supervisors should require IORPs with significant liquidity risks to integrate this into their overall management system, stress test cash flows, and maintain sufficient liquid asset buffers.

IAIS high-level principles for ICS implementation assessment: IAIS has agreed the high-level principles (HLPs) for the development of the Insurance Capital Standard (ICS) implementation assessment methodology.  This has a two-phase timeline, with the IAIS developing a detailed methodology for assessing ICS implementation in 2025 and the evaluation by the IAIS of jurisdictions’ self-assessments from 2027 onwards.  The same approach will be applied to the Aggregate Method (AM) used by the US.

Supervisory guidelines for cryptoasset market abuse: ESMA has issued a final report on guidelines for competent authorities to prevent and detect market abuse under the Markets in Crypto-Assets Regulation (MiCA). The principles require supervisory activity to be risk based and proportionate. They also set the objective for NCAs to build a common supervisory culture specific for crypto assets through an open dialogue with the industry and interactions with other NCAs.

Interplay between MiCA and PSD2: The EBA has published a No Action letter addressing the interplay between the Payment Services Directive (PSD2/3) and MiCA. The letter advises that EU law needs to avoid a dual authorisation under two pieces of EU law for the activity of transacting electronic money tokens (EMTs). While the PSD2 still applies, the letter recommends NCAs to enforce authorisation of PSD2 for a specified subset only of crypto asset service providers (CASPs) that transact EMTs, to do so only after a transition period that ends on 2 March 2026, and then to deprioritise specified PSD2 provisions.

DLT Pilot Regime report: ESMA has published a report on the Distributed Ledger Technology (DLT) pilot regime, which initially went live in March 2023. The report provides an overview of authorised DLT market infrastructures and recommendations on how to expand participation further, including adjusting the regulatory thresholds. The report also includes proposed amendments to the regime to make it permanent.

Omnibus initiative: The Omnibus “stop the clock” Directive has been published in the OJEU. The measures will delay second and third wave sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD) by two years, and due diligence requirements under the Corporate Sustainability Due Diligence Directive (CSDDD) by one year to July 2028 at the earliest. The Directive came into force on 17 April 2025 and Member States must transpose it into national law by 31 December 2025. Further omnibus proposals on reducing the scope of, and simplifying, sustainability reporting are still being considered.

ESRS simplification: The European Commission has moved the deadline for when it expects EFRAG to deliver its technical advice on the simplification of the European Sustainability Reporting Standards (ESRS) from 31 October to 30 November 2025. The public consultation on the revised ESRS will now run from the end of July to the end of September.

EU Taxonomy simplification: the European Commission has adopted a series of measures to simplify application of the EU Taxonomy. Under the Delegated Act, FS firms subject to sustainability reporting are exempt from assessing Taxonomy eligibility and alignment of their financial assets if these account for less than 10% of loans and investments financing specific economic activities whose use of proceeds is known. Additionally, banks have the option not to report against certain KPIs if the financial activities and assets captured by those KPIs generate less than 10% of the net turnover. The measures will apply as of 1 January 2026 and will cover FY2025 – however, there is an option for firms to apply the measures starting in FY2026 if this is more convenient.

ESG stress testing: The European Supervisory Authorities – ESAs – (the EBA, EIOPA and ESMA) are consulting until 19 September on draft Joint Guidelines on ESG stress testing, as mandated under the Capital Requirements and Solvency II Directives. The Guidelines set out how competent authorities for the banking and insurance sectors should integrate ESG risks when performing supervisory stress tests. They aim to harmonize methodologies and practices among supervisors in banking and insurance, to ensure proportionality and to enhance the effectiveness and efficiency of ESG stress testing. The final Joint Guidelines are expected to be published by 10 January 2026.

Pillar 3 disclosure requirements: In line with the EC’s Omnibus initiative to reduce reporting burdens and simplify sustainability disclosures, the EBA is consulting until 22 August on amendments to Pillar 3 ESG disclosure requirements, proposing a new approach based on a firm's type, size and complexity. This approach is consistent with the ESG disclosure requirements set out in CRR3 and all banks in scope of the CRR will now be subject to the ESG disclosure requirements - not just large banks as previously. The consultation papers also include new templates and amendments to disclosures relating to shadow banking entities, equity exposures and non-performing and forborne exposures. The EBA will submit the final ITS to the EC in Q4 2025.

