Briefing
The year ahead in financial services: 10 trends to watch in 2025
2024 was a momentous year for the financial services industry. Financial institutions had to deal with geopolitical risks arising from conflicts in Ukraine, the Middle East and elsewhere. At the same time, elections around the world rocked the political consensus, bringing very different leadership to many jurisdictions, including the US and the UK. Climate change continued to present new challenges for banks and insurers, while asset managers were subject to increasing and often contradictory requirements in the ESG space. At the same time, new technologies like AI continued to develop at a dizzying pace, creating opportunities and risks for the sector.
These trends are likely to continue and, in our view, will accelerate in the year ahead. The incoming Trump administration is expected to introduce significant changes in areas like trade, sustainable finance, and cryptoassets, which will have ramifications across the globe. There is a new emphasis on growth and proportionate regulation in many jurisdictions, but at the same time an ongoing focus on financial stability, protecting consumers and tackling fraud and money laundering. AI looms on the horizon, with the potential to transform every corner of the industry.
In this client briefing, we examine 10 of the most important trends in financial services, to help you navigate the year ahead.
1. Shifting sanctions
Military conflict, changes in governments in national elections in 2024, and shifts in geopolitical trade relations are heavily influencing trade policy and sanctions regimes. Financial institutions are under pressure to apply the terms of the rapidly changing framework of different regional and national sanctions regimes effectively, whilst facing regulatory action from an increasing number of authorities active in enforcement of sanctions compliance. Sanctions are also being expanded into novel areas: the UK recently announced the introduction of a new standalone sanctions regime dedicated to targeting people smugglers.
Although financial institutions have been grappling with the challenge of navigating differing sanctions regimes for many years, there is now the additional challenge of applying increasingly complex export control regimes. We also expect to see increased pressure on the enforcement of unilateral sanctions, which will pose challenges for financial centres such as Hong Kong, Singapore and Dubai. In the US, we anticipate changes in trade policy following the recent elections, further developments in the sanctions regimes, and a growing risk of sanctions breach investigations and penalties in a number of jurisdictions in 2025.
2. AML and other controls continue to fall under scrutiny
Across the world, authorities continue to impose substantial enforcement penalties on financial institutions for flaws in AML systems and controls and are linking payments in breach of sanctions to money laundering. The EU is establishing a new authority to monitor AML compliance at the largest EU financial institutions. Financial institutions are increasingly under scrutiny as the third-party conduits for international payments linked to sanctions breaches, terrorist activities, or bribes to overseas officials. The trend of substantial and robust enforcement for AML failings within the financial services sector is likely to continue in 2025, and a focus on sanctions breaches will bring controls at financial institutions under further scrutiny rather than diverting regulatory attention away from the financial services sector.
3. The outlook for payments: more innovation and more risk of fraud
Technological developments will continue to spur innovations in payments in 2025, from digital wallets to frictionless cross-border payments. Trialogue negotiations should commence this year on the European Commission’s revamp of the payment services regime, as well as its proposed regulation for accessing financial data, both of which are intended to bolster open finance in the EU. In the UK, the government has set out its vision for the future of payments, including a renewed commitment to open banking, and the eventual revocation of the existing payment services and e-money regulatory regimes could lead to significant change. The Data (Use and Access) Bill, currently making its way through Parliament, will establish a statutory framework for ‘smart data’ schemes as well as digital verification services. In Hong Kong, trade finance, CBDC bridges and the adoption of stablecoin regulatory regimes to support stablecoin issuers are aimed at improving the speed and lowering the costs of cross-border transfers. In the US, the Consumer Financial Protection Bureau’s recently finalised open banking rule enjoys rare bipartisan support and is one of the few regulations implemented during the Biden administration that is not expected to face serious efforts at Congressional repeal in 2025 (even though it remains subject to ongoing litigation).
At the same time, technology is enabling increased financial crime. The UK has recently introduced new rules for reimbursement by payment service providers in cases of authorised push payment (APP) fraud, and other jurisdictions may follow suit. However, there have been calls for social media platforms to do more to battle scams at the source. In the EU, under the revised payment services regime (PSD3/PSR), a new liability regime will be introduced requiring payment service providers to compensate consumers who have been the subject of ‘impersonation fraud.’ The liability of online platforms for fraud resulting from the use of their platform by fraudsters is also currently being discussed. In the US, banks are required to reimburse customers for fraudulent or unauthorised transfers; there have been recent pushes to expand these protections to include, for example, APP fraud, though such changes have not been enacted into law yet. In Hong Kong, by contrast, the onus remains on consumers to be alert to fraud and to protect themselves (with regulators and financial institutions alike doing what they can to educate consumers) rather than requiring financial institutions to reimburse.
