2024 Financial Services regulatory priorities

January 2024

The H2 2023 edition of the KPMG Regulatory Barometer found no let-up in the regulatory intensity facing the financial sector in the UK and EU, as firms continue to navigate change and challenging conditions. 

In 2024, elections in the UK and EU will result in efforts to finalise existing policy work before activity slows and politicians turn their attention to campaigning. Against a backdrop of continuing geopolitical tension and economic uncertainty, this is likely to make for a challenging year ahead. 

Firms should use the new year as an opportunity to review their regulatory change portfolio, consider whether their approach is complete and appropriate, and identify areas that require greater focus and expertise. 

In this article, KPMG EMA Financial Services Regulatory Insight Centre specialists share high-level views on the key regulatory themes and likely developments in 2024. 

See below for sector-specific insights, as well as takeaways for cross-cutting themes including Consumer Duty, ESG and sustainable finance and operational resilience.

With rules nearing finalisation, in 2024 banks will need to step up their preparations for the remaining Basel reforms. Implementation will be a complex exercise affecting many areas, from regulatory interpretation and assessment of capital impacts, with significant opportunities for balance sheet optimisation, to technology, data and reporting requirements. Variations in local approaches will add further complexity for banks operating across the UK, EU and US. Our 2023 publication sets out key considerations (PDF 2.1 MB) for firms.

Regulatory focus on proportionality is driving a simpler approach for smaller domestic deposit takers (SDDTs) in the UK, with final rules now published for liquidity and disclosure requirements. The PRA will consult further on simplifications to Pillar 2 and on buffer requirements for SDDTs and SDDT consolidation entities in Q2. Initial implementation of the new framework will bring its own challenges, not least the need for eligible SDDTs to decide whether to adopt Basel 3.1 or the new transitional capital regime before there is full visibility over the final simpler regime.

In December, the Bank of England (BoE) updated the `Purple Book' on its approach to resolvability to reflect lessons learned in 2023. Solvent exit planning will be under increased supervisory scrutiny — analysis of the requirements for non-systemic banks and building societies to bring solvent exit planning into BAU by Q3 2025 can be found here. Larger banks must complete their work by March 2025.

Alongside evolving requirements for capital, liquidity and risk management (particularly for US banks), supervisory authorities will have low tolerance for poor risk controls or governance. The ECB is stepping up the intensity of its focus on BCBS 239 Risk data aggregation and risk reporting. And UK banks have until May 2024 to implement the PRA's principles for model risk management — details can be found here and here (PDF 4.8 MB). 

Meanwhile, banks will be seeking to transition their business/revenue models to enhance profitability, while recognising the risks and opportunities arising from ESG, generative AI, and increasing digitalisation of the industry. 

2024 is set to be a year of change for insurance prudential regimes. This includes the stepped implementation of Solvency UK, with the Risk Margin reduction already in place, finalisation of the EU's Solvency II reform (following agreement by co-legislators in December) and the final policy decisions on the global Insurance Capital Standard (ICS) before it kicks in as a Prescribed Capital Standard (PCS) from 2025.

Insurers have a lot of work to do to get ready. A key part of the UK reform is the proposed changes to the Matching Adjustment (MA), the most complicated part of which is the new requirement for CFOs to attest to the sufficiency of the fundamental spread and the quality of the MA. You can read our practical guide on how to prepare for the attestation here.

Those looking for a recap of the Solvency UK can view our analysis of the first consultation (covering internal models, third country branches, capital add-ons and the new mobilisation regime) here, and the second consultation (covering the MA) here. Reporting practitioners, meanwhile, will be getting their processes ready to accommodate the upcoming changes — and the increasing divergence with the EU reporting taxonomy.

The PRA's consultation on exit planning for insurers has been delayed until H1 2024, so firms have more breathing space to prepare for the PRA's explicit expectations for how firms should prepare for a possible exit from the market. This mirrors similar developments in the UK for banking, and also in the EU for insurers, with the Insurance Recovery and Resolution Directive (IRDD) set to require 60% of member states' markets to prepare for recovery and 40% for resolution. We have set out predictions of what the PRA guidance is likely to contain, including an expected focus on ensuring the continuity of critical functions.

Beyond that, KPMG practitioners are working with firms to support increased PRA scrutiny in areas such as Funded Reinsurance, claims reserving practices in light of inflation, and climate risk reporting and disclosure.

In 2024 wealth and asset managers can expect regulators to continue to focus on the themes identified in KPMG's 2023 Evolving Asset Management Regulation report. 

In the context of sustainable finance, UK fund managers will be focused immediately on implementing the FCA's Sustainability Disclosure Requirements (SDR — see next steps for firms here). Asset managers can also expect the FCA to review their initial TCFD-aligned disclosures and to publish observations. For EU firms, the direction of the Commission's direction on the review of the SFDR is also likely to become clearer (see a recap of its consultation here).

On investor protection, UK wealth and asset managers will continue to embed the Consumer Duty (see below), and fund managers specifically will need to act on the findings of the FCA's latest assessment of value review if they have not already done so. 

UK firms can expect the FCA to consult on a disclosure regime to replace PRIIPs. Meanwhile, EU firms have been attempting to influence the European Commission's proposed Retail Investment Strategy. Negotiations on this will continue throughout 2024. For a recap of the Commission's original proposal and a comparison with UK requirements, see our summary here.

