As we look ahead into 2025, we see an outlook that is clouded by more uncertainty than usual, driven by a combination of politics, geopolitics, and economics. Last year saw 3.7 billion voters going to the polls across 72 countries.¹ Political priorities from many of these elections are still emerging. However, what is already clear is that countries will prioritise economic growth, competitiveness and — given high and potentially rising geopolitical tensions — economic and cyber security.

Against this background, we expect changes to regulation and the overall regulatory and supervisory environment around the world, with the pace and extent varying by country. However, recognition that safeguarding financial stability, combating financial crime and responsibly integrating new technologies are increasingly intertwined with national security and economic self-interests, will likely shape the dialogue surrounding potential financial services (FS) deregulation. 

In 2025, FS firms will need to be vigilant in the face of a demanding set of interrelated economic and geopolitical risks, and a financial system that is becoming increasingly complex through growing interconnections between FS intermediaries and non-bank financial institutions (NBFIs). 

In our view, a successful strategy for FS firms in the year ahead will combine navigating the many immediate challenges they face and simultaneously looking beyond them to identify and pursue opportunities that emerge from new market opportunities or areas of government focus.

Achieving this calls for a bold approach to prioritising strategic choices (even amidst uncertainties in regulation, government policy choices and profitability). For many FS firms, especially within Europe, sub-par price to book ratios may increase pressure to defer investment, and instead focus on reducing costs and returning earnings to shareholders. The key question is whether any firm — regardless of sector — can afford the opportunity cost of withholding internal investment.

The economic outlook
 

In mid-2024, the International Monetary Fund (IMF) observed that the world’s economy “appears to be on final approach to a soft landing”.² However, while forecasters continue to see a soft landing as the baseline, the risks to global growth are on the downside, particularly because of macro-financial and economic uncertainties. Near-term global gross domestic product (GDP) growth is projected to hover around a “stable but underwhelming” 3%.³ Advanced economies are projected to grow between 1.7% and 1.8% and Asia’s developing economies at 4.5% until 2029.⁴ However, the IMF cautions that alternative scenarios involving a permanent increase in trade tariffs could decrease global GDP by 0.8% in 2025 and 1.3% in 2026 relative to baseline projections.⁵ Analysis by the European Central Bank (ECB) shows sharply rising trade policy uncertainty and elevated levels of economic policy uncertainty and geopolitical risk.⁶

Central banks have been cutting interest rates, but the future direction and pace of changes to benchmark rates will depend on a range of factors, including: what happens to inflation, developments in trade and tariff policies, geopolitical tensions and changes in government policy priorities. At present, more than 2,500 industrial policy measures are in play (of which 71% are trade distorting).⁷

However, even if rates remain on a downward path, will this overcome negative perceptions of the economy?⁸ Perhaps not, as the transmission lag observed while rates increased is equally relevant to easing. Higher mortgage rates will remain locked in for some time and many households will continue to feel financially squeezed.⁹  

Fierce competition has so far sustained deposit costs across all regions (see Figure 1), and typically the change in deposit costs compared to the change in benchmark rates lags behind the percentage change in loan yields – in short, keeping interest expenses under control will likely be challenging and banks will be looking to boost fee income. However, pricing strategies will be particularly sensitive in jurisdictions that have implemented regulations to protect vulnerable customers and deliver fair value, especially where firms are required to evidence outcomes using customer-level data. 
 

Figure 1: cost of interest-bearing deposits for Global Systemically Important Banks (GSIBs)

Source: Deloitte analysis of GSIBs financial reports¹⁰
 

Unless consumer and business demand for credit can compensate for margin compression, broader funding strategies may need to be reconsidered. Offering more holistic products and services to transaction-focused customers may help to retain deposits in a competitive environment. But firms could also consider medium-term strategic acquisitions to preserve margin and loan growth, particularly those targets with a sticky retail deposit base but lacking a strong lending platform.  

