2026 Financial Services regulatory priorities

January 2026

The H2 2025 edition of the KPMG Regulatory Barometer highlighted the mounting pressures on financial regulators, including geopolitical uncertainty, government-led growth and competitiveness initiatives, the speed of digital innovation and a constantly evolving threat landscape. These factors have translated into sustained and significant pressure for regulated firms.

In 2026, regulators will seek to ensure that the sustained simplification agenda does not come at the expense of vigilance against emerging risks — particularly those arising from the growing interconnectedness of the financial services ecosystem and system-wide reliance on core IT infrastructure. In this article, we explore what lies ahead for financial services regulation.

After a decade of a rapidly expanding regulatory rulebook, 2026 is shaping up to be a year of measured simplification. Both the UK and the EU are recalibrating their regulatory agenda – not by stepping back from their core prudential and conduct objectives, but by revising the volume and complexity of regulatory change and shifting towards making existing frameworks easier to navigate.

Pressure from governments to support growth and competitiveness is accelerating this pivot towards simplification, reinforced by priorities shared by politicians and regulators alike, including a desire to encourage retail investment, particularly into productive domestic assets. However, this ‘simplification’ may result in a complicated regulatory change environment for the next year. This is particularly the case for international firms, where the simplification measures may differ in detail across the EU and UK – as well as to the regulatory approaches in rest of the world.

Despite the streamlining agenda, several areas stand out as top of heightened regulatory interest, including an escalating concern about how risk is migrating across the system. Growth in private assets – and, in particular, private credit – means that risk is increasingly held outside traditional prudential regimes but still tightly linked to them through funding, collateral and ownership structures. Regulators will be looking to respond to the implications of recent market events, including bankruptcies among corporates reliant on private credit. Private markets are also the focus of the Bank of England’s (BoE) second system-wide stress test (SWES).

Firms should use the new year as an opportunity to review their regulatory change portfolios and identify areas that require greater focus – be it to remediate gaps or to seize opportunities.

For more on the issues shaping the regulatory landscape, take a look at our accompanying article Regulatory drivers and trends for financial services in 2026.

1 January 2026 signalled exactly 12 months until banks need to implement the bulk of the PRA’s Basel 3.1 requirements – excluding the market risk internal model component, which will follow by 1 January 2028 – or apply the new prudential regime for Small Domestic Deposit Takers. The EU, now a year into its implementation of CRR3, is also considering extending its market risk timeline, a move that would require further legislation. There are indications that the US may present its revised approach to the Basel 3 Endgame in Q1 2026, although this is yet to be confirmed. Uncertainty and variations in local approaches continue to increase complexity for global banks.

Bank – and wider – stress testing will continue to evolve to match the demands of the changing risk landscape. Banks in both the UK and EU remain well capitalised, as evidenced by the EBA/ECB stress tests and the recently concluded BoE Bank Capital Stress Test (BCST). However, this is not the whole picture. In 2026, the ECB will conduct a reverse stress test, and the UK will run a second System Wide Exploratory Scenario (SWES), this time focused on private credit.

Prudential regulators have been holding the line on any dilution of requirements that might adversely impact financial stability, and this is not expected to change. However, they may further make pragmatic and proportionate adjustments to support growth and competitiveness objectives. This has been seen already in some reductions in regulatory reporting – to reduce duplication and remove obsolete templates – and in the UK Financial Policy Committee’s update to the benchmark for Tier 1 capital. Further work on the UK capital framework is planned and final policy is expected on large exposures and the PRA’s review of Pillar 2 methodologies. The UK ring-fencing regime, another hotly debated area, will also be reviewed and may see some significant revisions, although it is unlikely to be removed altogether.

Finally, focus will continue on banks’ digital and AI-related strategies, governance and risk management.

See also ESG/Sustainability, Operational Resilience and AI below.

The BoE and PRA enter 2026 with a more focused lens on where risks may be migrating or accumulating. This includes insurers’ growing role in private credit, and interconnectedness with the broader financial services ecosystem via PE owners or partners (read more here). The PRA has signalled a likely policy change on Funded Reinsurance, seeking potentially to align the capital treatment with that of instruments such as covered bonds.