4. Protecting retail consumers is increasingly in the spotlight
The trend towards reimbursement of fraud victims in some jurisdictions is part of a broader regulatory focus on protecting consumers. A substantial part of high-profile litigation and regulatory intervention is prompted by, among other things, consumers being affected by inadequate or unfair sales practices for legitimate financial products, fraud, or investment scams. In addition to regulatory penalties, reputational damage, and, in some cases, criminal liability, financial institutions face the risk of follow-on court action from individual customers, mass claim scenarios where a substantial number of consumers bring individual claims against a financial institution, or class/group litigation.
Regulators are increasing their focus on consumer protection, and US and EU governments are embedding mechanisms for consumer redress in legislation. In the UK, the FCA is assessing whether financial institutions have fully and effectively implemented the duty to promote good outcomes for consumers, which was introduced in 2023. The FCA is also considering changes to the regulatory regime to coordinate handling mass claims with the UK Financial Ombudsman Service to ensure more consistent outcomes for consumers. While the FCA is strongly committed to consumer protection, it is unclear what changes it will introduce in procedure and policy to speed up redress in mass claim scenarios. Recent EU legislation provides for collective representative actions, which enables consumer organisations to bring cases on behalf of affected individuals with the objective of handling mass claims more efficiently.
In the US, recent regulatory investigations suggest that regulators may focus on flaws in sales to consumers. The picture in Australasia is more mixed. Australian regulators focus heavily on consumer protection. In Hong Kong, although financial institutions do not yet face the prospect of group litigation funded by third parties and, as noted above, are not required to reimburse consumers who ignore warnings and transfer money to fraudsters, there remain regulatory requirements for financial institutions to act in the best interests of customers and regulators continue to consider how to allocate risk.
5. Pro- and anti-ESG tensions are spreading
Financial institutions face increasing challenges in navigating both pro- and anti-ESG sentiments. Financial institutions continue to grapple with applying a developing framework of different disclosure and labelling requirements around the world and are now considering how to take into account in business decisions the more complex factors involved in assessing sustainability impacts on nature and biodiversity. The risk of ESG investigations and litigation for failing to meet ESG requirements and expectations is increasing across the board, with notable examples of court actions in the EU and Australia in particular. But there are growing tensions between the pro- and anti-ESG lobbies that continue in the US and are now starting to emerge in other jurisdictions where some interest groups perceive ESG initiatives as anti-business or anti-growth. This may lead to further divergence in policy internationally, a more challenging environment for financial institutions operating globally, and higher risk of litigation from opposing lobbies.
6. The growing regulatory spotlight on private capital
As private credit funds play a greater role in activities traditionally undertaken by banks, they are attracting growing attention from both regulators and governments who are concerned about potentially heightened risks to the financial system. In a recent podcast, we explored the increasing regulatory focus on private credit across the world. We expect this to intensify in 2025 as national regulators and international bodies such as the Basel Committee and the FSB continue to look at banks’ risk management systems and capital requirements in the context of private capital exposures and scrutinise private credit institutions themselves. The FSB recently issued policy recommendations to enhance non-bank market participants’ preparedness for margin and collateral calls, and it is planning to publish a report in mid-2025 on recommendations to address financial stability risks arising from leverage outside the banking sector. At the regional level, the EU is leading the charge with AIFMD II, which will introduce new requirements for loan-originating funds subject to AIFMD from April 2026. Moreover, the European Commission may publish in 2025 the result of its public consultation on macroprudential policies for non-bank financial intermediation (NBFI), which closed in November 2024. Attempts to measure the financial stability risks posed by the NBFI sector have so far been inconclusive. However, the shift of activity from public to private markets has led to a concomitant reduction in transparency, resulting in calls for more data.
7. Expanding scrutiny of senior manager conduct
Incidents of non-financial misconduct, such as bullying and harassment, within financial institutions have captured media and regulatory attention. Alongside the reputational and legal risk for financial institutions, non-financial misconduct is increasingly likely to create regulatory risk. UK and EU regulators recognise the strong connection between a healthy and open corporate culture and good customer outcomes. Factors that influence and demonstrate a financial institution’s culture, such as diversity and inclusion, commitment to the promotion of whistleblowing, and conduct within and (potentially) outside the workplace have therefore become a regulatory focus area.
This has probably been taken the furthest in the UK, where the FCA has made clear its view that acting upon non-financial misconduct is within its remit (although there is a growing view that the FCA has exceeded its remit in doing so). There have already been a series of enforcement investigations against individuals considering whether their conduct (sometimes outside the workplace) has breached regulatory requirements. The FCA has other ongoing investigations and is expected to clarify in guidance early this year that non-financial misconduct should be taken into account when considering an individual’s fitness to work in the UK financial services sector. While there is some uncertainty about policy direction in the US, the DoJ and SEC are likely to continue to investigate and bring enforcement action against senior individuals alongside corporate targets. Regulators outside the UK may follow the UK example in considering a wider range of conduct inside and outside the workplace as relevant in assessing an individual’s suitability to hold a senior financial services role. Financial institutions would be well-advised to review internal codes of conduct, recruitment due diligence and disciplinary processes in light of developments, and to ensure that HR and Compliance teams work together closely.
