Financial Markets Regulatory Outlook 2023
Confronting the polycrisisThis 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.
January 2023
Confronting the polycrisis
The 2023 edition of the Regulatory Outlook identifies nine cross-sector regulatory themes of strategic significance, and explores three related spotlight topics – the future UK regulatory framework, the new Consumer Duty and the EU’s Digital Markets Act. Learn more about the key themes or download the full report.
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.
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.
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.
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
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.
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.
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.
July 2022
Weathering the storms
Our Interim Regulatory Outlook 2022 (IRO22) examines the major market developments since the publication of our RO22 in January, and considers their implications for financial services regulation and what this means for regulated firms. Here we consider: Russia’s invasion of Ukraine and the resulting financial sanctions, the dramatic increase in inflationary pressure, the growing importance of energy security and how it interacts with the regulatory focus on sustainability, and the market volatility that we saw in March.
The IRO22 also analyses the most important regulatory trends that have emerged in the first half of the year, trends that are distinct from those discussed in the RO22. They include the slower pace with which a number of regulatory changes are being delivered, the growing importance of competitiveness in shaping the future of financial services regulation, and finally how supervisory approaches are continuing to evolve
Click on the boxes below to learn more about the key themes, or download the full report.
Russia’s invasion of Ukraine - Russia’s invasion of Ukraine has had and will continue to have a series of direct and indirect consequences for financial services firms. Firms have to adjust their operations, systems, assets and infrastructures to respond to sanctions, cyber threats and exposure to Russian and Belarusian markets and clients.
Balancing energy security with sustainability - Policymakers in the EU and the UK have to balance their net zero ambitions and the energy transformation of their economies with the disruption of oil and gas supplies due to Russia’s invasion of Ukraine. In some countries this is likely to mean that use of coal and nuclear power will increase in the short term. Firms will have to consider their appetite for financing this increase and its impact on their own net zero commitments.
Inflationary pressure - Inflation and the cost of living have increased markedly and are now well above policymakers’ targets. Central banks have begun to tighten monetary policy, increasing debt servicing costs for businesses and consumers and creating second and third round effects for firms.
Market volatility - Commodity, equity markets and crypto markets have all faced significant market volatility. Regulators are increasingly concerned with participants’ ability to make payments, meet margin calls, and protect consumers.
Moving, fast and slow - As policymakers have had to deal with various fast-moving market developments, the UK and EU have both been slower to implement and progress important aspects of their regulatory reforms than we anticipated. However in others the pace has picked up.
Competing on competitiveness - Competitiveness concerns are becoming an important part of regulatory policy making. The UK’s regulators look set to gain a secondary competitiveness objective, whilst the EU is adapting its reforms to respond to the UK’s regulatory divergence. This approach may create tensions between governments and regulators.
Evolving supervisory expectations - Supervisory approaches are evolving. The FCA ambition is to embed a data-driven supervisory strategy and to take a more assertive approach. The ECB has concerns about banks’ booking models. The BoE’s climate stress tests have identified general weaknesses in firms’ capabilities and greenwashing has risen up the regulatory agenda.
Access our interactive timeline tool for a high-level view of recent and upcoming regulatory milestones for the financial services industry.
January 2023
Confronting the polycrisis
The 2023 edition of the Regulatory Outlook identifies nine cross-sector regulatory themes of strategic significance, and explores three related spotlight topics – the future UK regulatory framework, the new Consumer Duty and the EU’s Digital Markets Act. Learn more about the key themes or download the full report.
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.
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.
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.
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
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.
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.
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.
July 2022
Weathering the storms
Our Interim Regulatory Outlook 2022 (IRO22) examines the major market developments since the publication of our RO22 in January, and considers their implications for financial services regulation and what this means for regulated firms. Here we consider: Russia’s invasion of Ukraine and the resulting financial sanctions, the dramatic increase in inflationary pressure, the growing importance of energy security and how it interacts with the regulatory focus on sustainability, and the market volatility that we saw in March.
The IRO22 also analyses the most important regulatory trends that have emerged in the first half of the year, trends that are distinct from those discussed in the RO22. They include the slower pace with which a number of regulatory changes are being delivered, the growing importance of competitiveness in shaping the future of financial services regulation, and finally how supervisory approaches are continuing to evolve
Click on the boxes below to learn more about the key themes, or download the full report.
Russia’s invasion of Ukraine - Russia’s invasion of Ukraine has had and will continue to have a series of direct and indirect consequences for financial services firms. Firms have to adjust their operations, systems, assets and infrastructures to respond to sanctions, cyber threats and exposure to Russian and Belarusian markets and clients.
Balancing energy security with sustainability - Policymakers in the EU and the UK have to balance their net zero ambitions and the energy transformation of their economies with the disruption of oil and gas supplies due to Russia’s invasion of Ukraine. In some countries this is likely to mean that use of coal and nuclear power will increase in the short term. Firms will have to consider their appetite for financing this increase and its impact on their own net zero commitments.
Inflationary pressure - Inflation and the cost of living have increased markedly and are now well above policymakers’ targets. Central banks have begun to tighten monetary policy, increasing debt servicing costs for businesses and consumers and creating second and third round effects for firms.
Market volatility - Commodity, equity markets and crypto markets have all faced significant market volatility. Regulators are increasingly concerned with participants’ ability to make payments, meet margin calls, and protect consumers.
Moving, fast and slow - As policymakers have had to deal with various fast-moving market developments, the UK and EU have both been slower to implement and progress important aspects of their regulatory reforms than we anticipated. However in others the pace has picked up.
Competing on competitiveness - Competitiveness concerns are becoming an important part of regulatory policy making. The UK’s regulators look set to gain a secondary competitiveness objective, whilst the EU is adapting its reforms to respond to the UK’s regulatory divergence. This approach may create tensions between governments and regulators.
Evolving supervisory expectations - Supervisory approaches are evolving. The FCA ambition is to embed a data-driven supervisory strategy and to take a more assertive approach. The ECB has concerns about banks’ booking models. The BoE’s climate stress tests have identified general weaknesses in firms’ capabilities and greenwashing has risen up the regulatory agenda.
Access our interactive timeline tool for a high-level view of recent and upcoming regulatory milestones for the financial services industry.
Financial Markets Regulatory Outlook 2023
Explore how major regulatory trends will affect the financial services industry across the UK and Europe in 2023
Key contacts
David Strachan
Partner, Head of EMEA Centre for Regulatory Strategy
Suchitra Nair
Partner, EMEA Centre for Regulatory Strategy