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The global regulatory landscape

Short- and medium-term pressures require an agile strategic approach

Regulatory Outlook 2024

The challenging and unprecedented operating conditions that Financial Services (FS) firms have faced for the last few years look set to continue in 2024. Although inflation is cooling and increases in interest rates have slowed, both of those factors continue to weigh on the economy. Considerable economic uncertainty persists, and financial and non-financial risks remain elevated.

Navigating these choppy waters will likely be front of mind for FS executives in the near term. Yet at the same time, the drivers of medium-term term structural change in FS – such as geopolitics (and how they will be affected by elections taking place in several major jurisdictions1), sustainability and technological innovation – are no less relevant and will remain close to the top of Boards’ and Senior Executives’ agendas.

The economic outlook


The International Monetary Fund (IMF) predicts a slowdown in global growth in 2024, from 3.0% in 2023 to 2.9% in 2024, with growth in advanced economies set to slow to 1.4%.2 The World Bank has warned that growth in Asia’s developing economies is expected to come in at its lowest rate in five decades (4.5%).3

Households and businesses in many parts of the world continue to feel the squeeze of higher inflation (see figures 1 and 2 below). Although interest rates may not rise further than their current levels, the lingering impact of inflation and the rate rises of the last two years are likely to put prolonged pressure on debt servicing ability, increase claims' settlement costs, and drive market volatility. Given the long and variable time lag in the transmission of monetary policy, it is likely that a significant portion of the impact of rate rises has not yet been passed on to the real economy.

The lingering impact of inflation and the rate rises of the last two years are likely to put prolonged pressure on debt servicing ability, increase claims' settlement costs, and drive market volatility.

Banks6 and non-banks (which have significantly increased their exposure to credit markets in recent years) face elevated credit risks. Financial stability authorities have signalled particular concern about two areas: the commercial property sector (in particular office properties), given its vulnerability to lower growth, heightened inflation and interest rates7 and reduced occupancy levels after COVID-19; and private credit markets, given their rapid growth, sensitivity to rate rises and covenant-lite loan practices8.

Concurrently, with cost-of-living pressures continuing to bite, firms should seek to ensure fair outcomes for vulnerable customers, and expect proactive supervisory intervention if they fail to do so. Although the circumstances are different (given the absence of government guarantees and moratoria) supervisors may start taking firms’ actions during COVID-19 as the benchmark for fair treatment of customers.

For both firms and their supervisors, maintaining financial resilience in this testing macroeconomic environment remains a top priority.

At first glance, the banking sector appears to be entering 2024 in relatively resilient shape, with strong capital and liquidity ratios (see figures 3 and 4 below). Yet the failure in 2023 of several mid-sized US banks, followed swiftly by the rescue of a global systemically important bank (G-SIB), offered a timely reminder of two things: firstly, that customer and investor confidence in banks is far from unshakeable, and secondly, that robust capital and liquidity buffers need to be accompanied by strong risk management, controls and governance, robust recovery and resolution plans, and proactive supervisory oversight.

The latter of these points will be the focus of the near-term international policy response.11 But even ahead of any near-term policy change, supervisors will expect banks to enter 2024 with a renewed focus on understanding how changing market conditions are affecting their business. Longstanding supervisory concerns around the sustainability of some banks’ business models – including regional banks in the US, Europe and Japan – will come into even sharper focus this year, given the banking turmoil in March 2023 and the change in the interest rate environment. This applies particularly as the initial positive impact of higher interest rates on bank margins recedes and risks that built up during the ‘low-for-long’ era begin to crystallise.

Supervisors will also be vigilant to the impact of inflation12 and rising interest rates on insurers, although insurers may be able to offset inflation-driven increases in expenses and claims via increased premiums in the medium to long term. Life insurers may earn higher investment returns as a result of higher interest rates, but they may be subject to higher lapse risks if interest rates continue to rise.

