As 2025 begins, global law firm Latham & Watkins has published a comprehensive report identifying 10 critical focus areas for UK-regulated financial services firms. The report offers insights into the anticipated regulatory reform agenda, emphasising both the continuation of existing reforms and the introduction of new initiatives designed to foster growth.
Latham & Watkins is a top global law firm that helps financial institutions handle complex deals, navigate regulations, and tackle major legal challenges. They specialise in areas like banking, securities, and financial services, working with clients worldwide to manage changing rules and regulations in key financial markets.
Their key focus areas reflect the evolving landscape of financial services regulation under the influence of a new UK government prioritising economic expansion. IFA Magazine took a look at the report and has given you a taste of the contents below. Happy reading!
New government
The new UK government has set its sights on accelerating growth within the financial services sector, signalling a shift in regulatory philosophy. A key element of this approach involves reassessing some post-crisis reforms, with suggestions that certain measures may have “gone too far.” This recalibration opens up possibilities for targeted deregulation but also raises critical questions about balancing risk and innovation.
The good news is that the Chancellor has referred to the financial services sector as “the crown jewel in our economy” and considers it one of eight growth-driving sectors in the UK. High praise indeed.
Artificial intelligence
Artificial intelligence (AI) continues to play an increasingly prominent role in financial services. UK regulators are actively exploring AI’s transformative potential through diagnostic initiatives aimed at understanding its use cases and assessing whether additional regulations are necessary. Maintaining a pro-innovation stance, regulators emphasise principles-based and outcomes-focused governance.
Firms must navigate this complex environment by ensuring that their AI applications align with existing regulatory frameworks, particularly regarding data privacy, fairness, and transparency. This balance between fostering innovation and safeguarding compliance will be a cornerstone of regulatory discussions in 2025.
Some of the best advice is to firms undertaking retail business, highlighting the need to be particularly mindful of achieving good outcomes for customers in line with the Consumer Duty.
Although there is currently no new framework to grasp, firms using or considering using AI within their business should expect increasing regulator interest in this area. Firms should ensure that they can explain their use of AI to the FCA, justify their approach, and outline the safeguards and mitigants they have in place.
ESG
Environmental, Social, and Governance (ESG) considerations are reaching a pivotal juncture. With mandatory ESG disclosure regimes taking effect and a reinvigorated sustainable finance strategy, UK financial institutions face heightened expectations. The introduction of new UK Sustainability Reporting Standards and the development of an ESG ratings regulatory regime underscore the government’s commitment to sustainable growth.
Firms must integrate ESG principles into their operational and investment strategies while navigating the regulatory intricacies of these evolving standards. For many, 2025 will serve as a proving ground for aligning business practices with sustainability objectives.
Edinburgh reforms
The Edinburgh Reforms, a suite of measures aimed at modernising financial services regulation, have seen uneven progress. However, the new government’s growth-focused agenda provides renewed impetus for completing outstanding reforms. The Mansion House framework now serves as the benchmark for these initiatives, signalling a commitment to streamlining regulatory processes while promoting competitiveness.
Key reforms include updates to the prospectus regime and adjustments to transaction reporting rules under MiFID II. These measures aim to enhance capital market efficiency and reinforce the UK’s position as a global financial hub.
Although there is no new framework to grasp, firms using or considering using AI within their business should expect increasing regulator interest in this area. Firms should ensure that they can explain their use of AI to the FCA (and PRA, if appropriate), justify their approach, and outline the safeguards and mitigants they have in place.
Wholesale markets
Reforms targeting wholesale markets are pivotal to bolstering the UK’s global financial standing. Significant developments include finalising the prospectus regime and introducing the PISCES sandbox, designed to encourage innovation. Additionally, ongoing modifications to MiFID II transaction reporting rules aim to reduce compliance burdens and improve market transparency.
Firms operating in these markets must stay attuned to these changes, leveraging regulatory advancements to enhance their competitive edge while maintaining robust compliance practices.
Retail markets
Consumer protection remains a top priority for the Financial Conduct Authority (FCA), with continued emphasis on the Consumer Duty and reforms targeting retail investments and consumer credit. Among the key developments is the introduction of a new Consumer Credit Information (CCI) regime to replace the existing PRIIPs framework.
Motor finance commissions and their impact on consumer outcomes will also be closely scrutinised. Firms must adapt to these evolving standards, ensuring that their practices align with the FCA’s consumer-focused objectives.
By far, the biggest change for firms from a retail perspective has been the introduction of the Consumer Duty. Now, firms are moving into business-as-usual mode and need to consider how to ensure ongoing compliance with the Duty.
Basel 3.1 implementation
The implementation of Basel 3.1 reforms represents a significant milestone for UK banks. With a definitive timeline in place, firms can now plan for compliance while monitoring broader changes to the prudential regime. Notably, the final rules incorporate important concessions, providing some relief to affected institutions.
Additionally, ongoing efforts to repeal and restate the Capital Requirements Regulation highlight the dynamic nature of prudential oversight. Banks must remain agile, balancing compliance with operational efficiency in this evolving regulatory landscape.
Operational resilience
Operational resilience has emerged as a critical focus area for UK financial services firms, driven by the increasing frequency and severity of disruptions. The final deadline for implementing the new operational resilience framework is approaching, requiring firms to demonstrate robust systems and processes.
Regulators are also introducing new requirements for incident and third-party reporting, emphasising the need for comprehensive risk management strategies. Firms must prioritise resilience planning to safeguard against operational and reputational risks.
Enforcement trends
The FCA is refining its enforcement strategy to prioritise fewer but more impactful actions. This shift aims to enhance regulatory effectiveness while fostering greater industry confidence. Key areas of focus include Market Abuse Regulation (MAR) and Anti-Money Laundering (AML) systems and controls.
An ongoing consultation on announcing enforcement investigations could introduce greater transparency into regulatory processes. Firms must proactively address potential vulnerabilities, ensuring robust governance and compliance frameworks.
The FCA has been clear that it will only take action in relation to the Consumer Duty if it sees firms failing to make best efforts to comply, rather than for inadvertent breaches as the new obligations bed in.
Governance
Governance remains a cornerstone of effective regulation, with UK regulators revisiting frameworks to enhance proportionality and competitiveness. Proposed changes to remuneration rules for banks and the Senior Managers and Certification Regime (SMCR) highlight this agenda.
These reforms aim to reduce compliance burdens while maintaining high standards of accountability. Firms must stay informed about potential changes, adapting their governance practices to align with regulatory expectations.
Looking to the future
The 10 key focus areas outlined by Latham & Watkins underscore the dynamic and multifaceted nature of financial services regulation in 2025. From leveraging AI and ESG advancements to navigating operational resilience and enforcement trends, firms face a complex regulatory landscape that demands agility and foresight.
As the UK government’s growth agenda shapes the regulatory framework, financial institutions have an opportunity to align their strategies with emerging priorities. By embracing innovation, enhancing resilience, and maintaining a strong compliance culture, firms can position themselves for success in the year ahead.
For detailed insights, Latham & Watkins’ full report offers invaluable guidance for navigating these challenges and opportunities: https://www.lw.com/admin/upload/SiteAttachments/10-Key-Focus-Areas-for-UK-Regulated-Financial-Services-Firms-in-2025.pdf.
