Financial Markets Regulatory Outlook 2023

Confronting the polycrisis

This annual assessment from Deloitte’s EMEA Centre for Regulatory Strategy explores how major regulatory trends will affect the financial services industry across UK and Europe in the year ahead, and how leaders can anticipate and respond to them effectively.

The 2023 edition of the Regulatory Outlook identifies nine cross-sector regulatory themes of strategic significance and explores three related spotlight topics. These themes and topics are summarised below and analysed in more detail in the report, along with recommendations for how firms can respond.

Global foreword

Resilience, vigilance, and positioning for change

In the global foreword we set out our view of the major regulatory strategy issues facing the financial services industry worldwide, first in terms of the immediate pressures created by the gloomy economic situation, and then in terms of three major structural changes: geopolitical, technology, and sustainability.

Strengthening transition plans and disclosures

Tackling climate change for real

Firms need to change gear on transition planning, from stating ambitions to setting targets and taking action to meet them, in order to anticipate increasing regulatory and wider stakeholder scrutiny.

Climate risk and the climate-nature nexus

Making managing environmental risk business as usual

Supervisors expect banks and insurers to accelerate improvements in their climate risk management capabilities. In particular, they will focus on whether and how policies and procedures have an impact on how firms steer their business.

Digital assets and payments

Policy implementation begins

Regulated firms appear to be forging ahead with their digital assets strategies. However, recent events and market disruption - as well as heightened supervisory scrutiny - will inevitably require them to review their risk appetite and resilience profile.

Operational resilience and critical third parties

A year of real tests

With EU and UK operational resilience policy frameworks largely in place, 2023 will be the year where focus turns to implementation, with supervisors expecting to see tangible evidence of firms’ progress in building resilience.

Credit risk

Storm clouds forming

The gloomy credit outlook presents serious challenges. Firms should ensure that they have the capacity, skills and resources in place to deal with rising insolvencies and distressed borrowers.

Capital framework

More to come

2023 will see the final shape of updated UK and EU capital frameworks for banks and insurers emerge. While this will reduce policy uncertainty, the reforms will herald a more fragmented regulatory landscape for cross-border groups

Capital markets

Renewed focus on market resilience

In the wake of serious market disruption last year, we expect supervisors to focus on firms’ counterparty credit risk management frameworks, margining practices and booking arrangements.

Model risk management

Do you know what you’re looking for?

Firms will need to respond to growing supervisory concerns around the extent to which they understand and manage the risks posed by their extensive use of models, including in new and less well-understood areas such as climate risk and the use of AI/ML.

Financial crime

Running faster just to stay in place

Many firms’ capabilities to combat financial crime continue to fall short of expectations. Fixing these issues requires significant organisational change to eliminate silos, change resourcing models and leverage new technologies. All this will need to be delivered against a challenging economic backdrop.

Spotlight on the New Consumer Duty

Rolling out new protections

The cost-of-living crisis means that as firms are implementing the most material piece of UK cross-sectoral conduct regulation of the last decade, they will also be facing a real, market driven stress test of how they treat their customers.

Spotlight on the EU’s Digital Markets Act

The implications for financial services

The EU’s landmark legislation to crack down on the anticompetitive behaviours of digital and technology platforms goes live this year, presenting opportunities for financial services firms to capitalise on changing market structures.

Spotlight on the future UK regulatory framework

Significant change ahead

The Edinburgh reforms represent the most significant package of regulatory change since the UK left the EU. The consultations present a significant opportunity for the industry to shape the future of UK financial services regulation.

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

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