European Regulatory Radar

Policymakers and supervisors remain on high alert for emerging and escalating risks which could undermine resilience. The ECB’s May Financial Stability Report flags continuing elevated financial stability vulnerabilities due to ‘unfolding geoeconomic shock’. It notes that resilience in the banking sector has strengthened overall but that credit, liquidity and funding vulnerabilities could worsen as a result of exposures to non-banks and trade-sensitive corporates.

At the same time, the competitiveness agenda remains a priority. The EBA responded to the European Commission's consultation on strengthening the competitiveness of the EU banking sector, proposing targeted simplification of the regulatory framework, supervisory convergence and integrated reporting. This follows its 2025 Report on the efficiency of the regulatory and supervisory framework, which put forward 21 recommendations to streamline the banking rulebook. The Commission’s final report is expected in July 2026.

ECB Supervision’s May 2026 newsletter concluded that maintaining robust capital requirements remains critical in ensuring that banks can lend reliably across cycles without compromising profitability or investor confidence. It noted that a prudent approach would resist calls for reduced capital standards and recognise that strong capital positions benefit both banks and the wider economy in the long run. That said, momentum has continued to support a level playing field for EU banks as the final Basel requirements are implemented, following delays in other jurisdictions. On 4 June, the European Commission issued a Delegated Regulation introducing targeted, time-limited amendments to the EU implementation of the market risk capital framework (FRTB). The measures will be available to banks for three years from 1 January 2027. 

Significant structural shifts continue to influence the policymaking and supervisory agenda. This was reflected in a keynote speech by John Schindler, Secretary General of the Financial Stability Board (FSB), at the Insurance Europe Conference. Schindler highlighted profound changes across geopolitical, macroeconomic and environmental dimensions, alongside evolving risks in sovereign debt markets and the rapid expansion of private credit. He emphasised the pivotal role of the insurance sector in supporting global financial stability amid this backdrop.

Insurers remain key participants in sovereign debt markets as long-term, “patient” investors, reflecting their long-dated liabilities and typically significant allocations to government bonds. However, this stabilising role cannot be taken for granted. Schindler pointed to deepening interconnections between private credit funds, banks, insurers and private equity firms, creating potential channels for spillovers under stress. Data gaps continue to limit full visibility of these transmission mechanisms, and the FSB and other policymakers are monitoring developments closely.

Meanwhile, alongside the final sprint in the Solvency II and Insurance Recovery and Resolution (IRRD) files, EU policymakers are also progressing work on Insurance Guarantee Schemes (IGS). EIOPA has recently launched a consultation on its draft technical advice on minimum common standards for IGS, prepared at the request of the European Commission. The advice covers areas such as operational design, funding arrangements and interaction with the IRRD framework. However, given the significant heterogeneity across Member States, with schemes differing in scope and coverage and absent in some jurisdictions, the path to political agreement on harmonisation remains uncertain.

Finally, consumer protection continues to be a key area of focus globally. The International Association of Insurance Supervisors (IAIS) has launched a consultation on customer value in insurance Issues Paper, which explores the barriers consumers face in assessing value and the key drivers underpinning product outcomes.

Debate continues around the proposed Market Integration and Supervision Package (MISP). The ‘E6’ – the EU’s six largest economies, Germany, France, Italy, the Netherlands, Poland and Spain – have published a common position paper identifying six priority areas including cross-border distribution of funds and increasing the supervisory powers of ESMA.

The deadline of 11 October 2027 for transition to T+1 settlement is nearing. The EU T+1 Industry Committee, UK Accelerated Settlement Taskforce and Swiss Securities Post-Trade Council’s ‘T+1 Testing Plan’ outlines the general scope and principles of industry-wide testing and the business readiness activities each stakeholder should consider in preparing for the T+1 transition. To help market participants prepare further, ESMA is consulting on updated guidelines on standardised procedures and messaging protocols.

In its sixth data quality report ESMA notes that EMIR and MiFID reporting have reached a steady state where targeted data quality actions have contributed to a broader and more systematic supervisory use of the data. SFTR and AIFMD reporting show positive developments but continue to require further improvements in data quality and usability. ESMA also published its interim report on the call for evidence on transaction reporting. Preferred options to simplify transaction reporting include, in the short-term, better delineation of instruments between MiFIR and EMIR and revision of dual sided reporting to be in line with global principles. In the longer term, stakeholders would like the full integration of MiFIR, EMIR and SFTR reporting.  ESMA will publish its final report in July 2026.

AIFMD II took effect for fund managers on 16 April, bringing about important changes in several areas such as liquidity management tools and loan-origination funds. With implementation largely complete, firms can now consider their next priorities.

One topic firms may wish to revisit is the organisation of the compliance and internal audit functions. ESMA recently concluded its common supervisory action in this space, putting firms on notice that some governance-related improvements are needed. Some of the weaknesses that may need to be addressed include the independence of control functions, the quality and implementation of internal policies, and senior management and board oversight.

