KPMG Regulatory Barometer

However, there is material external turbulence, which may have repercussions for the regulatory landscape. Regulators and supervisors are monitoring geopolitical developments closely, particularly the Iran conflict, with particular concern for escalating cyber, supply chain, operational/financial resilience and financial crime risks. Market dynamics are also shifting, as evidenced by the rapid growth of private markets. Firms need to remain alert in these areas even if the current pressure is not coming directly from regulatory policy.

With continuing pressure to simplify rulebooks and reduce burdens on firms, regulators are seeking a balance between measures to promote growth and innovation, enhance proportionality and streamline regulatory engagement, whilst keeping a watchful eye on emerging and existing risks that may cause consumer harm or have systemic impacts.

The global effects of technology and digital innovation have never been greater. AI is poised to transform the financial services landscape, given its potential to redefine business processes, but may also introduce new risks, including amplified financial crime risks. Its impacts on key regulatory themes and on regulators themselves are considered in more detail later in the Barometer.

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Resilience concerns are front of mind for regulators and supervisors as they seek to ensure that individual firms and the wider financial system can absorb financial and operational shocks.

In addition to the current situation involving Iran, which is having tangible impacts on financial and operational resilience, the financial system is more interconnected and technology-dependent than ever.

Key existing and emerging risks are therefore being prioritised, in the financial system and beyond, with expanding emphasis on broader market and societal resilience.

Meanwhile, government pressure for FS regulators to support growth and competitiveness continues, and the simplification agenda is gaining momentum.

Early 'wins', such as removing obsolete or duplicative reporting templates, have mainly delivered incremental benefits. Other streamlining initiatives such as faster authorisations and approvals will improve efficiency and speed to market. Targeted measures for small firms, including updating thresholds to remove cliff edges and introducing more proportionate approaches should help to deliver on competitiveness mandates. And there are more structural changes on the horizon which may assist in mobilising capital to drive economic growth.

Governments are also taking steps to encourage foreign investment, for example, through the concierge service of the UK Office for Investment: Financial Services, in partnership with the FCA and PRA.

There may be some pain for firms along the way – with potential for short-term cost in terms of system change and implementation effort. It is also worth noting that, while simplification may reduce administrative and regulatory burden at a local level, there are already signs of increased regulatory fragmentation as different jurisdictions approach their streamlining exercises in different ways.

The rapidly changing external environment calls for increasingly dynamic and agile responses from regulators and regulated firms.

Although the overall environment may be starting to appear friendlier for firms in some areas, UK and EU authorities have shown that they will not hesitate to take action against firms that cannot or will not meet their expectations – and that they will continue to target key areas of risk or consumer harm.