And in the UK, there are signs of some softening of attitudes as well, with the Chancellor reflecting “the UK has been regulating for risk, but not regulating for growth”. In early January in a statement to parliament Sam Woods from the Prudential Regulation Authority (PRA) announced plans to ease the burden of rules on banks and insurers (albeit while also cautioning against a ‘race to the bottom’). 

That said, others have expressed concern about the pendulum swinging back too far the other way, with Sir John Vickers, the original architect of ring-fencing, saying in a recent statement that “the tone was troubling”. The PRA  announced in January a delay to Jan 2027 for Basel 3.1 implementation in the UK – this is in response to the uncertainty in the US rather than as part of some wider de-regulatory agenda, but it still plays to that narrative to some extent. 
 
Perhaps easy to forget given market activity in the UK at the start of the year, but the government focus is very much on the growth agenda now with discussions on Pension Reform and encouraging investment in infrastructure. Following the Mansion House speech last November the government launched a call for evidence on Financial Services Growth & Competitiveness Strategy that closed in December, and the Chancellor is in the process of meeting various agencies to discuss their growth strategies. 
 

Nevertheless there are plenty of hot topics in the regulatory space which we expect to see dominating the headlines… shadow banking, private markets and consumer finance to name a few.

Private markets are expected to grow almost threefold in the next seven years to account for 30% of global assets under management (AuM). Driven by margin compression, the rise of passive trackers and increasing costs, the asset management industry is on the hunt for alpha. And it has resulted in an active M&A environment during 2024 with traditional managers moving into alternatives (e.g. BlackRock acquiring GIP & HPS). The growth of private markets has brought with it increased scrutiny from regulators. They are becoming increasingly concerned with the lack of transparency in the market as evidenced by various reviews globally, including papers by the Financial Stability Board (FSB) on non-bank financial intermediations (NBFIs), an EU report on NBFI and the Bank of England ‘Dear CRO’ letter and system-wide exploratory scenario (SWES) review last year. Expect more of this. 

Beyond the growth of private markets, another aspect of shadow banking is the migration of market making and liquidity to non-bank financial institutions from traditional banks. Over the last decade, this transformation has been influenced by regulatory environments, technological advancements, and heightened demand for liquidity, reshaping the landscape of financial markets. The evolving roles of firms like Citadel and Jane Street highlight the dynamic nature of the market and raise important considerations for future market oversight. It is a trend that seems to be accelerating, with NBFIs expanding into new markets such as government and corporate bonds.

The inexorable rise of exchange-traded funds as the investment vehicle of choice for retail investors is driving changes in market structure. ETFs are expected to account for around 25% of all fund assets by 2027, with Active ETFs playing an increasingly important part in that growth. Fixed Income ETFs were a key topic of discussion at the Fixed Income Leaders’ Summit last year, with their growth driving needs for ever greater automation. The surge in FI ETFs is highly correlated to the migration of market making referenced above – for example Jane Street has 40%+ primary market share in US FI ETFs. 

The Trump victory casts further doubt on the path for Basel 3.1 in the US. With concerted lobbying over the last year, the outcome for implementation of the Basel 3.1 rules in US was already in doubt, with legislators rowing back from their initial plans that would have seen a >20% increase in RWAs for the largest firms. Exactly where it will now land post-election remains to be seen. In response to this uncertainty, the PRA in January (17/01)  announced a delay in implementation of UK Basel 3.1 measures from Jan 2026 to Jan 2027. The EU on the other hand has already implemented most B3.1 measures, with FRTB standards due to apply from Jan 2026 – any revision to that timing would need a new EC proposal to be agreed through EU governance procedures.  

The Mansion House speech placed pensions – the Local Government Pension Scheme and Defined Contribution arrangements in particular – at the heart of the Government’s growth strategy to drive greater productive investment into infrastructure, clean energy and unlisted equity. The reforms are a continuation of the path already set but will enshrine some requirements, such as those around achieving suitable scale, in legislation via a Pensions Bill. On the topic of scale and consolidation, 2024 also saw the long-awaited introduction of a capital release mechanism within The Pensions Regulator’s superfund guidance, helping to remove barriers for new superfund providers – could we see new superfund providers in 2025? 

Whilst persistently tight public credit spreads continue to drive outsized allocations to gilts, some of the UK’s bulk annuity writers are increasingly investigating the new investment opportunities potentially offered by Solvency UK’s matching adjustment (MA) reforms (such as structured credit). Alongside this, the PRA plans to consult on a matching adjustment “accelerator” sandbox later this year, permitting firms to attain retrospective approval for some new investments, recently reconfirmed by the regulator’s CEO Sam Woods. Meanwhile, 2025’s Life Insurance Stress Test has been launched (for which some of the results will be released publicly), following the recent publication of stress test results in both the UK and continental Europe.