2026 is a crunch year for several regulatory milestones. Now that PS25/25 on approaches to managing climate-related risk has landed, firms have until 3 June 2026 to complete an internal review of their current status versus the final expectations and develop a “credible and ambitious” remediation plan to address any gaps (read more here). In addition, in-scope insurers that have invested early in robust preparations will benefit from a smoother Dynamic General Insurance Stress Test (DyGIST) exercise. Solvent exit rules – applicable to almost all insurers – take effect in June, followed by enhanced liquidity reporting for firms with significant derivative holdings and/or security financing transactions from September. These developments reinforce the PRA’s emphasis on resilience, transparency and sound risk management – themes that will prevail throughout the year.

Yet 2026 will not be defined solely by guardrails. The policy agenda also includes a growth and competitiveness push, with a mid-year consultation on a new UK captives regime, that would enable corporates to self-insure, and options to improve risk-transfer frameworks, including for life insurers.

See also ESG/Sustainability, Operational Resilience, Retail Conduct and AI below.

Increased regulatory scrutiny of asset managers with private markets exposures is set to dominate the regulatory agenda in 2026. The FCA will conclude its latest supervisory review on conflicts of interest in the first half of 2026 and is likely to have a close eye on firms’ due diligence arrangements following recent defaults (read more on this here). In parallel, policy reforms to streamline the UK AIFMD regime will continue, with further engagement from the FCA and HMT. Meanwhile, expanded requirements will take effect in the EU under AIFMD II from April 2026. More broadly, the BoE has launched a system-wide stress test of the private markets ecosystem, including asset managers. In the public markets, T+1 transition readiness will require close attention over 2026 (see Capital markets).

Boosting retail investment will continue to be a priority theme into the new year. Following a substantial policy package released by the FCA in December 2025 on boosting retail investment, the new targeted support regime for retail investments and pensions will also be a key pillar of this initiative (you can read more on this here). An FCA consultation on simplified advice is also due early in 2026. And Consumer Duty embedding will remain a focus area for the FCA (see Retail Conduct).

More broadly, wealth and asset managers will need to keep on top of supervisors’ priorities around operational resilience and sustainable finance, whilst ensuring that their approaches to fund tokenisation and deployment of AI are in line with regulators’ expectations (see more on these topics below).

See also ESG/Sustainability, Operational Resilience, Retail Conduct and AI below.

Processes have started both in the EU and the UK to update the legislation to require T+1 settlement from October 2027. Supervisors are clear they expect firms to have started planning now for the transition to the compressed settlement time.

Efforts are being made to streamline and simplify regulatory reporting, especially transaction reporting. The FCA has recently published proposals to simplify UK MIFIR reporting that should be agreed by the second half of 2026 and will have an 18-month implementation period. The FCA has also established a working group with the BoE to streamline transaction reporting across UK MiFIR, EMIR and SFTR. Similarly, ESMA should publish it conclusions from its call for evidence to simplify regulatory reporting under the EU versions of these regulations including whether to take forward the ‘report once’ principle. However, streamlining efforts are likely to be different in detail across jurisdictions making it complex for international firms to implement.

Plans for consolidated tapes are progressing. Bond consolidated tape providers have been selected in the UK and the EU and should go live at the end of 2026/beginning of 2027. ESMA is currently tendering for a equities tape provider and the framework for a UK equity consolidated tape is under consultation.

The FCA has now approved two Private Intermittent Securities and Capital Exchange System (PISCES) operators. These should become operational in 2026 allowing private companies to provide investors with opportunities to trade their shares in a trading event with other interested investors.

In an effort to advance the Savings and Investment Union, the European Commission has proposed a Market integration package which amends of number of capital markets regulations intended to make it easier for firms to deliver cross border services within the EU. The proposal to bring ‘significant’ trading venues, CSDs and CCPs under ESMA supervision may face strong opposition from some member states as it is negotiated.

2026 will potentially bring more impactful changes to the FCA’s review of retail rules outside of the Consumer Duty. Examples include consultations on changes to rules on the application and requirements of the Duty to wholesale firms and proposals to remove business with non-UK customers from the scope of the Duty. Further proposals on mortgage rule simplification are also planned. These reforms are in addition to a wide-ranging package of measures intended to boost retail investment (see Wealth and asset management).

We expect no let-up in the FCA’s focus on embedding the Consumer Duty, specifically on: price and value outcomes, pursuing sector specific activities, and the interaction of the Duty, vulnerability and data protection. As well as the conclusion of sector-specific reviews including model portfolio services (MPS), there will be wider reviews of consumer understanding, customer journeys, outcomes monitoring and products and service. Findings may drive more targeted interventions and enforcement and will need to be digested and acted upon by firms in the context of their businesses.

