​​Financial Industry Compliance: Understanding Regulations on the Horizon for 2025 in Europe and the UK

2025 is going to bring a wave of new compliance regulations and financial industry regulations that are likely to deeply influence the landscape. For finance professionals in the UK and Europe, this means a period of preparation and deeper understanding of the changes.

In this article, we delve into the key regulatory changes affecting the financial sectors in Europe and the UK and provide actionable tips on what it means for businesses and how to prepare for it.

Strict regulations and frequent changes have always been present in the financial sector. However, in order to ensure the safety of transfers, operations, and keeping both businesses and consumers safe, the pace of changes has accelerated in recent years, especially in Europe and the UK. Financial institutions face numerous financial and regulatory compliance and challenges as they navigate the evolving regulatory landscape

A report by Deloitte claims that in 2023, financial institutions in those regions experienced an average of 300 regulatory alerts per day, which is a 40% increase from the previous period. As we continue into 2025, this trend is bound to continue, and there are some significant regulatory and compliance changes coming into force.

Digital Operational Resilience Act (DORA)

Anti-Money Laundering Authority (AMLA) Regulation

Payment Services Directive 3 (PSD3)

Network and Information Systems Directive 2 (NIS2)

Sustainable Finance Disclosure Regulation (SFDR) and EU Taxonomy

Financial firms must navigate these regulations while ensuring they maintain compliance to protect their reputation and customer trust.

We will explore regulatory requirements in each of these areas in-depth, focusing on the specific regulations coming into force at the end of 2024 and start of 2025 and their effect on businesses and finance professionals.

DORA stands for Digital Operational Resilience Act, and it will be the first major regulation coming into force in 2025.

Its main goal is the harmonisation of operational resilience and cybersecurity standards for financial services in the EU. In practice, it sets up a framework and standards for reporting and information sharing to ensure that financial institutions can withstand and recover from any ICT (Information and Communications Technology) related disruptions.

It outlines specific guidelines around Third-Party Provider Risk Management, ICT Risk Management, Digital Operational Resilience testing, and ICT Incident Management.

Implementation Date: January 17, 2025

What this means for you: Under DORA, financial institutions around Europe will be obliged to comprehensively review and enhance their:

ICT risk management framework - by setting clear objectives and desired outcomes and developing a framework that is implemented into their existing set-up

Incident response plans - whereby reporting is harmonised and the reporting cope is broadened

Third-party risk management processes - by ensuring proper monitoring and oversight of critical or important functions

This is likely to translate to major investments in technology, training and staff training to ensure compliance.

The AMLA Regulation further extends the EU package of financial regulations around Anti-Money Laundering and Counter-Terrorist Financing.

The biggest change is that it establishes a European Anti-Money Laundering Authority that will provide supervisory oversight over high-risk financial entities within the EU, harmonising standards for AML in the region.

The establishment of the authority should also allow improved cooperation and information-sharing with regards to AML/CFT between the member states, which inevitably will lead to improved risk assessment and allow exploration and protection against emerging financial crime risks such as those relating to cryptocurrencies and digital assets.

Implementation Date: July 1, 2025

What this means for you: Financial institutions and businesses will need to get ready to conform with more stringent and uniform AML/CTF compliance requirements under AMLA. In practice, this will translate to an increased need for updated risk assessment methodologies, due diligence processes, and cross-border information-sharing capabilities.

PSD3 will be introduced at some point in 2025 to replace the existing PSD2, impacting the financial services sector. PSD2 was introduced in 2018 to improve security through Strong Customer Authentication, promote competition, and enable open banking. However, rapid innovation of technology and the evolution of cyber threats has pushed regulators to revisit the existing directive and introduce more changes.

The focus of PSD3 will be on enhanced consumer protection and improved security, potentially through stricter authentication processes and protections for users in digital and online transactions. We are likely to see enhanced fraud prevention measures, possibly extending the use of biometrics, multifactor authentication, and other secure methods that will now also embrace areas such as cryptocurrencies and decentralised finance.

It will also further improve open banking and push for the open finance concept that expands beyond payment accounts into products like mortgages, savings accounts, and insurance. This will translate to better access to their financial data for consumers and improved competition by enabling more financial service providers to offer tailored products and services.

The Directive also seeks to level the playing field between banks and non-banks and enhance cash availability in shops and via ATMs. With that, PSD3 may also revise the scope of TPPs, improve the API standards and integration protocols to encourage cooperation between banks and Third-Party Providers and Fintechs.

Expected Implementation: 2025

What this means for you: PSD3 will likely expand the range of financial products available for businesses and strengthen open banking offerings, meaning that as a business, you will be able to find more tailored products to your needs. Financial providers, on the other hand, may need to review and upgrade their fraud prevention measures, customer protection protocols, and open banking interfaces and may be subject to fraud reimbursements.

NIS2 is aimed at improving the cyber resilience of critical infrastructure and essential services, including finance. Therefore, although not directly related to financial services, it will have significant implications for cybersecurity practices within Member States in the EU.