Fluctuations in benchmark interest rates will also require course corrections by (re)insurers. Interest rate uncertainties will keep life insurance firms on their toes for asset-liability and reinsurance management, especially as their direct and indirect exposure to illiquid assets has increased in the past years.¹¹ General insurers may face a challenging balancing act between offering competitive premiums, a potential stickiness in claims settlement costs, and rising “social inflation” pressures (particularly in the US and Australia).¹² Supervisory expectations on delivering fair value and servicing policy holders’ needs will also increase in a number of regions.^{13, 14}

In 2024, barely a month has passed without a senior central banker or regulator making a cautionary statement about rising geopolitical risks. This is hardly surprising given that more than 50 global conflicts are taking place: the highest number since the Second World War.¹⁵

Rising geopolitical tensions also spill over to the cyber environment, raising risks for the public and private sectors.¹⁶ Maintaining resilient cybersecurity and financial crime prevention are two areas that we expect to be insulated from the politics of growth and competitiveness. This coincides with FS firms in many countries having to improve their operational resilience and the effectiveness of their third-party risk management approaches. While in some respects, improving cyber capabilities and operational resilience go hand-in-hand, they undoubtedly put additional strain on firms’ technological change capabilities. 

Evolution in the FS regulatory agenda?
 

The growth and competitiveness agenda

The subdued economic outlook raises questions about steps governments can take to support the growth and international competitiveness of their economies, particularly in the context of tight fiscal positions and limited manoeuvrability on taxation. This has inevitably put the spotlight on regulators, specifically their role in promoting growth and competitiveness, including removing regulatory barriers to product innovation and unlocking household savings.¹⁷

Regulators’ starting position is invariably that safe and stable financial systems are better positioned to support the real economy. 

At the global level, we see little appetite to review or change standards in the year ahead. The Basel Committee on Banking Supervision (BCBS), for example, has prioritised implementation of the final package of Basel III measures before considering new initiatives or revisions (such as on liquidity). The current political appetite within BCBS member jurisdictions for coordinated changes also appears to be low, and unilateral policy changes within jurisdictions — especially divergence from international standards — may increase fragmentation in the global FS policy landscape.

Meanwhile, a growing reluctance has emerged amongst some Basel member jurisdictions to implement in full the final Basel III standards that were agreed upon in 2017. For example, the EU’s implementation includes generous transitional allowances, some of which are likely to be extended by several years or incorporated into the end-state framework. Trading book reforms have also been delayed in several jurisdictions, and their ultimate adoption may be influenced by the direction US regulators choose to take under the new administration and any commitment to a re-proposal. 

Appetite for risk is evidently growing in some jurisdictions, particularly the UK, where the government has directed prudential and conduct regulators to consider how they can enable “informed and responsible risk-taking” by regulated firms and their customers.^19,20

While growth-enhancing regulatory changes and longer-term initiatives (e.g. the UK National Wealth Fund and the EU’s Savings and Investments Union) aim to “crowd in” investment, the true test is market appetite. The success of a “growth alliance” between governments and the FS industry is likely to depend on shared risk participation. The availability of state guarantees, for example, may be key to determining the viability of financing the infrastructure and transition projects required for economic growth.

Economic security vs. sustainability: a balancing act?
 

The focus on growth has reduced the momentum around sustainability regulation and we expect this to continue. Moreover, in recent months, differences between individual countries’ strategies for tackling (or not) the sustainability transition have arguably become starker. This has made it harder for firms offering or managing sustainable investments to navigate an increasingly complex landscape. Firms should consider how to satisfy ongoing demand across countries that have either a supportive or unsupportive policy environment, and adapt their communications, marketing and engagement strategies accordingly. That said, national and regional policy development persists – the Hong Kong Monetary Authority (HKMA), for example, has recently published “good practices” for climate risk management.^21,22

Regardless of what happens in terms of global coordination, escalating financial costs — including claims, litigation and the extraterritorial reach of some jurisdictions’, including the EU’s, regulations — demand action.

Fixing the roof before it rains
 

Strong capital and funding metrics across the banking sector, while important, are not enough. 

Many supervisory issues remain unresolved. About two-thirds of large US banks are assessed as “less-than-satisfactory” by supervisors — a significant deterioration compared to five years ago. Most of these outstanding issues relate to governance and controls.²³ Similarly, the most recent ECB supervisory review and evaluation process (SREP) round found that while 71% of banks received the same overall score as the prior year, 14% had worsened, with scores for the lowest rated cohort driven by weaknesses in management, risk culture and internal controls.²⁴

Data is the foundation for effective risk management. Yet a decade after the BCBS issued its BCBS 239 principles for risk data aggregation and reporting, very few global banks have achieved full compliance.²⁵ Supervisors are increasingly impatient with this slow progress. The ECB has led the charge for years and recently issued stricter guidance on risk data aggregation and reporting, signaling severe consequences if shortcomings persist;²⁶ European insurance supervisors have issued similar warnings about persistent data management shortcomings.²⁷

Boards and executives should anticipate increased scrutiny and pressure to address long-standing weaknesses in these fundamental areas.²⁸ Supervisors will expect decisive action and a clearly articulated roadmap to address these critical areas, going beyond tactical fixes to deliver stable solutions.²⁹ A proactive approach on data, while necessary for regulatory compliance, also presents an opportunity to support the rollout of innovative technologies, including artificial intelligence (AI), for unlocking competitive advantages. 