Following intense regulatory, media and legal scrutiny of motor finance commission arrangements, and faced with the challenge of addressing the huge volume of related complaints in an orderly, fair and consistent way, in 2025 the FCA announced proposals for sweeping reforms to the UK redress system. Q1 2026 is expected to bring greater certainty, including confirm whether the FCA will proceed with a redress scheme and publication of final scheme rules. This issue is likely to require significant investment from affected firms throughout the year. Wider reforms proposed as part of the Leeds Reforms will take longer to be realised fully.

Operational resilience will continue to be critical to both financial stability and conduct, with potential for significant harm to customers, regulated firms and the wider economy. Regulatory frameworks for financial firms in the UK and EU are now established, but there is more to do to manage growing risks e.g. climate and cyber. 2025 was another significant year for operational resilience, with the EU Digital Operational Resilience Act (DORA) taking effect on 17 January and increasing scrutiny of critical third parties and Financial Market Infrastructure in recognition of the interconnectedness of financial ecosystem.

The BoE, PRA and FCA will publish final rules on incident and outsourcing and third-party resourcing in H1. The first wave of designated critical third-party providers (CTPPs) has been published in EU, and the oversight regime is now in force. It is possible that corresponding UK designations will not land until mid-2026 which , given the six-month preparation period for in-scope firms to get up to speed, means the full regime may not be up and running until late 2026/early 2027.

In the meantime, faced with escalating and more sophisticated threats, we can expect further scrutiny of cyber and ICT resilience in financial services, in line with activity in the wider economy. The BoE and PRA are expected to consult on ICT and Cyber Risks in Q2 2026. Regulators have also set out explicit links between climate risk and operational resilience which firms will be expected to factor this into their risk management frameworks.

In 2025, the FCA continued to execute on its cryptoassets roadmap, publishing a series of consultation and discussion papers defining a regulatory regime based on the existing regime for traditional finance. This stream of publications is expected to continue into 2026 as the FCA publishes further consultations including on consumer duty and guidance for international firms, before issuing final policy statements mid-2026. In the second half of the year, firms will be expected to ready themselves before the legislation comes into force from 2027.

The BoE will finalise its policy on systemic stablecoins, and the PRA is likely to consult on the implementation of the Basel standards for the prudential treatment of cryptoasset exposures. The FCA is also consulting on proposals for progressing fund tokenisation, recognising it as a way of driving efficiencies. The BoE and FCA will continue to foster innovation through the Digital Securities Sandbox (DSS). The BoE has made some progress in experimenting with the Digital Pound. However, a decision regarding its introduction has not been made.

In the EU, changes under MICA through the Market integration package propose to bring all EU crypto-asset service providers (CASPs) under ESMA supervision. MICA also amends CSDR to accommodate the use of DLT and aims to encourage greater participation in the EU DLT Pilot Regime by increasing its scope and flexibility.

The EU remains a first mover on AI regulation, with phased implementation of the AI Act. However, the Digital Omnibus proposes to postpone some of the high risk systems obligations that were originally scheduled for August 2026. Financial regulators will issue supplementary guidance to support implementation across high-risk use cases in financial services, including additional expectations from the European Supervisory Authorities. EU supervisors are also aligning their approaches with emerging global work on AI risk indicators and system-wide vulnerabilities, including FSB guidance on AI monitoring and third-party concentration.

The UK has so far pursued a more principles-based approach, with existing regulators applying SYSC, SM&CR, model risk management and operational resilience rules to AI system underpinned by the FCA and Bank of England’s evolving supervisory expectations on AI governance and risk management. Guidance is being developed around a ‘shared responsibility model’ for the implementation risks of AI between third-party providers and client firms, such as whether the third-party provider or the client firm is responsible for managing the data within different kinds of AI deployment. The FCA will expand its innovation pathway through live testing and the Supercharged Sandbox. However, the BoE’s Financial Policy Committee will continue to consider AI’s implications for financial stability, particularly the possible systemic impact of greater use of AI in core financial decision making and trading, and operational risks in relation to AI service providers. It will also continue to support the FSB’s developing indicators for monitoring AI-related vulnerabilities.