Product oversight and greenwashing: The EBA is consulting until 9 October on product oversight and governance guidelines for retail banking products, focusing on ESG features and greenwashing risks. The proposals aim to clarify requirements for products with ESG features to prevent consumer detriment without imposing additional regulatory burdens on firms. The final guidelines are expected in Q1 2026 and will apply from 1 December 2026.

EBA climate-related risk dashboard: The EBA has launched an ESG dashboard to monitor climate-related risks across the EU/EEA banking sector. Using data from banks' Pillar 3 ESG disclosures, the dashboard provides comparable indicators for both transition and physical climate risks. Initial data on the dashboard reveals significant exposure (over 70% in most countries) to companies in high-emission sectors, suggesting substantial transition risk.

ESG rating activities: ESMA has consulted on draft RTS on the transparency and integrity of ESG rating activities. The consultations covered information to be submitted as part of an application for authorisation or recognition, measures and safeguards for separation of activities, and disclosure requirements. ESMA will submit revised standards to the EC in October 2025.

Biodiversity risks for insurers: EIOPA has published a report on how insurers are identifying, measuring and managing biodiversity risks. Despite the challenges in assessing these risks due to their complexity and interconnectedness with other environmental risk factors, EIOPA’s notes promising market practices among insurers. It also points to areas where further engagement will be essential to strengthen the industry’s ability to respond to biodiversity-related risks going forward.

Call for Evidence on SFDR: The EC has sought evidence to inform its Q4 2025 review of the Sustainable Finance Disclosure Regulation (SFDR). It aims to improve the functioning of the SFDR by clarifying the framework for firms and end-investors and reducing the burden of reporting by simplifying and streamlining the requirements. The review will also consider wider proposed changes to reporting obligations under the CSRD and EU Taxonomy.

Review of asset managers’ compliance with ESG requirements: ESMA has completed its Common Supervisory Action (CSA) with EU regulators that examined asset managers’ compliance with two sets of regulations – UCITS and AIFMD requirements on the integration of sustainability risks, introduced in 2022, and the SFDR framework. Findings include good practice, below average practice and non-compliance.

• UCITS and AIFMD requirements – despite identifying some breaches to be addressed, ESMA found that asset managers’ compliance was satisfactory overall, with most firms’ boards and committees taking steps to discuss sustainability matters and the integration of sustainability risks.
• SFDR framework – ESMA found significant room for improvement across entity- and product-level disclosures, referring to inconsistencies, vague language and missing or inadequate detail. It notes that any changes coming out of the SFDR review will not be applicable soon – in the meantime, regulators should continue with vigilant supervision of the current rules.

Sustainability-related communications: ESMA has published a note on good and poor practice regarding sustainability-related claims made by firms. No new requirements are introduced, but ESMA sets out four principles for firms to follow, aligned to previous publications from the EBA and EIOPA – that claims should be “accurate”, “accessible”, “substantiated” and “up to date”. Aspects of these principles resemble the FCA’s “four Cs”, set out in FG 24/3. In addition to these general expectations, the note provides ‘dos’ and ‘don’ts’ in relation to ESG credentials, industry initiatives, labels and awards and peer comparisons.

Criteria for threat-led penetration testing: The EC has finalised additional RTS supplementing the Digital Operational Resilience Act (DORA). These specify the criteria used to identify financial entities required to perform threat-led penetration testing, the standards governing the use of internal testers and requirements around scope and the testing methodology to be used.

Principles for third-party risk supervision: ESMA has published 14 principles for third-party risk supervision, with the aim of fostering a consistent supervisory approach across the EU. ESMA will support implementation through discussions and case studies with National Competent Authorities (NCAs). 

Third-party risk management for non-ICT services: The EBA is consulting until 8 October on guidelines for the sound management of third-party risk, focusing on arrangements for non-ICT related services. These guidelines revise and update the previous EBA guidelines on outsourcing, published in 2019, in line with DORA.