NIS2 will mandate stricter rules for identifying and managing cybersecurity risks as well as incident reporting. NIS2 also aims to foster cooperation between sectors and EU member states - financial institutions under NIS2 will need to comply with national and EU-wide cyber incident reporting frameworks, timely communication about threats and incidents.

Failure to adhere can result in substantial penalties, which encourages financial institutions to treat cybersecurity with due importance and integrate it deeply into the operations of the business.

The focus on collaboration should help financial institutions across Europe strengthen their ability to manage systemic risks, particularly in an era where cyberattacks on the financial markets and systems are becoming more sophisticated and frequent.

Key Implementation Dates:

October 2024: Directive to be implemented by Member States

April 17, 2025: Member States to establish a list of essential and important entities

Every two years from April 17, 2025: Regular updates and notifications to the European Commission

What this means for you: While not specific to finance, NIS2 will likely impact many institutions classified as essential or important entities. It means they will need to adopt a top-down approach to cybersecurity and be more proactive with oversight and management under threat of penalties. For businesses, this means even safer and more secure transactions.

SFDR was introduced in 2021 by the EU and stipulated that all financial institutions, market participants, and financial advisors need to disclose information regarding the sustainability of their investment products under financial regulations.

The main aim of SFDR is to improve the way sustainable investment products are presented by providing standardised disclosures on environmental, social, and governance (ESG) criteria.

EU Taxonomy further complements the SFDR with a comprehensive classification system that defines what constitutes an environmentally sustainable investment or activity. In short, this framework helps to determine whether investments are aligned with the EU's sustainability goals, particularly the objectives of the European Green Deal. The changes to SFDR in 2025 will include detailed reporting templates. The UK will develop its own Green Taxonomy, which is expected to be announced at the end of 2024.

Key Dates:

End of 2024: SFDR Level 2 requirements fully implemented

2025: First reports due under the Corporate Sustainability Reporting Directive (CSRD) for the 2024 financial year

What this means for you: Financial institutions and providers will need to reevaluate how they collect, verify, present, and report on ESG markers. As a result, new processes and technologies will need to be implemented to ensure accurate and timely reporting.

Next year is bound to bring significant regulatory change within Europe and the UK that will affect both bigger financial institutions, fintechs, as well as businesses. In order to stay ahead of these developments, consider the following steps:

Stay Informed: Frequently check regulatory developments and information from established bodies such as the European Banking Authority (EBA), European Securities and Markets Authority (ESMA), and the UK's Financial Conduct Authority (FCA).

Invest in Compliance Technology: Most of the upcoming regulations will require updates or changes to existing technology. To not be caught off guard, start assessing the readiness of your systems, identify gaps, and draft plans for implementing necessary systems, particularly around AML, compliance, and ESG reporting.

Enhance Data Management: Similarly to the point above, the new regulations will require more comprehensive data collection and preparation for compliance audits. You can start getting ready now by identifying potential issues in data collection, storage, and analysis and plan how you can improve to stay compliant across all regulatory areas.

Build Cross-Functional Teams: Many of these regulations will require collaboration between finance, IT, legal, and other departments. Stay ahead of the curve by preparing your teams for the upcoming changes, building relationships, and communicating projects that may be on the horizon.

Develop Training Programs: As part of the new regulations, consider training relevant staff members to ensure compliance across the departments. The training should not just inform them about the changes but also equip them with the necessary skills to navigate the new regulatory landscape. This may include training on cybersecurity, AML procedures, sustainable finance, and operational resilience.

The financial industry in Europe and the UK will see significant regulatory changes relating to ESG, AML, and cybersecurity as we enter 2025. Without a doubt, this will mean a significant increase in costs relating to the implementation of new technologies and training for financial firms; however, by staying informed and proactive, finance leaders can turn these challenges into opportunities for innovation, digital transformation, and growth.

We would encourage finance leaders to change their mindset - compliance is not about avoiding regulatory fines and penalties. It's about building trust with customers, investors, and regulators, and embracing the upcoming changes can help financial institutions and fintechs position themselves as leaders and champions in the ever-evolving industry.

What are the major financial industry compliance regulation changes due in 2025?

The main financial industry compliance regulation changes that will affect businesses and financial institutions in Europe and the UK in 2025 are DORA, AMLA, NIS2, PSD3, and Sustainable Finance Disclosure Regulation (SFDR) and EU Taxonomy.

What are the new financial regulatory requirements focused on?

The majority of the new financial regulatory requirements will focus on improved security of transfers, resilience against cyber threats, improved reporting, and encouraging market competition.

What should financial institutions do to prepare themselves for the upcoming changes to the financial regulatory requirements?

The main thing to look at ahead of the changes coming into force should be reviewing processes and systems involved in compliance and fraud detection to ensure timely and cost-effective implementation. Staff training on new rules should also be considered.