Prudential regulators will continue to focus on climate and environment-related risks. The PRA’s new supervisory statement SS5/25 has now replaced SS3/19, and banks (including building societies), insurers and PRA-designated investment firms have until 3 June 2026 to complete a gap analysis and develop a “credible and ambitious” plan to address any issues identified – see more here . The ECB will continue to assess banks against its detailed climate and environment-related risk requirements, with the potential for financial penalties where they are not met. The European Supervisory Authorities (ESAs) are seeking to harmonise ESG stress testing methodologies for banking and insurance supervisors and will publish final Joint Guidelines by 10 January 2026.

Sustainability reporting and disclosures will continue to be a priority. The FCA is expected to consult from January on requirements for UK listed companies and economically significant non-listed companies to report against the UK Sustainability Reporting Standards (UK SRS - based on the ISSB standards) via FCA rules and the Companies Act respectively. The consultation will include a proposed approach to transition plan disclosures. The FCA will also streamline its sustainability reporting framework for asset managers and FCA-regulated asset owners, recognising the challenges firms have faced complying with existing requirements. The European Parliament and Council will consider the Commission’s proposals for revising the Sustainable Finance Disclosure Regulation (SFDR). The changes are intended to streamline disclosure requirements, making information clearer and more usable for investors, while reducing costs for firms.

Meanwhile, agreement has been reached on the EU ‘Omnibus’ initiative to simplify sustainability reporting requirements. The European Commission is expected to publish the amended Corporate Sustainability Reporting Directive (CSRD) in the Official Journal by March 2026, after which Member States will have 12 months to transpose it into national law.

The EU’s new regime for ESG ratings providers will apply from July 2026. The FCA is consulting on its approach and will issue its final policy statement in H2. From 29 June 2028 firms wishing to provide certain types of ESG ratings in the UK will need FCA authorisation. Both regimes focus on the transparency and integrity of ratings, recognising the important role they play in global capital markets – see more here.

Combatting fraud and scams will remain a key priority for the PSR and FCA. Major initiatives, such as the Authorised Push Payment (APP) fraud and scam reimbursement rules, are established and regulators will now focus on rule compliance and the impacts on consumer outcomes. In response to concerns about client asset safeguarding by payment and e-money firms, the FCA’s new regime requiring payment and e-money firms to protect customer funds by keeping them separate from their own money will come into force on 7 May 2026. In early 2026, these firms will need to ensure that programmes to implement the regime are appropriately resourced and on track to meet the deadline. Expect further progress also on the approach to integrating the PSR into the FCA, with greater clarity on the content and timetable for legislation and the transition of functions.

The Payments Vision Delivery Committee (PVDC) strategy is now in place, establishing the outcomes for future retail payments infrastructure and a clear direction for infrastructure changes. Initial priorities for 2026 include confirming the Payments Forward plan (a roadmap of payments system initiatives), guiding infrastructure upgrades such as ‘account to account’ functionality at point of sale, and enabling greater choice in payment methods.

Finalisation of the EU Payment Services Directive 3 (PSD3) and Payment Services Regulation (PSR) took longer than expected with the European Council and Parliament only reaching agreement late in 2025 – formal adoption is likely to follow in early 2026. Implementation dates are yet to be confirmed but are unlikely to be earlier than 2027. Expected developments in Open Finance have not progressed as anticipated, with agreement on the Financial Data and Access Regulation (FIDA) still outstanding. There is hope that, under the Cypriot presidency of the European Council, progress will be made in H1 2026, paving the way for final negotiations to begin in early 2026.

Significant reforms of the UK’s pension landscape to address fragmentation, facilitate scale, improve governance and unlock increased private investment took steps forward in 2025 with the introduction of the Pension Scheme Bill. 2026 will see this accelerate with the Bill expected to receive Royal Assent followed by regulations on key defined contribution (DC) scheme provisions such as the value for money framework and guided retirement rules.

A key part of TPR’s upcoming activity will be focused on helping the industry to prepare for the transformative impact of the Bill, including work with DWP to develop the regulatory framework for multi-employer collective DC schemes and support the development of the legislative framework for 'superfunds'.

2026 is a pivotal year for the Pensions Dashboard Programme as the 31 October 2026 connection deadline approaches. The connection programme is on track with 75% of in-scope records already connected. Alongside the onboarding of the outstanding 25% of schemes and providers, consumer testing of dashboards will become important, the first dashboard that will be available for public has already begun this process. Pension interactions will also benefit from the new targeted support regime (see ‘Wealth and asset management’).