8. Deregulation, growth and competitiveness, divergence
It seems that the post-financial crisis focus on eliminating risk is receding in developed economies – the new bywords are growth and competitiveness in place of ‘safetyism.’ But with competition between jurisdictions comes the potential for fragmentation (and risk).
The Basel consensus is looking decidedly shaky. Capital requirements in the UK diverge from the more conservative EU, while in the US, the Basel III endgame rulemaking has still not been implemented, with the 2023 proposal facing immediate and intense criticism from the banking industry; based on agency feedback in 2024, the rule was expected to be significantly pared back if and when finalised. The imminent political shifts and anticipated resulting banking agency shake ups make the form and timing for implementation of a final rulemaking even more uncertain. These changes could energise the financial sector – there is talk of an M&A boom in the US banking industry, which many consider ready for a fresh wave of consolidation. Meanwhile, across Asia, implementation of Basel continues unabated.
Across the globe, moreover, political leaders are vowing to pursue deregulatory agendas. Incoming US president Donald Trump and the co-head of the new Department of Government Efficiency (despite its name, an advisory committee with only symbolic power), Elon Musk, have promised to cut regulation across industries and sectors. The UK’s new Chancellor of the Exchequer, Rachel Reeves, says that the UK has been regulating for risk instead of growth for too long and views the regulators as key to advancing the government’s mission for growth. Mario Draghi says the EU faces an ‘existential challenge’ and needs to radically change in order to become more productive; the new European Commission aims to simplify and consolidate rather than expand its rulebook.
9. Harnessing AI for growth while providing appropriate safeguards
Financial institutions have been grappling with the capabilities of AI and its use cases for some time, but technology is developing rapidly, regulatory frameworks are emerging, and financial institutions are considering new use cases. Governments and regulators around the world recognise the potential for innovation, productivity increases, growth and cost reductions from AI and are keen to encourage its use subject to essential safeguards. Some jurisdictions, such as Hong Kong and the UK, are taking a sectoral approach, and the financial services regulators have already issued guidance to financial institutions (albeit limited) on the appropriate regulatory standards for use of AI, largely applying existing regulation. On the other hand, the EU is taking a more prescriptive approach to AI, categorising use cases by risk and introducing requirements based on this categorisation irrespective of sector. Financial institutions face the practical challenges of harnessing AI for maximum benefit within their business while overcoming the practical challenges of complying with the varied compliance requirements, allocating risks from new technology appropriately, avoiding bias and misuse of customer data, and protecting consumers and preventing discrimination and fraud against vulnerable groups.
10. Cryptoassets: has their moment come at last?
2025 could be a transformative year for cryptoassets. For a long time, governments and regulators have seemed unsure about how to approach the burgeoning market in digital currencies – most notably in the US. Even in countries that promote themselves as crypto-friendly, the reality has often been challenging for cryptocurrency service providers seeking to obtain authorisation. All that may be about to change. President-elect Trump has vowed to prioritise strengthening the cryptoassets industry (in which he is a major investor); he has notably tapped PayPal co-founder David Sacks to be his crypto and AI policy ‘czar’ and discussed plans to implement a crypto reserve. This enhanced support will likely be mirrored under the Republican-controlled Congress (which includes several recently elected Democratic proponents of cryptoassets). Anticipated leadership changes at the helm of US federal agencies like the SEC and CFTC may also accelerate regulatory reforms that would increase the adoption of cryptoassets in the financial services sector.
The EU has been the trailblazer with the Markets in Crypto-Assets Regulation, which became applicable to Crypto-Asset Service Providers (CASPs) at the end of 2024, subject to a transitional period of up to 18 months for existing CASPs. In the UK, the FCA’s regulatory remit for cryptoassets that are not securities or e-money is currently limited to AML registration and financial promotions, but the FCA’s roadmap indicates that 2025 will be a bumper year for responding to consultation and discussion papers about the new regulatory regime (expected to become effective in 2026). Hong Kong says it wants to become a major digital asset trading centre, but time will tell whether it fulfils that ambition. The Securities and Futures Commission’s cautious and conservative approach to licensing has so far resulted in a small handful of digital assets services providers being authorised. Meanwhile, ASIC has continued prosecuting poor conduct from digital asset trading platforms, and the new year saw Indonesia, Philippines and Cambodia put forward proposals to regulate digital asset trading in their markets.