As in other jurisdictions, growing private markets are an ongoing area of regulatory scrutiny. The ECB’s latest financial stability review examined how the euro area financial system could be exposed to private credit, noting that the market should be closely monitored – especially considering the retailisation of private assets and the potential role of private credit in AI-related financing. Wider initiatives such as upcoming efforts to expand fund-level regulatory reporting will aim to reduce perceived opacity associated with certain asset classes.

Further ahead, firms are watching the conclusion of negotiations on the EU Retail Investment Strategy with interest as the final details are ironed out. Asset managers will also be following closely developments around the MISP (see above), particularly regarding proposals to amend aspects of the delegation requirements. 

The 2025 Annual Report from the Joint Committee of the European Supervisory Authorities included a strong focus on reinforcing operational and cyber resilience via the Digital Operational Resilience Act (DORA).

DORA is now being actively supervised and enforced with entities required to demonstrate resilience in practice. The first full mandatory reporting cycle for the Register of Information (ROI) under DORA – for all contractual arrangements with third-party service providers – ended in March 2026. The EBA will conduct a Data Quality check on all ROIs submitted and provide feedback on data content.

The ECB’s May 2026 Financial Stability Report called out cybersecurity weaknesses and hybrid threats against critical infrastructure due to the increasingly complicated geopolitical landscape. In this report, separately in a speech, Frank Elderson, ECB Executive Board member, flagged the critical importance of strengthening operational resilience in European banks, especially given the rapidly evolving cyber threat landscape exacerbated by Artificial Intelligence. He stressed that resilience extends beyond financial capital, citing examples where cyber incidents disrupted operations despite financial strength. While regulatory frameworks like DORA and supervisory efforts have enhanced preparedness, AI's ability to lower barriers for sophisticated attacks necessitates proactive measures and continuous investment. Elderson urged banks' management bodies to address these challenges strategically, to help develop robust systems that can support trust and competitiveness.

The European Commission launched a targeted consultation on the review of the Markets in Crypto-Assets (MiCA) Regulation. The objective of the consultation is to assess whether MiCA remains fit for purpose following its initial implementation and in light of market and policy developments since it began to apply. The consultation is aimed at digital assets industry representatives and public authorities and will close on 31 August 2026.

Progress has been made on the digital euro, with the European Parliament having reached a deal in June 2026 – lawmakers have now agreed that users can hold up to €3,000 in digital euro and that wallets can be topped up when balance fall below this threshold. Technical meetings are being held to finalise remaining details with an ECON committee vote scheduled in late June 2026. Trilogue negotiations will then start.

The EU AI Act entered a new phase following provisional agreement on the Digital Omnibus amendments reached by EU institutions in May 2026. These amendments are introducing targeted simplification measures while retaining the AI Act’s core risk-based approach.

The package extends key compliance deadlines, with obligations for Annex III high risk AI systems moved to December 2027 and Annex I product-related high-risk systems to August 2028. It also strengthens the role of the EU AI Office and provides additional support for SMEs. Alongside these legislative developments, AI governance remains an area of supervisory focus across the EU, with regulators increasingly focused on firms’ governance, risk management, transparency and third-party oversight arrangements as implementation progresses.

Alongside, the EU AI Office has launched a consultation on its draft guidelines for the classification of high-risk AI systems.

More broadly, EU authorities are live to potential financial stability impacts associated with AI. In its latest financial stability report, the ECB noted that the rise of emerging frontier AI models and quantum computing will pose new risks and opportunities.

Financial regulators continue to focus on climate and nature-related risk management. The ECB published two papers in May 2026, one on overall risk management, adding new good practice on nature risks, prudential transition planning, physical risks and the management of reputational and litigation risks, and another on stress testing. EIOPA and the European Stability Mechanism (ESM) have proposed a European risk-sharing mechanism for insurers to manage the financial fallout from large natural catastrophes. The mechanism aims to address Europe's significant protection gap against extreme weather events and enhance resilience.

Amendments to the Sustainable Finance Disclosure regulation (SFDR) are progressing through the legislative process. In April 2026, the EU Parliament published its draft negotiation position, deviating from the Commission’s proposals by seeking enhanced transparency, comparability of categorised products, stronger focus on tackling greenwashing and greater focus on sustainability-related engagement strategy. The EU Parliament supports the Commission’s proposal to remove entity-level reporting, advocating immediate relief upon entry into force.

The Commission’s one-month public consultation on the final versions of the revised European Sustainability Reporting Standards (ESRS) and a new voluntary reporting standard for smaller companies (VSME) closed on 3 June 2026. Both aim to reduce significantly the sustainability reporting burden for EU businesses through a substantial reduction in mandatory and total datapoints, and the introduction of additional flexibility for companies. The Commission is expected to finalise and adopt the revised standards imminently.

EFRAG has published its first sustainability disclosures based on the VSME, serving as an example of what ‘good’ should look like. It will also issue its consultation on the non-EU ESRS (N-ESRS) in July 2026.

The new EU regime for ESG ratings providers will apply to firms from July 2026. ESMA’s consultation on the endorsement mechanism for ESG ratings issued by third country (non-EU) rating providers has now closed, with the final guidelines to apply from 2 August 2026.