The Risk and Reg Edit: Spring 2025 edition

Read on for our experts’ views on:

• The political climate: Balancing growth with protection
• New regulatory emphasis, new window for engagement
• Motor finance – a case study for consumer trust
• How is the financial crime picture changing?
• Technology, technology, technology
• The view from Europe: Growing common ground?
• What does it all mean for the future of Risk?

The political climate: Balancing growth with protection

Political leaders around the world are searching for opportunities to drive economic growth, and the UK is no exception. Unfortunately, the ambition to return to prosperity faces significant headwinds. In the Winter Edit we predicted challenges from geo-political shifts, and the recent actions of the US administration have increased financial and economic risks, affecting the global growth outlook.

Could a wave of de-regulation help the UK’s economic growth? The Financial Conduct Authority (FCA) and the Payment System’s Regulator’s (PSR) letter to the Treasury committee on 12 March certainly seems to suggest this, as they stepped away from establishing minimum standards for diversity and inclusion, dropped plans to name firms undergoing enforcement action, and indicated a slowdown in developing further rules on non-financial misconduct rules. These announcements coincided with a commitment from the UK Treasury to establish a new approach to regulators and regulations across all sectors. For financial services, the changes proposed by the Treasury amount to a recalibration rather than wholesale change.

Whilst many of the changes may reduce regulatory burdens, it is unlikely they will truly drive growth. It’s true that the Government continues to encourage financial regulators to focus on the value of growth, innovation, and competitiveness across all sectors. However, achieving growth requires a cultural shift to actively encourage risk taking, and embedding this within firms and the regulators themselves will take time.

Regulators will be encouraged by Government to aim for a regime that encourages customer centricity and innovation without imposing excessive complexity. The Consumer Duty, which encourages good customer outcomes, may even provide a model for other regulators to emulate.

Ultimately, political statements about greater risk-taking and faster growth will struggle to take effect unless financial institutions – and financial consumers – decide to step up their risk appetite. That makes the details of financial regulation, the direction of wider economic trends, and levels of trust in financial institutions, critically important to drive sustainable growth.

New regulatory emphasis, new window for engagement

Although major changes are unlikely, it is the case that UK regulation is undergoing a change in emphasis. This is reflected in the FCA’s new five-year strategy, which introduces a different perspective on the risks of innovation.

This new perspective signals a real opportunity for financial institutions to get involved in discussions about fostering responsible growth, illustrated by two specific areas of FCA activity with direct implications for many firms:

• The FCA is reviewing its responsible lending and mortgage advice rules to help simplify the homebuying process. On 7 May, it launched a consultation outlining specific proposals, including the withdrawal of guidance that has been superseded by the Consumer Duty. The consultation will close on 4 June, with the outcomes expected to be published later this year.

• The FCA has issued a discussion paper on crypto regulation, with a consultation on how the crypto activities specified by the Treasury will be regulated, expected soon. Policy statements are scheduled for 2026.

Chief Risk Officers know that any regulatory change incurs some cost – and that lighter-touch regulation, while superficially attractive, can cause other pockets of risk to increase. That only makes it more important for firms to share their experience and knowledge with regulators. What are customers’ biggest peeves and snagging points? Which requirements have become outdated? Where can rules be safely altered?

Motor finance – a case study for consumer trust

The Consumer Duty has now fully entered force, and the FCA’s work programme for 2025/26 highlights that we are now in a period of enforcement. The importance of effective consumer regulation to economic growth is illustrated by the case of motor finance – a key financial product for millions of consumers, and a vital enabler of UK automotive sales.

The FCA is reviewing the past use of motor finance commission arrangements, and has indicated to lenders that if consumers were harmed by widespread failings, then an industry-wide redress scheme will be required. Our recent research highlights the impact of this issue with 45 percent of consumers, saying their trust in banks and lenders has been damaged as a result. For now, the FCA is awaiting clarification from the Supreme Court on a Court of Appeal ruling, which appeared to suggest that fiduciary duties exist in a wider range of circumstances than implied by current regulation.

Judgement is expected in July and could have major implications for other forms of intermediated credit – and especially on the expectations that consumers should have for intermediaries to act in their best interests. Issues like this go to the heart of trust in financial services, and the effect of the ruling is unlikely to be clear-cut. Tighter standards could slow the supply of credit, but lower consumer trust could also reduce demand for borrowing.

Whatever the future may bring for motor finance, the overall message for CROs is simple: Transparency is everything when it comes to helping customers to make the best decisions. For Chief People Officers the criticality of equipping the organisation with the right skills and the right culture to prevent such failures happening again is clear.

How is the financial crime picture changing?

Recent political developments in the US have had a tangible impact on the global debate over economic crime, with the new administration announcing that it will either reduce or halt enforcement in key areas like crypto or sanctions, for example. In contrast, there is little sign of change to the UK’s treatment of criminal activities such as money laundering, fraud, or sanctions breaking.

The UK is currently refreshing its National Fraud Strategy, which will outline an updated approach to cross-industry response. The expectation is that this will adopt a national security approach to fraud, with increased involvement from the technology sector and telecommunication providers. Even the government’s push towards regulatory simplification appears symbolic from a financial crime perspective.