Of equal, or perhaps greater, concern to financial stability authorities will be the resilience of non-bank financial institutions13 (NBFIs) - especially in the context of elevated market risk and volatility in global bond markets. Financial stability authorities have expressed growing concern at the potential effect of the growth of speculative positions by hedge funds in US Treasuries, with net short positions in 2023 reaching comparable levels with Treasury market turmoil in 2020.14

Supervisors and central banks remain keen to intervene. A key priority is to improve understanding of market dynamics and fill in data gaps – through exercises such as the Bank of England’s (BoE) pioneering System-Wide Exploratory Scenario (SWES)15, for example, as well as the ongoing work of the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO). In the US, the Financial Stability Oversight Council (FSOC) has finalised a framework for designating non-banks as systemic and the Securities and Exchange Commission (SEC) is considering a number of Treasury market reforms to increase transparency and support resilience. The BoE has taken tentative first steps towards the creation of a standing central bank liquidity facility for non-banks.16 The Australian Prudential Regulation Authority (APRA) has strengthened the recovery and resolution framework for banks, insurers and superannuation funds.17 Yet the European Commission’s decision in 2023 not to reform its Money Market Fund (MMF) Regulation demonstrated that legislative change may be more difficult to achieve.18

Until a comprehensive, NBFI-specific framework is in place, supervisors will continue to use banks as proxies to manage risks in NBFIs.

Until a comprehensive, NBFI-specific framework is in place, supervisors will continue to use banks as proxies to manage risks in NBFIs – including through further stress testing and scenario analysis, and scrutiny of banks’ ability to monitor leverage in NBFI counterparties. Longer term, we may see the macroprudential framework used to improve banks’ resilience to NBFIs. The European Commission, for example, is considering19 NBFI-related changes to the macroprudential toolkit.

In an uncertain and volatile economic climate, supervisors will expect firms across the whole FS sector to ensure that they are financially and operationally resilient. Boards should consider working through various scenarios to test their firms’ resilience in a range of possible events.

Structural change

While the above issues will draw the attention of both firms and policymakers in the short term, firms must not lose sight of the medium-term structural changes that are shaping the FS regulatory landscape. The three themes that we have picked out are unchanged from our 2023 Outlook: geopolitics, technology and climate change. Yet all three have experienced sufficiently significant shifts in the past 12 months that they require revisiting.


The ‘slowbalisation’ of recent years – characterised by rising geopolitical tensions putting pressure on political support for open trade and investment – looks set to continue in 2024. Governments and business leaders are seeking to de-risk their value chains, with increasing ‘friend-shoring’20 and protectionist measures in critical sectors21. According to the IMF, mentions in companies’ earnings presentations of reshoring, onshoring and near-shoring have increased almost tenfold,22 and in our experience, some firms are choosing to bring certain services back in-house to manage operational risk and resilience more effectively.

In our view, there is increased risk in 2024 that geopolitical tensions fragment the global economic landscape further. Possible catalysts can be broadly split into two categories: foreseen catalysts (such as elections) and unforeseen catalysts (such as further escalation in the conflict between Russia and Ukraine, or in the Middle East). The latter category remains highly relevant, difficult to predict and potentially high impact. But looking ahead to 2024, the impending elections across multiple G20 jurisdictions in 202423 are the most likely catalysts for large-scale policy change.

If new administrations choose to adopt stronger positions on economic security, de-risking or de-coupling, FS firms could feel the impact through sanctions or indirectly through economic and trade flows.

If new administrations choose to adopt stronger positions on economic security, de-risking or de-coupling, FS firms could feel the impact through sanctions or indirectly through economic and trade flows. Geopolitical risks could also act as drivers of other prudential risks for both cross-border and purely domestic firms, for example: affecting market risk through increased market volatility; operational risk through increased risk of direct or indirect cyber-attacks; strategic risks where firms have to exit a market quickly; or credit risks to the extent that any of those risks affect clients’ ability to service debt.

For FS firms, navigating this uncertain geopolitical environment will be challenging, and it will be vital to set a robust risk appetite and tolerance levels, use scenario analysis and reverse stress testing, and put in place contingency and recovery plans where risks are particularly elevated.

Sustainability and climate change

The politics of sustainability are increasingly complex. Given the macroeconomic headwinds and impending elections in many jurisdictions described above, political impetus behind long-term measures in support of net zero could recede if they result in higher costs for consumers and businesses.24 If this political dynamic persists, and the private sector in turn delays its ambitions, less favourable transition scenarios (such as an abrupt or even a failed transition to net zero) will become more likely. Moreover, climate stress tests undertaken in previous years by FS supervisors indicate that significant deferrals or weakening of sustainability policies could be costly for FS firms in the medium to long term.25

Despite this uncertain background, we do not expect already agreed regulatory and supervisory deadlines to shift substantially in the near term. Regulatory requirements around disclosure, transition planning, and risk management continue to be developed and implemented, while supervisory scrutiny of climate-related (and increasingly nature-related) risks is now ‘business-as-usual’ in many jurisdictions. Rather, we expect that any shift in the political momentum around climate to have an impact on the next phase of action.26

If anything, the prospect of a delayed transition (and the increased transition and physical risks that it could imply) only reinforces the need for FS firms to invest time and resources in ensuring resilience against climate and environmental risks. Supervisors, particularly in Europe, have been clear that they are prepared to use the supervisory toolkit as a ‘stick’ to incentivise faster progress.

