KPMG Regulatory Barometer - H2 2024

Preparations for the implementation of CSRD from 2025 and SDR in the UK require significant work and investment from firms. Reporting requirements will continue to expand as focus on nature and social issues intensifies and as IFRS S1 and IFRS S2 are adopted more widely – including new standards in the UK. Anti greenwashing measures are now in place and prudential regulators expect further progress on climate and environment-related risk. Meanwhile SFDR continues to be a moving target. And markets initiatives are progressing. Looking ahead, the EU’s CSDDD will be a significant addition to the corporate sustainability landscape. 

Prudential regulators are focused on maintaining and reinforcing firms’ financial resilience, and on balancing emerging and ongoing risks with opportunities to promote competitiveness. Pressure for banks and insurers is intense as complex frameworks are finalised and key implementation dates approach. Supervisory activity has ramped up, particularly in areas such as resolution preparedness/wind-down planning, governance and risk management. MiFID firms are under significant scrutiny now that the policy framework is well embedded.

The digitalisation of financial services continues, including accelerated adoption of innovative technologies, providing enormous benefit to both customers and service providers. However, innovation also introduces novel risks which could pose a threat to consumer protection and, on a wider scale, to financial stability. Regulators are now more advanced in the development of relevant frameworks, with some key components already going live. 

Regulatory initiatives have developed rapidly across the globe to meet the increasing challenges of a more technology-dependent and interconnected financial sector and the evolving threat landscape. Implementation deadlines are approaching rapidly with EU DORA compliance expected by 17 January 2025 and completion of UK requirements by end-March 2025. Digital (including cyber) resilience remains a key area of focus and new, stringent requirements for critical third parties to the financial sector are expanding the regulatory perimeter.

The rapid evolution of the payments landscape is challenging policymakers and regulators to foster an environment that supports old and new payment types and continues to meet customer needs. The UK and EU are seeking to achieve this through infrastructure enhancements, by creating opportunities for competition and innovation and by introducing stronger consumer protection measures.

Customer outcomes, value for money and vulnerable customers remain key areas of key regulatory focus. UK firms must continue to work on genuinely embedding the Consumer Duty and are starting to consider the associated commercial opportunities. The FCA is using the Duty proactively as a supervisory tool and challenging firms hard to supply data and evidence. Parallel policy proposals are taking shape under the EU’s proposed Retail Investment Strategy. 

Capital market regulations implemented post-GFC continue to go through a period of amendment due to reviews in the EU and by international bodies, and tailoring to the UK market post-Brexit. There is a growing focus on adapting regulation to increase the international competitiveness of capital markets. Now that international regulators have made progress with policy across several priority topics, attention is turning to implementation, and new focus areas such as private assets. Focus on the resilience and efficiency of market infrastructure continues.

In some cases, there has been a positive move toward more open markets for financial services firms with the conclusion of the UK-Swiss Mutual Recognition Agreement and finalisation of the UK’s Overseas Funds Regime. However, this is countered by ongoing supervisory scrutiny of firms’ wider use of cross-border arrangements, particularly for firms providing services into the EU. Eight years on from the EU referendum, activity is now tailing off, to some extent, as EU authorities move into a steady-state phase.

Supervisors continue to reinforce the need for good corporate governance, including the effective management of conflicts of interests, embedding appropriate accountability, robust oversight by non-executive functions and clear audit trails for decisions. Regulators recognise the positive impact that diversity, equity and inclusion can have on firms and their customers. Focus on the effectiveness of AML controls and sanctions is also strong, with measures being taken to improve international coordination between regulators.