Net-zero coalitions are under scrutiny and under restructuring. Six of the largest US lenders have now left the Net-Zero Banking Alliance (NZBA), the Net Zero Asset Managers initiative (NZAM) suspended activities after BlackRock exited, and the Net-Zero Industry Act (NZIA) was disbanded earlier (although has since rebranded). It is important to note that whilst the drivers for the respective exits is due to the Republican political pressures in the US and concerns around anti-trust, actual climate commitments made in the past continue to remain aligned with Glasgow Financial Alliance for Net Zero (GFANZ), with Asset Managers continuing to track the emissions of their portfolios and are actively contemplating the potential “declining valuation” of high abating assets. 

While the tone has changed in the US, in EU sustainability reporting continues apace. The EC is reviewing fund labelling approach under EU Sustainable Finance Disclosure Regulation (SFDR), potentially dispensing with or revising Article 8 & 9 labels in favour of sustainability themed ‘categories’ (the UK is also reviewing its sustainability labels driven by the Sustainability Disclosure Requirements (SDR). Meanwhile EU Corporate Sustainability Reporting Directive (CSRD) will be a turning point for corporate sustainability reporting, as the first wave of companies will face extensive disclosure requirements starting 2025. 

The new US administration is expected to usher in a ‘golden era’ for the crypto industry, with lighter regulation and more mainstream adoption. The nomination to lead the Securities and Exchange Commission is a crypto advocate. However others are concerned that greater integration will lead to systemic risks. At the same time as rules appear to be softening in the US, the next phase of the EU’s Markets in Crypto-Assets (MiCA) Regulation took effect from 1 Jan 2025. It introduces stricter requirements for crypto-asset service providers (CASPs), including licensing, market abuse prevention, and anti-money laundering controls. 

A ruling by a UK court last year on discretionary commissions paid to third parties for car financing has thrown consumer credit finance into disarray. Expect to see a lot more on this topic during 2025 with some estimates for redress and legal cost put at £23bn across the industry, with expectations that the ramifications will extend well beyond car financing alone. In December the High Court upheld the earlier decision, though further legal challenges in the Supreme Court are planned for March this year, and the FCA plan to set out their next steps in a review in May.

Two things on clearing. First the mandatory clearing of US treasuries by end of 2025 and repo by mid-2026. This is a $26tn market where some 80% of cash market is currently uncleared, so is a major undertaking. Secondly clearing of EUR swaps outside the EU – will the temporary equivalence granted to non-EU based central counterparties (CCPs) that expires in June be extended, or could there be a split in the market? EMIR 3.0 is bringing in new requirements around EU firms having active accounts with EU CCPs, but it is unclear to what extent this will be used to push change. In related news, the UK Treasury has announced that they will make permanent the until now time-limited pension fund exemption from clearing.

The move to T+1 securities settlement in the US went smoothly in 2024, and focus is now shifting to the timing of the equivalent changes in the UK and across the EU. It now looks likely that both UK and EU will move to T+1 in late 2027, with the European Securities and Markets Authority (ESMA) announcing in November that they recommend 11 October 2027 as the optimal date for transition. There has been no announcement as yet on timing from UK beyond intention to complete by end 2027, though it seems probable they will align with the EU now.

Consultation from The International Organization of Securities Commissions (IOSCO) on pre-hedging was published in November with responses due in February. The consultation largely follows guidance already set out in industry codes such as the FX Global Code and the FICC Markets Standards Board (FMSB) standards. There is some relief for market participants that might have been expecting additional restrictions, however it leaves some others concerned that the consultation does not go far enough. The balance remains between dealers using pre-hedging as a legitimate risk management tool that can allow better client pricing, and the risks from potential conflicts of interest.

There is a concerted effort in both EU and the UK to put in place consolidated tape solutions, obliging various providers to contribute data ‘as close to real time as technically possible’ for equities, bonds & derivatives. The greater transparency that comes with CT may in turn encourage other structural changes, as best ex obligations can be proven outside of the traditional execution platforms. These changes are being brought in through the MiFIR Review (aka MiFID3) in EU and the Wholesale Markets Review (WMR) in UK.

In 2023 the EU published final proposals on their Retail Investment Strategy (RIS), the package of measures to empower retail investors to make more informed investment decisions. The proposals are now working their way through the EU legislative process, and are expected to come into force in 2025. They include measures around inducements, pricing, benchmarks, suitability & appropriateness.

The EC launched a public consultation on securitisation in October (which closed in December). The Commission is concerned that the European securitisation market has decreased significantly since 2008-2009, while the market in other jurisdictions such as the US has grown substantially. This latest consultation seeks to address some of the issues raised by stakeholders around why barriers to issuance and investment remain high. 
 

So after many years of layering regulation upon regulation within the financial sector, will 2025 be the year when the tide turns? Certainly the rhetoric is of a ‘bonfire of regulation’, however it is not the first time that has been claimed, and time will tell whether these promises really result in a reduced burden for the financial industry. So far there has not been much concrete evidence of change... if the tide is turning, it is doing so slowly!