More generally, macroprudential authorities will be wary that actions taken by firms to safeguard their own financial resilience may have unintended consequences for the resilience of the system as a whole. A high-profile example (which we will likely see repeated in the future) was the exit of certain US insurers from high-risk areas (such as Florida and California), citing increased risk of natural disaster such as floods and wildfires and an inability to secure state regulators’ approval for rate increases to reflect the much-increased risk.27

If anything, the prospect of a delayed transition (and the increased transition and physical risks that it could imply) only reinforces the need for FS firms to invest time and resources in ensuring resilience against climate and environmental risks.

Boards should, through their actions, set the expectation for their organisation that climate risk is integrated into all aspects of their decision making. In doing so, they should take steps to test and challenge the validity and effectiveness of the information they are being given.


FS firms continue to seek ways to leverage new and emerging technologies. In the face of a challenging macroeconomic outlook, firms may be able to achieve short-term cost-efficiencies from use of new technologies, although truly transformational change will require significant up-front investment, a pro-innovation regulatory agenda and widespread adoption for inter-operability.

For firms with a global footprint, embracing technological innovation will require navigation of an increasingly complex global regulatory landscape with jurisdictions moving at different speeds. Regulators are grappling with the ever-challenging questions of when and how to intervene when a new technology emerges, and how to supervise, directly or indirectly, third party providers that are normally outside of their remit. Differing answers to those questions will inevitably fragment the regulatory landscape.

For example, regulators around the world are coming to terms with how to regulate the use of Artificial Intelligence (AI), and are doing so at varying pace and with varying approaches. The EU’s AI act28 will set out a highly prescriptive set of requirements, while the UK and US are planning higher-level, principles-based approaches29. FS firms using AI also need to comply with potentially divergent cross-sector regulations (such as the General Data Protection Regulation (GDPR) in the EU30), and sector specific regulations (such as operational resilience requirements, governance and risk management requirements, consumer and investor protection requirements).

The evolving digital assets regulatory landscape is similarly complex. Regulatory frameworks and perimeters across the globe tend to treat the different types of digital assets and underpinning activities in distinct ways. Unbacked digital assets are a case-in-point. Japan, Hong Kong SAR and Singapore are among the first movers globally, with rules already in place to capture key intermediaries. The EU is closely following. Meanwhile significant work remains to shape detailed rules for this segment of the market in the UK, USA and Australia. Frameworks for fiat-backed stablecoins are also emerging asynchronously across jurisdictions.

For global firms, this complex and potentially divergent supervisory landscape inevitably creates compliance costs and strategic challenges.

International firms operating in the EU, for example, will need to decide whether to ‘gold plate’ their AI practices outside the EU or to develop different systems. For instance, firms active in both the UK and the EU may start developing their strategy for both markets based on the more advanced EU framework.

International firms looking to develop their digital assets strategy face similarly challenging decisions when deciding which products to offer, when and where to launch, which clients to target and what target operating model to pursue.

Across all facets of technological innovation, previous experience suggests that treating the use of new technologies as a purely ‘tech’ issue will not work for supervisors. Boards need to engage fully with, and understand the impact of, new technologies on their firm’s risk appetite, risk profile, strategy and reputation, and ensuring that use of technology is supported by appropriate controls and governance.

Regulators around the world are coming to terms with how to regulate the use of AI, and are doing so at varying pace and with varying approaches.

Taking the long view

The last few years have been bruising for FS firms, and 2024 could be equally challenging.

In choppy economic waters, the natural inclination for FS firms will be to focus time, resources and bandwidth on short-term issues. But the structural changes to the FS sector driven by geopolitics, climate and technological innovation are not going away, and will shape the regulatory landscape and broader operating environment for years, or even decades, to come. Boards and senior executives have a crucial role to play in ensuring that firms take decisions and make investments now that future-proof their business models.

