Regulatory Storm Approaches: Financial Services Industry Faces Unprecedented Pressures

KPMG's Financial Services Regulatory Barometer Reveals Escalating Regulatory Challenges and Key Trends

3 mins read

Key Takeaways:

  • The financial services industry in the UK and EU is experiencing heightened regulatory pressure, with an aggregate score of 7.2 out of 10.
  • ESG and Sustainable Finance regulations are the leading cause of regulatory strain, followed closely by Financial Resilience concerns.
  • The report highlights the emergence of Payments as a key regulatory theme and the growing divergence between EU and UK regulatory policies.

Navigating Choppy Regulatory Waters: A Growing Challenge for Financial Services

In a rapidly evolving financial landscape, where change is the only constant, the financial services industry finds itself under increasing regulatory scrutiny. The third edition of the Financial Services Regulatory Barometer by KPMG UK reveals that financial firms in the UK and EU are grappling with escalating regulatory pressures, with no respite in sight. This comprehensive report provides insights into the ever-evolving regulatory landscape, the challenges faced by financial institutions, and the emerging trends that are reshaping the industry.

The Regulatory Storm Intensifies: An Aggregate Score of 7.2

The Financial Services Regulatory Barometer’s latest edition paints a vivid picture of the relentless regulatory storm that financial firms are navigating. The aggregate regulatory Impact Score stands at 7.2 out of 10, a slight increase from 7.0 in February 2023. This uptick indicates that the regulatory intensity facing the financial industry in the UK and across the EU is on the rise, signaling a period of unprecedented challenges.

ESG and Sustainable Finance: The Leading Regulatory Force

For the third consecutive assessment, ESG (Environmental, Social, and Governance) and Sustainable Finance regulations are identified as the primary source of regulatory pressure, scoring a remarkable 8.5 out of 10. The financial industry is under intense scrutiny for issues related to greenwashing, more stringent disclosure requirements, and heightened expectations from regulators. The report highlights the urgency with which financial institutions must adapt to evolving sustainability standards and expectations.

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Financial Resilience: The Growing Challenge

The Barometer also underscores the mounting pressures surrounding Financial Resilience, with a score of 8.4. Banks and insurers are anxiously awaiting final rules for Basel 4 and Solvency II, anticipating substantial implementation challenges in the short to medium term. The ongoing economic uncertainty, characterized by factors like inflation and market exits, has shaken the financial services industry, sparking essential conversations about potential regulatory adjustments.

Payments Emerge as a Key Theme

In a significant shift, the report introduces Payments as a key regulatory theme. Recognizing the pivotal role of payment systems in the financial services sector and the volume of regulatory changes planned or underway, Payments emerges as an area of strategic importance. With the decline in cash usage, regulatory changes aim to create payment systems that foster innovation, support vulnerable customers, and protect against new digital payment-related frauds and scams.

EU and UK Divergence: A Complex Regulatory Landscape

The UK and EU, despite shared regulatory concerns and collaborative efforts, are beginning to diverge in their regulatory policies. Both jurisdictions are pursuing distinct approaches to rulemaking, with the UK adopting a more UK-centric and principles-based style, while the EU maintains its complex legislative agenda. This divergence adds complexity to the landscape, particularly for cross-border financial firms.

The CFO’s Role in Regulatory Adversity

Rob Smith, Head of KPMG Risk and Regulatory Advisory, emphasizes the need for financial institutions to adapt to the evolving regulatory landscape. He states, “Continuing economic uncertainty, including inflation and recent market exits, has shaken the financial services industry and led to much-needed debate about what regulators could do differently.” Smith underscores the unwavering focus on ESG and Sustainable Finance, along with the burgeoning requirements for financial resilience.

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Smart Strategies for Regulatory Challenges

Nidhi Jain, CEO and Founder of CloudEagle, provides insight into how financial institutions can navigate these regulatory challenges. She highlights the importance of a data-driven strategy that encompasses understanding the ROI for each vendor, evaluating SaaS spend per employee, and streamlining procurement processes. Jain’s approach encourages companies to make informed decisions while maintaining financial health and innovation.

Conclusion: A Changing Landscape for Financial Regulation

The financial services industry stands at the precipice of significant regulatory change. As the KPMG Financial Services Regulatory Barometer indicates, the pressure on financial firms in the UK and EU is intensifying across various dimensions. While ESG and Sustainable Finance remain at the forefront, issues of financial resilience and the emergence of Payments as a regulatory theme are reshaping the industry. Furthermore, the divergence between EU and UK regulatory policies adds a layer of complexity, demanding agility and adaptability from financial institutions.

The full September 2023 Regulatory Barometer report is available for download here.


KPMG UK operates from 20 offices across the UK and employs approximately 17,000 partners and staff. With a revenue of £2.72 billion recorded in the year ended 30 September 2022, KPMG UK is part of the global KPMG network, providing Audit, Legal, Tax, and Advisory services. KPMG operates in 143 countries and territories with more than 265,000 partners and employees working in member firms worldwide. Each KPMG firm is a legally distinct and separate entity.


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