Financial Markets Regulatory Outlook 2018

Bringing it all together

Our annual assessment from Deloitte’s EMEA Centre for Regulatory Strategy explores how major regulatory trends will shape the financial services industry in the year ahead and provides solutions to guide leaders in effectively navigating the changes.

Executive summary

The European financial services industry faces considerable strategic challenges in 2018. There is a large volume of implementation work being carried out, alongside uncertainties around the future shape of regulation. And though many initiatives have their roots in the financial crisis (now ten years past), others – such as work to address cyber resilience, Brexit, and Open Banking – reflect more recent concerns. Click the headings below to read the full executive summary or scroll down to explore the issues in detail.

The Outlook at a glance

Looking at the breadth of topics covered in this year’s Regulatory Outlook, we are struck by a number of common threads that emerge from the detail.

  • The industry faces many resource constraints and numerous competing priorities. With business models already under pressure, it can be difficult for regulated firms to do the bare minimum, let alone invest to become best in class.
  • There is considerable uncertainty across the board: the outcome of Brexit remains unknown, there are important regulatory technical standards outstanding in several areas, and the impact of new rules on markets will take time to play out.
  • The ecosystem of financial services is changing. MiFID II will intentionally overhaul the trading landscape, but old and new players will forge different types of connection, particularly through technological innovation and third party service providers. The shape of markets is changing, and with this the nature of risk in the system.
  • Technology provides opportunities to do old things better and to introduce new products, services and ways of working. But it also creates risks for firms whose business models will be challenged, and risks for consumers where its use is not well understood or controlled.
  • Customers’ relationships with firms are changing. Firms are looking to use customer data in novel ways, but customers are also set to gain stronger rights over how their data is used, while new technologies are enabling new types of interactions between customers, firms and third parties.

How individual firms respond to these issues will dictate who will succeed and who will struggle in the years ahead.

Regulatory strategy in 2018

We have identified seven thematic issues of strategic significance for all sectors of the European financial services industry in 2018, alongside a number of additional sector-specific issues.

Our cross-sector themes span a wide range of issues. 2018 is a year of multiple regulatory deadlines, including MiFID II, PSD II and GDPR, and our first theme examines industry’s efforts to “get over the line” in terms of compliance. Our second theme is Brexit, and we set out what industry will need to do against a backdrop of political and regulatory uncertainty. Third, we look at the business model challenges posed by the macro-economic environment, competition initiatives, and regulatory change. Fourth, we examine whether and how industry efforts to utilise customer data in novel ways can be reconciled with new data protection rules and supervisory expectations of the fair treatment of customers. Fifth, we observe significantly higher supervisory expectations and approaches regarding the treatment of vulnerable customers. Sixth, we consider the ever-present threat posed by cyber attacks, and the increasing supervisory emphasis on cyber resilience. Last, but not least, we assess the evolving landscape for model risk management in an environment in which a large proportion of assets in the financial system, and the level of capital supporting them, are managed using approved internal models.

Beyond our cross-sector chapters, we also highlight a number of issues we consider to be “supervisory constants”. These remain the core priorities and activities of supervisors. Although we do not see major new formal policy initiatives emerging in 2018, these issues should nevertheless be given the attention they deserve by firms owing to the high importance placed on them by supervisors.

Supplementing these, we present our views of a number of strategically significant sector-specific issues:

  • Banks must contend with slow progress on the prudential framework, the intersection of IFRS 9, stress testing and other requirements, evolving resolvability expectations, and the instigation of the “open banking” era.
  • Capital markets will respond to and be shaped by the introduction of MiFID II, particularly in terms of the trading landscape, data and reporting, and best execution.
  • Insurers are grappling with continuing regulatory change in the context of technological disruption, a persistent soft market and a continued low yield environment that is necessitating changes in asset strategies, business models and risk appetite. They also face challenges in delivering the product innovation needed to meet changing customer needs.
  • Investment managers’ business models are being scrutinised, with the margin between passive and active fund fees set to be squeezed. They also face the prospect of continuing supervisory review and potential intervention to address systemic risk concerns.

Explore the findings

Select issues and sectors of interest to receive a customised output of our analysis.

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Investment Management

Webcast: Exploring the Outlook 2018

To discuss the Outlook’s predictions and their potential impact on the financial services industry in 2018, Deloitte partners David Strachan, Andrew Bulley, Cindy Chan and Tom Spellman were joined by Alastair Barbour of RSA Insurance, Mark Wharton of Morgan Stanley and Stephen Sanders of JP Morgan.

Regulatory timeline tool

Access our interactive timeline tool to receive a high-level view of recent and upcoming regulatory milestones for the financial services industry.

About the EMEA Centre for Regulatory Strategy

The Deloitte Centre for Regulatory Strategy is a powerful resource of information and insight, designed to assist financial institutions manage the complexity and convergence of rapidly increasing new regulation.

With regional hubs in the Americas, Asia Pacific and EMEA, the Centre combines the strength of Deloitte’s regional and international network of experienced risk, regulatory, and industry professionals – including a deep roster of former regulators, industry specialists, and business advisers – with a rich understanding of the impact of regulations on business models and strategy.