  1. The Economist, Tom Standage’s ten trends to watch in 2024, November 2023, available at; Bloomberg, In 2024, It’s Election Year in 40 Countries, November 2023, available at
  2. IMF, World Economic Outlook, October 2023, available at
  3. World Bank. 2023. Global Economic Prospects, June 2023. © Washington, DC: World Bank. License: CC BY 3.0 IGO.
  4. Bank for International Settlements, Policy rates, 2023, available at
  5. Bank for International Settlements, Consumer prices, 2023, available at The consumer price index for the euro area contains the national CPI for all euro area countries and not the Harmonised Index of Consumer Prices (HICP).
  6. References to banks should be taken to include other FS businesses (such as insurance, asset and wealth management) within the groups of which they are often part.
  7. ESRB, ESRB issues a recommendation on vulnerabilities in the commercial real estate sector in the European Economic Area, January 2023, available at
  8. IOSCO, Thematic Analysis: Emerging Risks in Private Finance, September 2023, available at
  9. The Core Equity Tier 1 (CET1) capital ratio is the CET1 capital of the institution as a percentage of its total risk-weighted assets.
  10. The Liquidity Coverage Ratio (LCR) is the ratio of high quality liquid assets (HQLA) divided by the difference between the expected cash outflows and the expected capped cash inflows over a 30-day stressed period.
  11. BCBS, Report on the 2023 banking turmoil, October 2023, available at
  12. EIOPA (2023) ‘Impact of Inflation on the Insurance Sector’,
  13. The FSB’s definition of ‘Non-bank financial institutions’ includes investment funds, insurance companies, pension funds and other financial intermediaries (such as broker dealers, hedge funds, finance companies and securitisation vehicles). See here: FSB, Non-Bank Financial Intermediation, September 2023, available at; and FSB, Enhancing the Resilience of Non-Bank Financial Intermediation, September 2023, available at
  14. BIS, Margin leverage and vulnerabilities in US Treasury futures, September 2023, available at; and Board of Governors of the Federal Reserve System, Recent Developments in Hedge Funds’ Treasury Futures and Repo Positions: is the Basis Trade “Back"?, August 2023, available at
  15. BoE, System-wide exploratory scenario, June 2023, available at
  16. Speech by Andrew Hauser, Executive Director Bank of England, A journey of 1000 miles begins with a single step: filling gaps in the central bank liquidity toolkit, September 2023, available at
  17. APRA, APRA finalises reforms aimed at strengthening recovery and resolution planning, May 2023, available at
  18. European Commission, Report from the Commission to the European Parliament and the Council on the adequacy of Regulation (EU) 2017/1131 of the European Parliament and of the Council on money market funds from a prudential and economic point of view, July 2023, available at
  19. Speech by Commissioner Mairead McGuinness, European Commissioner, June 2023, available at
  20. “‘Friend-shoring’ limits supply-chain networks and the sourcing of inputs to countries allied with the home country and trusted partners that share similar values.” See here: IMF, World Economic Outlook, April 2023, available at
  21. IMF, Growing threats to global trade, June 2023, available at
  22. IMF, Confronting Fragmentation Where It Matters Most: Trade, Debt, and Climate Action, January 2023, available at
  23. There will be presidential and/or general elections in 2024 in the US, EU, UK, South Africa, South Korea, Mexico, India and Indonesia.
  24. See e.g., Le Monde, Macron calls for 'pause' in EU environment regulations, May 2023, available at; and Speech by Rishi Sunak, Prime Minister of the United Kingdom, available at
  25. European Central Bank, The Road to Paris: stress testing the transition towards a net-zero economy, September 2023, available at
  26. The next phase of action could include further sector specific detail on disclosures and transition plans, expansion of disclosures and risk requirements to nature-related financial risk, regulation related to supply chains and further real economy measures.
  27. See e.g., NBC, Major insurance companies may pull out of all US states with high risks of storms, wildfires, September 2023, available at; and Insurance Information Institute, P/C underwriting losses forecast to at least 2025, August 2023, available at
  28. Council of the European Union, Artificial intelligence act: Council and Parliament strike a deal on the first rules for AI in the world, December 2023, available at
  29. See e.g., European Parliament, EU AI Act: first regulation on artificial intelligence, June 2023, available at; and HM Government, A pro-innovation approach to AI regulation, August 2023,; and The White House, Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence, October 2023, available at
  30. European Union, Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation), May 2016, available at

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