Blog: The Trends Shaping Bank Regulation –

The legal environment for banks, insurance companies, asset managers and other financial service providers is more complex today than ever before. Increasingly, companies are reassessing whether they can afford to operate in certain jurisdictions.

In the short term regulatory pressure will continue and provide strong incentives for global cooperation, such as to combat climate change, as EY’s 2023 Global financial services regulatory outlook found.

The following are among the trends EY identifies:

Regulatory Fragmentation

In recent years, national and regional interests led to the proposals and in some cases to laws that were heavily influenced by a drive for more autonomy or by broader political considerations. Examples of this include the proposed rules on market access for third-country banks in the EU or the hostile stance of some US states on environmental, social, and governance (ESG) issues. This regulatory fragmentation is likely to increase further, the report said.

Client Impact

The challenging economic environment is also forcing regulators to expand their focus beyond financial inclusion to the broader concept of customer impact. It is not just about ensuring that people have adequate access to financial products and services, but also about assessing the overall impact of those offerings.

Digital Assets

Oversight of digital assets, including stablecoins and other crypto assets, is evolving. However, it will take some time to reach the right level of regulatory clarity. Digital central bank currencies are also developing rapidly and there is growing interest from central banks around the world to issue a CBDC in the future.

Technological Change

The speed and extent of technological change will continue to increase. In the absence of new laws or guidelines, most regulators are applying the concept of «same rules for the same risks.»
They are looking to regulate the behavior of banks and non-traditional market participants that use technology, rather than regulating the technology itself.

ESG regulation continues to pose challenges for financial institutions as regulations become more extensive and complex. The scale and scope of the requirements represent a major transition for most companies. Currently, the focus is on greenwashing, disclosure, and climate risk management through scenario analysis.

Financial Crime

The war in Ukraine and subsequent sanctions have given boosted financial crime. The general trend in financial crime regulation is toward greater harmonization of standards to address differences between jurisdictions and gaps in enforcement.

Differing objectives

Regulators will continue to focus on corporate resilience and risk management but will combine this with related objectives. They will want to ensure that financial firms can operate in a much more complex environment than is normally the case.

Increasing Complexity

At various stages, virtually all countries will implement the Basel Committee’s banking reforms. While the overall effect for the banking sector will be higher capital requirements, the exact impact on individual institutions will vary.

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