While insurance supervisors continue to focus on solvency and liquidity management, risk exposure is receiving increased attention in the context of underestimated perils, and policy wording that extends liability beyond the scope of what underwriters intend. This is particularly prevalent in the cyber insurance market, where a number of regulators Australian Prudential Regulation Authority (APRA), Bermuda Monetary Authority (BMA), Autorité de Contrôle Prudentiel et de Résolution (ACPR), Prudential Regulation Authority (PRA) have called for action to strengthen underwriting and risk management practices.^{30, 31, 32}

Across the FS sector, anti-money laundering and the fight against financial crime more broadly will likely remain high on the agenda – the Japan Financial Services Agency’s (JFSA) 2024/25 strategic priorities make a direct link between financial crime and maintaining a resilient financial system.³³ The UK’s Financial Conduct Authority (FCA) has called for urgent action in response to its recent assessment of a broad range of FS firms’ financial crime policies, controls, and procedures. The review identified widespread weaknesses in fundamentals including discrepancies between registered and actual business activities; controls not keeping pace with business growth; failure to risk assess customers and activities; and inadequate resourcing and oversight of regulatory requirements.³⁴

Private markets at the regulatory frontier
 

Global private assets are projected to reach $21 trillion by 2030 — a staggering 62% surge from their current size. ³⁵ While this expansion helps unlock significant private investment to fuel economic growth, it also raises red flags for some supervisors and financial stability authorities. The increasing scale, interconnectedness, and opacity of private markets — coupled with concerns about some participants’ resilience in stressed market conditions — are a stark reminder of the vulnerabilities of the pre-crisis global financial system. 

Figure 2: historical assets under management and forecasts of private capital

Source – Pitchbook Data Inc³⁶

Regulators are keeping a close eye on how this may precipitate risks for the FS sector. The Bank of England has completed its first System-Wide Exploratory Scenario (SWES) exercise last year, examining the behaviours of banks and NBFIs under stressed conditions. While the results indicate resilience in certain markets, more work is to be done. In particular, the exercise highlighted misaligned expectations among participants, including NBFIs assuming greater access to repo financing than providers were willing to extend, and discrepancies between banks’ projections and initial margin requirements set by central clearing counterparties (CCPs). The exercise also revealed that the collective actions of participants exacerbated the initial shock of stress scenario. 

Similarly, APRA is gearing up to launch its inaugural financial system stress in 2025 (expected to draw inspiration from the PRA’s SWES) further demonstrating a global regulatory focus on this issue.³⁷

The BCBS and International Association of Insurance Supervisors (IAIS) are also paying attention to structural changes involving migration of risks from insurers’ balance sheets to reinsurance firms connected with private equity investors. The BCBS has cautioned the untested resilience of private markets, where concentrations of investments in less liquid assets suggest greater vulnerability to stress than elsewhere.^{38, 39}

Slow progress on the agreement and implementation of global standards for NBFIs has meant that banks with the major NBFIs as their counterparties have borne the brunt of supervisory activity. Last year’s PRA review into banks’ private equity financing activities found sizable gaps in their risk management, highlighting an inability in some banks to aggregate data or grasp its significance for counterparty risk management.^40,41 ECB supervisors are also likely to hold firms to task against their 2023 guidance on counterparty credit risk governance and management. 

Appetite for global policy changes may be diminished, but new BCBS guidelines for counterparty credit risk management reinforces this as an exceptional issue.⁴² Supervisors will leave no stones unturned to maintain financial stability and we can expect a continued focus on stress testing undertaken by banks and insurers as a means to monitoring and mitigating contagion risks stemming from their exposures to private markets.

