Financial Markets Regulatory Outlook 2024

Highlights

In focus

Sustainable finance – Don’t stop now

• Corporate sustainability disclosures –  Increased focus on corporate sustainability reporting requirements (CSRD, CSDDD and CRR3), as well as the finalization of the TNFD framework, will be the priority for firms in 2024.
• Transition planning, climate and environment risk management and greenwashing – In addition, firms will have to meet expectations on transition planning, climate and environmental related financial risk management, as well as managing greenwashing to put ambition into practice.

Innovation, payments, and digital assets – Regulation will reshape markets and digital transformation strategies

• Artificial Intelligence (AI) – Regulation of AI is set to take center stage in 2024, as firms seek to scale their AI capabilities. EU has taken a bold step by establishing the first comprehensive AI legislative framework – the Artificial Intelligence Act (AIA) - set to enter into force by H1 2024.
• Retail payments regulation – The convergence of market dynamics and new regulations will further accelerate the transformation of the payment sector. Policymakers in both jurisdictions are introducing new regulations to bolster consumer protection, choice, and resilience.
• Digital assets – Tokenisation will dominate regulated FS firms' digital asset pilots, with a particular focus on the issuance of tokenised bonds.

00.00: Current market trends
16.31: Latest insights on credit risk 
38:41: Sustainable finance priorities
1:02:22: Operational resilience & AI regulation

Sector perspectives

Retail and commercial banking – A defining year ahead, for operational, financial and conduct reasons.

• Operational challenges: The continuing volume of regulatory change means banks will have multiple, significant change programs running concurrently. Failure to deliver and/or reliance on tactical solutions will be costly. Not only will remediation costs be high, but they also face capital add-ons, including to reflect management and governance weakness
• Financial resilience: Basel finalization will be the key financial risk program for most banks in 2024. Well known Basel 3.1 implementation challenges – such as data sourcing, system modifications, changes to capital calculation processes and operationalizing the Output Floor – remain prevalent.
• Conduct: Supervisory attention on how banks reflect base rate changes in customer rates will continue, focusing on both the speed and proportion of pass-through.

Investment banking – No letup in supervisory scrutiny

• Significant volume of regulatory change: Many reforms developed over the past few years, including the latest iterations of MIFIR (Markets in Financial Instruments Regulation), EMIR (European Market Infrastructure Regulation) and CSDR (Central Securities Depositories Regulation), are close to implementation.
• FRTB: The implementation of the Fundamental Review of the Trading Book (FRTB) causes firms to face the prospect of higher market risk RWAs under both the revised Standardized Approach (SA) and Internal Model Approach (IMA). All IBs will have to report SA capital calculations by January 2025 in the EU and July 2025 in the UK and the US.

General insurance - Carving opportunities out of change and challenges

• Increasing challenges: Firms face several challenges, brought about by a continuation of the difficult economic environment, changing regulation, mounting climate-related catastrophe losses, and continued geopolitical turmoil on the horizon.
• New opportunities: However, our view is that the economic and regulatory environment could also present opportunities for insurance firms. Those who innovate and adapt products in line with changing demands of customers and the environment will be at an advantage.

Investment management and wealth – Supervisors demand strong governance and MI to demonstrate good outcomes

• SFDR: In the EU, a fundamental review of the Sustainable Finance Disclosures Regulation (SFDR) is underway. This may potentially change the way in which the Article 8 and 9 categories are used.
• Liquidity: We expect fund liquidity to be a key supervisory focus area in view of the significant shortcomings found in the FCA’s recent review, and the new rules on liquidity management in the EU’s revised UCITS and AIFMD frameworks.

Previous reports

2023: Confrotning the polycrisis

About the EMEA Centre for Regulatory Strategy (ECRS)

The Deloitte EMEA Centre for Regulatory Strategy is a powerful resource of information and insight, designed to assist financial institutions to manage the complexity and convergence of new regulation. The Centre combines the strength of Deloitte's regional and international network of experienced risk, regulatory and industry professionals. 

About the ECRS Nordics Hub

The Nordics Hub draws on the ECRS’ breadth of regulatory analysis to bring relevant insights to financial institutions in the Nordic countries. The Nordics Hub helps broaden and deepen connectivity between Deloitte practitioners across the region on regulatory strategy topics.