Second of two parts
IN BRIEF:
• With consumers still adapting to recent sharp rises in the cost of living, regulators’ focus on ensuring financial resilience and good consumer outcomes will increase.
• In 2025, regulators will look at accountability and timely remediation of long-standing risk management weaknesses that had gone unaddressed. They will continue to engage financial institutions in ensuring that governance and risk management are strengthened, in line with the institutions’ changing strategy and ambitions.
The past years highlighted several critical issues for financial institutions and regulators, ranging from geopolitical and macroeconomic issues to growing challenges in balancing support for technology innovation with protecting consumer and markets from the attendant risks. This presents a convergence of risk factors over the coming year and beyond, with regulatory fragmentation expected to continue as policymakers prioritize country-specific approaches to matters such as financial stability, financial inclusion, sustainability, artificial intelligence (AI), resilience, and governance.
The EY 2025 Global Financial Services Regulatory Outlook identifies critical themes that will shape the regulatory landscape over the coming year, exploring key regulatory priorities for financial institutions in 2025 and offering strategies for navigating these challenges effectively.
The first half of this article explored the first two key regulatory priorities: navigating the fragmented regulatory landscape driven by national interests and emphasizing operational and financial resilience. This second half will discuss remaining priorities: focusing on securing positive outcomes for consumers and managing risk in an evolving environment.
POSITIVE CONSUMER OUTCOMES AND EXPANDING SUSTAINABILITY EFFORTS
While inflation is easing, financial difficulties for consumers and businesses continue. In many countries, there is a contradiction in the approaches to regulations on financial stability and financial inclusion. On one hand, policymakers are encouraging international competitiveness and deregulation, and on the other, focusing on ways to boost citizens’ financial wellbeing and empowerment by helping them to build savings for later life, protecting access to financial services, and promoting competition.
With consumers still adapting to recent sharp rises in the cost of living, regulators’ focus on ensuring financial resilience and good consumer outcomes will increase. The UK’s adoption of the Consumer Duty in 2023 has attracted global attention, with several national regulators preparing to enhance consumer protections. This greater focus on helping customers build financial resilience supports the ESG agenda on financial inclusion, and looking beyond compliance to actual customer outcomes can offer financial institutions an opportunity to gain a competitive advantage.
On the global sustainable finance front, ESG reporting on emissions, climate risks and sustainability is becoming a business norm for the largest companies. There are similar initiatives and roadmaps with timelines on the Philippine front, not only on reporting requirements but also other areas like the sustainable finance taxonomy guide and climate risk stress testing.
The sustainability agenda is starting to widen and deepen, including a broadening focus on the “E” of ESG beyond climate and a deliberate look at the “S” as it relates at least to financial, digital and economic inclusion. It will take time before financial institutions also face specific accountabilities on biodiversity and nature-related risks, but it is now increasingly clear that banks need to accept that sustainability has a direct link to financial stability and will continue to shape future regulatory responses.
Organizations need to understand how regulators may view the principle of fairness and be prepared to demonstrate how they are delivering in customers’ interests. This involves showing how their products and services cater to the needs of specific customer groups, including vulnerable customers. Additionally, firms should help customers understand common fraud and scams, use technology to monitor transactions, enhance security, and verify customer identity. By doing so, firms can build trust and ensure they are meeting regulatory expectations for consumer protection.
MANAGING RISK IN AN EVOLVING ENVIRONMENT
Governance will remain a top agenda. The banking crisis of early 2023 highlighted long-standing risk management weaknesses and failures to strengthen governance in line with changing strategies. Going into 2025, regulators will look at accountability and timely remediation of long-standing risk management weaknesses that had gone unaddressed. They will continue to engage financial institutions in ensuring that governance and risk management are strengthened, in line with the institutions’ changing strategy and ambitions.
Moreover, they will put greater pressure on boards to ensure that they have effective oversight over risk management frameworks. It is imperative for financial institutions to pay close attention to feedback from supervisory interactions and cross-sector reviews.
The outlook provides the following points for organizations to consider for risk management, governance and accountability:
• Prioritize investments in systems and data that allow the proactive self-identification of issues and implementation of controls before the risks crystallize
• Explore how advanced technologies such as data analytics and AI can help predict future issues
• Conduct regular testing to better anticipate emerging issues
• Evaluate whether the three-lines-of-defense model is delivering optimal results
• Ensure governance arrangements give board members sufficient oversight of the firm’s risk environment
• Approach regulatory relationships systematically, with feedback being tracked and revisited to ensure that issues are being addressed
By doing so, firms can demonstrate their commitment to robust risk management and governance practices, meeting regulatory expectations and building a foundation for long-term success.
NAVIGATING THE REGULATORY LANDSCAPE FOR LONG-TERM SUCCESS
Governments see the finance sector as key to delivering economic and social objectives. Firms must engage with regulatory agendas to contribute insights and understand the issues driving policymakers’ and regulators’ thinking. They must also demonstrate that their risk management is flexible and responsive to a changing environment, and that they have the data and tools to deliver against regulators’ priorities.
As we move into 2025, financial institutions must be prepared for market disruption and volatility while delivering good outcomes for customers. The onus is on firms to prove that their risk management and governance arrangements are agile and robust enough to meet these concerns. By focusing on resilience, consumer outcomes, and timely remediation of weaknesses, financial firms can navigate the regulatory landscape effectively and build a foundation for long-term success.
This two-part article is part of a larger series on future trends for the financial services industry. In the following weeks, we will discuss how digital transformation drives the workforce in financial institutions, harnessing the power of Generative AI in banking, and building operational and financial resilience.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Christian G. Lauron is the financial services organization (FSO) leader of SGV & Co.