Operational resilience and technology
 

Critical third-party management remains a priority

Recent incidents related to information and communication technology (ICT) third party failures are stark reminders that disruptions of relatively small third-party providers can rapidly and simultaneously undermine the operational capabilities of global firms. FS firms should expect regulators’ resolve to remain strong in addressing critical third-party (CTP) management,⁴³ and having an eye toward a regulated firms’ ecosystem.

European regulators are leading the way,⁴⁴ with the UK introducing a specific CTP framework and the EU’s Digital Operational Resilience Act (DORA) regime setting high-level areas of focus for CTP management. Other jurisdictions are yet to implement formal regulations, but US regulators have issued collective guidance on third -party risk management,⁴⁵ (which is expected to remain a priority in 2025), and others are likely to follow. The BCBS and the IAIS have also pushed for robust operational resilience frameworks beyond major jurisdictions, although cooperation on global standards is unlikely in the near term.⁴⁶

Unlocking the power of AI

A recent global survey conducted by Deloitte survey revealed a strong appetite among executives for leveraging AI. Over half of those surveyed indicated a desire to harness generative AI to bolster productivity and growth, with 38% anticipating cost reductions as a direct result of efficiency gains.⁴⁷

Even as firms explore AI’s vast potential, they will need to navigate a fluid regulatory landscape, characterised by evolving frameworks, divergent supervisory expectations, and international fragmentation. However, data quality, model risk management and governance of AI systems are likely to emerge as focal points for supervisors globally. The Hong Kong Securities and Futures Commission, for example, has emphasised these areas in its core principles for the use of generative AI language models.^48,49

In the absence of other fully developed frameworks, the EU’s new AI Act,⁵⁰ with its technology-specific approach, is emerging as the de facto benchmark. While many operational details will be elaborated upon over 2025-2026, the broader contours have already been signposted. Other jurisdictions have adopted technology-neutral stances for now, relying on existing, wider frameworks. In the UK, for example, the practical applications of AI will be captured by a combination of existing operational resilience,⁵¹ CTP and Consumer Duty frameworks –⁵² to name the key ones. In the US, while federal regulation may shift under the new administration and Congress, national security has been a key consideration in executive action taken by the previous two administrations.^53,54 Bipartisan action by the House Financial Services Committee is underway to identify the advantages and risks AI, and assess the effects of existing laws and regulations on its adoption.⁵⁵ The US Department of Treasury has also recently issued a request for information to examine the uses, opportunities, and risks of AI in the FS sector. The U.S. Securities and Exchange Commission has also announced that emerging technologies (including AI) will be a priority in this year’s examinations.⁵⁶

Clarity on crypto?
 

Crypto asset regulation remains fragmented. Regulators in Japan,⁵⁷  Singapore and HK SAR took early steps towards crypto-specific frameworks, and the EU’s Markets in Crypto Assets Regulation (MiCAR) regime is being phased-in, but other jurisdictions — including the US and UK — have not yet adopted specific, comprehensive regimes. But that looks set to change. In the US, the incoming administration is expected to take a more favourable stance on cryptoassets.⁵⁸ Meanwhile, 2025 will see the UK flesh out the draft details of its own regime.

Crypto markets are experiencing a resurgence, reminiscent of the 2021 boom, with ETF launches and rising Bitcoin and Etherum prices. However, a clearer regulatory landscape in some jurisdictions makes this cycle different. Renewed market enthusiasm, coupled with a maturing regulatory landscape, may prompt FS firms to re-evaluate crypto offerings in 2025. Increasing interest and trading activity will put pressure on jurisdictions without comprehensive frameworks, including the US and UK, to catch up.

Taking the longer view
 

The outlook for 2025 hangs in the balance of whether, and in what magnitude, conspicuous economic and geopolitical downside risks materialise. The permutations are numerous and difficult to predict – this demands vigilance. But the prospect of a growth alliance between the FS sector and governments has enormous potential, and unlocking the maximum value requires a joint commitment by FS firms and governments to medium-term strategic transformation. 

Regardless of externalities – positive or negative – the need to address supervisory backlogs, particularly in risk management and data governance, is a certainty FS firms can pursue without remorse. Similarly, the integration of AI, while brimming with opportunity, requires a strategic and discerning approach. This means building robust risk management foundations today, while anticipating and adapting to the evolving regulatory landscape shaping AI’s future. 

FS firms that successfully synthesise strategic transformation with a commitment to enhance fundamental risk management and data governance capabilities look set to thrive in the years ahead – our view is that 2025 is the year to make it happen. 

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