International regulatory efforts to reduce potential systemic risk in funds will move to the embedding phase. Meanwhile, the FCA will continue to focus on front office controls and will be expecting improvements to fund liquidity management following its 2023 supervisory review (see next steps for fund managers here). As work on mainstream assets concludes, 2024 will see increased regulatory attention on private assets — our 2023 article signposted actions for firms.

More broadly, firms on both sides of the Channel will be continuing to enhance their financial resilience, prepare for new operational resilience requirements, and seek to influence and comply with new digital finance regulations (see below). In addition to the Consumer Duty, UK wealth managers will be expected to focus on efforts to combat financial crime (see more here).

In 2024, there will be changes in non-financial regulatory reporting across the EMIR and MiFIR regimes with firms having to manage the complexity of slightly different regimes across the UK & EU (see more here and here). 

Regulators will continue to focus on the access and cost of market data with consolidated tape frameworks developing in both EU & UK and the FCA's final report of its wholesale market data study due in March (see more here).

Proposals are likely to be finalised for a reduction in scope of the Benchmarks Regulation but, in contrast, ESG ratings will be brought within the regulatory perimeter.

Supervisors are not likely to let up their focus on firms' risk management when there is the chance of continuing volatile markets.

Whilst 2023 was spent implementing the Consumer Duty and considering `how far is far enough?', firms now face a similar challenge as they work out how best to design and build their annual board report. We have set out a practical guide here. 

Similarly, consumer outcomes testing will continue to be a focus. Firms will need to continue to capture first-hand evidence to form a holistic view of the outcomes they are delivering for their customers — our guiding principles for approaching this topic are here. 

More broadly, many firms are still on a journey to finalise full compliance for open products, implement the Duty for closed products, embed the Duty by making internal processes more efficient and effective and, explore the commercial opportunities that the Duty can offer — see our “Day 2” article for more considerations on this. 

Following finalisation of the first IFRS (ISSB) and European Sustainability Reporting Standards (ESRS) in 2023, 2024 will be a year of data gathering and moving from planning to implementation. Local regulators must decide whether and how to adopt the ISSB standards — in the UK, new Sustainability Disclosure Standards (UK SDS) are expected by 1 July. With first reporting under the EU Corporate Sustainability Reporting Directive (CSRD) due in early 2025 (based on FY24), in-scope firms must get to grips quickly with the extensive requirements of the ESRS. The December cooperation agreement between EFRAG and the TNFD reinforced the need for firms to focus not just on climate but also on nature-related disclosures. For more information, visit the KPMG Sustainability reporting hub — Sustainability reporting - KPMG Global. 

The BCBS is consulting until 24 February on proposals for integrating climate-related risk into Pillar 3 disclosures to complement the ISSB framework and provide a common baseline for internationally active banks. The IAIS is also consulting on proposed climate risk supervisory guidance through changes to the Insurance Core Principles. Meanwhile, the PRA and ECB have made their expectations around climate and environment related risk abundantly clear — firms not making appropriate progress in this area can expect supervisory action. For a recap of BCBS, PRA and ECB supervisory expectations, see here. 

From mid-year, all FCA-authorised firms will be subject to the general anti-greenwashing rule under the UK Sustainability Disclosure Requirements (SDR) — for more on SDR impacts on UK fund managers, and the EU Commission's review of SFDR, see Wealth and Asset Management above.

UK authorities will be seeking to build on the work of the Transition Plan Taskforce, with expectations of formal transition plan disclosure requirements under the FCA's listing rules. The UK Green Taxonomy remains a key deliverable for 2024. 

Work on markets initiatives continues — across ESG data and ratings (see above) and carbon markets, as well as green bonds and securitisation instruments. 

And final text for the EU's Corporate Sustainability Due Diligence Directive (CSDDD) is expected imminently — for more on the original proposals, see here.

Technology continues to develop at a dizzying pace, but regulation is beginning to catch up. Firms can start to consider their business models in light of the UK proposals on cryptoasset and stablecoin regulation (here and here) with EU MICA regulatory technical standards to be finalised in the year ahead.

Finalisation of the EU AI act establishes a regulatory framework for use the technology in the EU with other jurisdictions not far behind.

Open Finance builds upon the success of Open Banking and provides the potential for firms to offer more tailored, informed and innovative services to help consumers and businesses manage their finances.

The EU Digital Operational resilience Act (DORA) will be implemented from January 2025. The first batch of technical standards is expected to be finalised this month and the second is under consultation — including identification and oversight of critical third-party providers. Work is progressing in parallel in the UK to bring critical third parties to the financial sector within the regulatory perimeter.

By 9 February, FMIs must comply with the relevant BoE statements or code of practice on outsourcing and third-party risk management. 

Firms in scope of the PRA and FCA operational resilience requirements should continue to work through the requirements. The final hurdle is to demonstrate, by March 2025, that they can remain within impact tolerances when under stress.  

2024 will see further significant regulatory developments affecting the payments ecosystem. The Future of Payments Review, commissioned by HM Treasury (HMT) has established a strategic direction for the UK’s retail payments ecosystem. 2024 will see government and regulators driving action to advance the recommendations, for more on the review see here.

Long anticipated changes in the evolution of Open Banking and increased consumer protection will come to fruition this year. Continued progress on the Open Banking Roadmap will see the transition of Open Banking Limited (OBL) to the future entity in Q2 2024.

By 7 October 2024 payment service providers must comply with the PSR’s new mandatory reimbursement requirements for APP fraud and scams. Widely acknowledged as a challenging deadline, firms must to take swift action to meet the deadline. Read more here.