The absorbing of the PSR within the FCA may also bring a degree of organisational consolidation, but any regulatory changes to initiatives, such as Authorised Push Payment Reimbursement, will be in approach or will require legislative change to modify. Moreover, fighting crime is identified as one of the FCA’s four leading themes as part of their five-year strategy.

There’s a similar picture in the EU, which continues to prioritise economic crime – illustrated by the anti-money laundering (AML) package of regulation and legislation, including the creation of a new AML Authority, which will commence operation on July 1 this year

This difference in emphasis goes beyond pure financial regulation. Although the bulk of financial fraud is now initiated online, the US is allowing social media firms to reduce their content monitoring safeguards. In contrast, the UK’s Ofcom now has new enforcement powers under the Online Safety Act to fine platforms and websites that fail to combat illegal content – including fraud. The ambition being, that with the right incentives, technology firms will begin instituting new controls to prevent scams.

Financial services firms will need to collaborate with other industries to make this work – with recent examples, including the Meta FIRE (Fraud Intelligence Reciprocal Exchange) proving an effective intervention. The potential tensions created by these contrasting directions of travel could pose challenges for many firms – not only those with operations in both the US and UK. Financial institutions need to get ready to navigate changing, and possibly conflicting, approaches to economic crime.

As global approaches to financial crime diverge in areas, larger firms face growing complexity in compliance and risk management. While the UK and EU continue to strengthen their approach, the US signals a potential retreat in key areas. Firms must stay agile, aligning with the highest regulatory standards, and strengthening their institutions’ resilience through proactive risk strategies.

Technology, technology, technology

In the UK, AI is reshaping financial services faster than ever. It’s shifting competitive advantage – creating new arenas of competition for financial institutions, in addition to traditional factors such as capital, risk, products, and relationships. It’s not only transforming how firms use technology, but how finance itself operates.

Firms must also be mindful of sharpening regulatory focus in multiple jurisdictions, including the EU and US. In the UK, discussion papers issued by the FCA and Bank of England provide an indication of possible future regulations.

For risk functions, the accelerating impact of AI is making it more vital than ever to establish robust AI risk frameworks – and to apply AI to risk monitoring, threat detection, and other activities. All three lines of defence will need new capabilities, and governance structures should be modernised to maintain explainability and auditability.

There is an important role for Chief People Officers to play, as upskilling employees organisation-wide is key; AI fluency needs to extend beyond technology and risk teams, and firms must do all they can to attract and retain scarce talent to give them the competitive advantage.

Looking further ahead, risk will need to become a tech-enabled discipline, with forward-looking CROs using AI to manage risk, not just oversee it. Those that can equip their teams with the skills and tools to use AI effectively will enjoy greater trust and confidence from regulators, investors, and customers.

The view from Europe: Growing common ground?

Debate over the effect of regulation on economic growth is not confined to the UK. Following the publication of Mario Draghi’s report on European competitiveness as well as de-regulation signals from the US, the EU is also exploring the balance between economic growth and social protection. With an objective to “Make business easier and faster”, the European Commission aims to reduce the administrative burden on companies in Europe by 25% before 2029 and 35% for small and medium-sized businesses. This is illustrated by recent proposals for two ‘Omnibus packages’ aimed at trimming red tape – for example, by limiting some planned enhancements to environmental disclosures.

Does this suggest that closer alignment of financial regulation between the UK and the EU might be on the horizon? It would be an attractive prospect for international financial firms, which are hardest hit by the complexities of ‘similar but different’ regulations – and which would undoubtedly welcome any move towards passporting or mutual recognition.

It’s probably true that – over a decade since the last financial crash – the UK and EU share a growing interest in regulatory reform. In practical terms though, there are few signs of the political will that would be required for material UK/EU alignment. Global fragmentation and volatility make harmonisation a low priority.

Looking ahead, however, firms operating in the UK and EU could face similar challenges to reconcile political goals with consumer protection – for example, if governments push financial institutions to increase their financing of infrastructure, strategic industries, or national defence.

What does it all mean for the future of Risk?

Firms don’t comply with regulation only because they must. Compliance is often inextricably linked with good governance and risk management. Furthermore, changes to regulation almost always have complex and unintended consequences.

For CROs, every possible regulatory scenario will bring its challenges. Wholesale reductions in regulation may be unlikely, but each alteration will create some costs, and innovation initiatives to test firms’ capabilities. CROs need to position themselves as enablers of responsible innovation.

Chief People Officers and HR teams play a critical role in effectively managing existing and new risks, through the identification of critical skills for the future, provision of new skilling and cross-skilling, and the attraction and retention of talent.

Whatever the future holds, risk functions will have a crucial role to play in safeguarding financial institutions and their stakeholders. CROs should ask themselves where they are on their risk journey. Is your organisation looking to take more risk? If so, how will you adapt your risk function to meet that that change?

People trust us because of our deep knowledge of the regulatory system. Our experience working with regulators, banks, insurers, building societies, and others means we’ll give you advice that works in the real world. If you’d like to discuss any of the below issues in depth, with our experts, you can do so here.