Quarterly update on global financial services regulatory developments

Since our last quarterly update, the global economy is projected to remain resilient. In December 2024, the OECD projected global GDP growth at 3.3% in 2025, stabilizing through 2026. Inflation is expected to ease as most countries maintain restrictive monetary policies. However, ongoing geopolitical tensions and recent tariffs could drive inflation higher and dampen economic activity.

In the US, during Donald Trump's second presidential term, a “lighter touch” regulatory environment for the financial services and crypto industries is expected. The goal to streamline regulation and reduce growth constraints will be driven by agency appointments reshaping supervisory priorities. Some priorities may persist (e.g., financial crime, resilience), but there is a likelihood of delays in pending regulation (e.g., Basel III endgame). Changes in regulatory stance may support economic growth (e.g., bank mergers, digital assets), and uncertainty is expected in climate regulation. However, potential frictions between federal and state authorities, and between the US and other jurisdictions, could reduce policy impact in some areas.

During the third quarter of 2024, regulators concentrated on prudential and financial crime risks, while global banking regulators’ focus in the fourth quarter shifted toward enhancing firms' resilience to external threats.

This update highlights key regulatory developments across jurisdictions grouped under headline themes that will lead to increased requirements for firms.

Local capital standards continue to increase causing regulatory fragmentation

·       In November 2024, the Basel Committee (BCBS) reaffirmed to implement all aspects of the Basel III framework in full and finalized amendments to it, including changes to the crypto asset exposures standard that will be implemented from 1 January 2026. While some jurisdictions announced delays in Basel III implementation, the Hong Kong rules on Basel III liquidity and bank exposure limits came into operation on 1 January 2025.

·       The International Association of Insurance Supervisors (IAIS) updated the insurance capital standard (ICS), clarifying liquidity risk, valuation and capital adequacy for Internationally Active Insurance Groups (IAIGs). While the ICS aims to enhance global convergence, local regulators can add capital requirements, potentially causing regulatory fragmentation. For instance, Canada’s new capital requirements to improve the risk sensitivity of life insurers segregated fund guarantee business, took effect on 1 January 2025.

Regulators in the banking sector are enhancing resilience to external threats

·       In response to the 2023 banking turmoil, the BCBS plans to intensify supervision of liquidity risk and interest rate risk in the banking book, and enable the assessment of the sustainability of banks' business models in early 2025.

·       The BCBS remains concerned about spill-over risks from banks' interconnections with non-banks and calls on banks to establish counterparty credit risk (CCR) mitigation strategies. It is also proposing amendments to the hedging of CCR exposures.

·       The BCBS recommends jurisdictions to implement tools like a positive neutral countercyclical capital buffer to mitigate external shocks. In the UK, updated stress testing for major banks will inform the setting of capital buffers for both, the banking system and individual banks, while a system-wide exercise examined responses of banks and non-banks to market shocks. UK firms should use these findings to enhance their risk management.

Regulators are recognizing nature loss as a source of systemic risk to financial systems

·       The Taskforce on Nature-related Financial Disclosures (TNFD) updated its disclosure recommendations, urging firms to integrate nature-related issues into risk management processes and disclosures, focusing on governance, strategy, risk and impact management, and targets.

·       In Asia, regulators continue to establish sustainability disclosure frameworks. For instance, in China, firms should build the necessary systems for robust sustainability reporting before it becomes mandatory in 2030. Hong Kong regulators expect banks to follow international sustainability disclosure standards. By 2030, banks should provide transition plans to the regulator, detailing decarbonization and financing targets, actions to achieve the 2050 net zero goal, and plans to phase out from financing carbon-intensive assets.

·       In the US, California enacted two climate disclosure laws that will require entities that conduct business in the state and meet certain annual revenue thresholds to provide climate-related disclosures in 2026. Firms will need to annually disclose their Scope 1, 2 and 3 emissions and may need to set up new processes, systems and controls to gather this information. They should also consider overlaps with other US climate reporting requirements.

Regulators aim to strengthen firms’ risk management

·       Canada's reinsurance guidelines, effective 1 January 2025 require insurers to manage reinsurance risk diligently, ensure oversight by senior management and continuously assess their reinsurance partners. This aims to prevent insurer failures due to poor reinsurance risk management.

·       The Monetary Authority of Singapore (MAS) issued new outsourcing guidelines for banks and other financial institutions, both effective 11 December 2024. Banks should ensure their outsourcing arrangements adhere to these guidelines to manage risks effectively.

Regulators are becoming more demanding of boards and senior management suitability and culture risk management

·       EU regulators issued guidelines on management suitability of crypto-asset service providers and asset-referenced token issuers, effective 4 February 2025. Firms should assess whether members of their management bodies have adequate knowledge, skills and experience to perform their duties.

·       The Canadian regulator urges banks and insurers to model their desired culture, manage culture risks, and integrate these practices into their firm-wide risk management for continuous improvement and proactive oversight of culture risks.

New consumer protection requirements feature strongly in regulators’ priorities

·       EU regulators issued several guidelines, including investor protection rules, ahead of the entry into force of the Markets in Crypto Assets (MiCA) regulation on 30 December 2024.

·       In Canada, banks must get explicit consumer consent for credit limit increases, use clear language, and develop dispute resolution policies.

·       US banks should align their products and services with updated guidelines to meet increased supervisory expectations on unfair or deceptive practices.

·       In Singapore, firms must provide transaction alerts, enhance security and support error recovery per updated e-payments guidelines, effective 16 December 2024.

Going into 2025, regulators will expect firms to be prepared for market disruption and volatility, while delivering good customer outcomes. Firms will need to prove their risk management and governance arrangements are agile and robust enough to meet these concerns. For a future perspective, I recommend looking at the insights and predictions from our EY 2025 Global financial services regulatory outlook to prepare your firm’s regulatory strategy for 2025. 

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Member firms of the global EY organization cannot accept responsibility for loss to any person relying on this article.