KPMG Regulatory Barometer

March 2025

Welcome to the latest edition of the KPMG Regulatory Barometer — measuring the impact of regulatory and supervisory activity for financial services firms.

In today’s rapidly changing world, firms need to anticipate and plan for regulatory change across a vast agenda and with varying expectations across the globe. The Barometer helps to identify the key areas of pressure across the evolving UK and EU regulatory landscape.

This is a pivotal moment for financial services regulators. Challenges abound, not least geopolitical uncertainty, economic pressures for growth and competitiveness in individual jurisdictions, the speed of digital innovation and a constantly evolving threat landscape.

Elections around the world in 2024 delayed publication of new and revised rules and shifted national policy priorities. Headlines around large-scale deregulation may be premature, but in some areas there has been some slowing of policy activity or greater focus on simplification measures. Elsewhere however, supervisory intensity has ramped up and regulators are monitoring emerging risks in case further action is required.

Regulators are likely to find themselves under greater scrutiny to ensure that the regulatory burden is justified and proportionate, and needing to be more thoughtful about the impact of policy and supervisory decisions.

Against this backdrop, firms must continue to align their strategies and approaches with regulators’ core priorities to build financially and operationally resilient business models and deliver good outcomes for consumers.

We hope you find the Barometer insightful — please reach out to the Regulatory Insight Centre if you would like to discuss any of the content in more detail.

The Barometer aggregate score for March 2025 is 7.3 which reflects a plateauing of regulatory pressure. The individual theme scores give a more nuanced view. Some are up and some are down – we expect the aggregate score to fall in the future as changes play through. For now, the pressure on firms remains high as regulators seek to balance new and existing mandates.

Rob Smith

Partner and Regulatory and Risk Advisory Lead

KPMG in the UK

The challenging regulatory environment

In the December 2024 KPMG FS Sentiment Surveyopens in a new tab, regulatory pressure overtook cost pressures to become one of the top three concerns. 40% of FS leaders cited it as one of the greatest challenges facing their business moving into 2025, compared to 29% last year. Multiple, interlinked factors are contributing to regulatory change initiatives and resulting in pressure on financial services firms – the world is changing, and regulators are having to adapt.

Evolving risks

Widespread geopolitical uncertainty is a key concern for firms as it may lead to greater regulatory fragmentation. Although regulators continue to pledge support for international cooperation, we are starting to see greater tailoring of requirements to local markets and business models.

Increasing sophistication and volume of cyber-attacks is driving risk for firms given large scale transformation programmes and greater adoption of cloud strategies, digital platforms and online servicing.

AI will likely continue to move up the risk agenda as firms develop and deploy new use cases. Model risks, lack of transparency, data biases and the correlation with cyber risk will all drive increased regulatory focus in this area.

More broadly, growing reliance on technology is increasing interconnectedness and has the potential to amplify and accelerate both positive and negative outcomes.

Growth and competitiveness

Pressure is building on FS regulators to consider both growth and international competitiveness in their work – to boost stagnant economic growth and create or preserve local advantages. This new agenda requires a shift in mindset for policymakers, marking a departure from the post-crisis, risk averse approaches of the last 15 years.

There have been some moves to reduce regulatory burden, and early evidence of a more cautious approach when considering supervisory interventions. Recent announcements have focused on proposals to streamline existing requirements and introduce more proportionate approaches for smaller firms.

It is too soon to say whether the changes that regulators are already implementing or are proposing will make a material difference to the strength of the FS sector, and the wider economy, or how long that might take. It may take time for the benefits of reduced regulatory burden to be realised. Short-term change may be needed as regulatory requirements are recalibrated and firms adjust systems and processes accordingly.

A regulatory ‘pendulum effect’?

There has been an easing of activity in some areas, as regulators pause to consider whether policy is having the intended impacts and how to respond to new mandates.

In the UK and EU, robust regulatory regimes are widely viewed as a competitive strength and regulators will be keen to avoid a “boom-bust” regulatory cycle in which rules are rolled back until market events precipitate a new crisis. However, governments may press for further deregulatory measures.

It is possible that we have seen the last of the significant new frameworks and are entering an era of more targeted initiatives.

Firms will have a role to play in maintaining standards in a ‘lighter touch’ environment – if policymakers see risks spiralling, the pendulum may swing back again.

Regulatory dashboard

For a snapshot of the key regulatory themes, including regulatory impact scores and high-level commentary, see the Dashboard.

Sector views

How are regulatory developments impacting banks, insurers and wealth and asset managers?

Today’s banking leaders are facing multifaceted and relentless challenges. The main priorities for banking CEOs include continued investment in business transformation through technology, with generative AI (Gen AI) gaining prominence as a top investment. At the same time, there is pressure in the context of today’s uncertain geopolitical and macroeconomic environment, and are banks are proceeding cautiously, while trying to keep costs under control.
While technology driven transformation, increasingly powered by AI, will continue to be a critical enabler of franchise value, people remain at the heart of everything banks do. This creates both near- term challenges and opportunities relating to the sustainability of the hybrid working model and competition for talent in a period of transition to the workforce of the future. ESG is an important driver of growth that will continue to shape behaviours and investments.
Banking regulators are seeking to maintaining financial and operational resilience in individual institutions and across the wider financial system, whilst facing into the persistent challenges outlined above. Robust risk management and regulatory reporting continue to be high priorities, alongside considerations of governance, culture, fraud and financial crime, and ensuring good outcomes for customers. Potential threats to financial stability from climate and nature-related risks, and new technologies, are being monitored closely, as are the effects of the growing non-bank sector. The UK and EU are streamlining MiFID II requirements and have taken steps to make primary markets more attractive.

Insurance leaders are wrestling with a complex set of pressures and challenges requiring bold decisions and concrete action. These include pathways to growth, enhancing productivity, accelerating digital transformation, talent retention and meeting sustainability goals.
Insurance leaders are confident in the ability to drive growth over the next three years — both in terms of earnings and headcount – and recognise of the need to infuse organisations with new talent and to embrace new technologies to achieve growth objectives. In 2024, outside the Tech sector, Insurance CEOs were more likely than any others to view Gen AI as a top investment priority – the main use cases being data analysis and tackling cyber & fraud threats.
Against a backdrop of increasing geopolitical instability, escalating cyber threats and widening protection gaps, insurance regulators are committed to maintaining financial and operational resilience in their sectors and wider economies.
They are increasingly alive to emerging threats, including from the changing nature of the life insurance and pensions industries. There is also a challenge in balancing appropriate levels of consumer protection with calls for competitiveness, raising critical questions about how much risk and/or customer detriment is acceptable.

Given their role as asset allocators, market participants, and stewards, wealth and asset managers play a pivotal role – not only by helping their clients meet their goals, but also in terms of shaping the prospects of virtually every other sector.
In 2024, asset management CEOs were confident about the economy and geopolitics, suggesting a positive outlook for growth. Their keen interest in generative AI and digitisation indicated the likelihood of rapid market transformation.
Challenges faced by the sector include talent gaps, particularly in relation to AI and climate, and concerns about cyber resilience and stakeholder trust. The most successful firms will be those that take a holistic approach to these opportunities and challenges.
Having spent considerable time and resources implementing sustainable finance and investor protection regulations, European asset managers are now digesting incoming AI regulation and understanding how it applies to their own use cases.
Whilst private asset managers have experienced success in terms of driving inflows and generating returns, the growth of this part of the industry has attracted greater regulatory scrutiny – resulting in both policy and supervisory initiatives.

KPMG Regulatory Barometer

Firms must continue to align their strategies and approaches with regulators’ core priorities to build financially and operationally resilient business models and deliver good outcomes for consumers.

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