Regulatory Compliance in Flux: What’s Changing and Why it Matters

In April 2025, President Trump announced a wave of reciprocal tariffs in what he dubbed ‘Liberation Day’, which ignited a global sell-off of assets, wiping an estimated $8.56 trillion off the value of the global stock market. Though markets rebounded, it was a reminder to many about the inherent risks of investing.  

But thanks to regulation, some risks can be reduced. Our whitepaper, “Stay Ahead of Regulatory Risk: A Morningstar Guide for Compliance and Risk Teams”, examines some of the key regulatory frameworks where Morningstar supports compliance and risk professionals, from regulatory updates, eye-watering fines, and tips for compliance and risk management professionals who support investment teams. 

The European Central Bank, or ECB, announced that in 2026, it will test banks’ resilience to risk, including tariffs and sanctions. In this thematic reverse stress test, banks will be asked to assess which firm-specific geopolitical shocks might affect their solvency and profitability.  

Speaking about the results of the 2025 stress test, Claudia Buch, German Economist and Chair of the ECB’s Supervisory Board, said the euro area banking sector would remain resilient against a severe economic downturn, with a system-level CET1 ratio of 12.0% under the adverse scenario, and 17.1% under the baseline, an improvement compared to two years ago. 

In February 2025, the European Commission adopted an omnibus package. In the spirit of increasing competitiveness, attracting investment, and boosting growth, the package aims to simplify the rules and deliver €6 billion in administrative relief while still achieving sustainability goals. 

The package includes amendments to the Corporate Sustainability Reporting Directive, the Corporate Sustainability Due Diligence Directive, and a draft Taxonomy Delegated Act for public consultation. The biggest proposed changes include:  

• Limiting reporting obligations under the EU Taxonomy to the largest companies with at least 1,000 employees and €450 million net turnover.
• Reducing reporting templates by 70% under the EU Taxonomy, and introducing a financial materiality threshold of 10%.
• Allowing reporting for activities partially aligned with the EU Taxonomy and introducing a financial materiality threshold of 10%.
• Simplifying the most complex criteria of the 'Do no significant harm' requirement. These simplifications apply to pollution prevention and control related to the use and presence of chemicals that apply horizontally to all economic sectors under the EU Taxonomy.
• In October, members of the European Parliament voted against entering into trilogue negotiations on the package, with 309 in favor, 318 against, and 34 abstentions. Parliament hopes to conclude the process by the end of 2025.

In July 2025, Rachel Reeves, the UK Chancellor of the Exchequer, instructed the Financial Conduct Authority, or FCA, to investigate whether the Consumer Duty regulation is “unduly affecting wholesale market activity.”  

The Consumer Duty regulation requires financial firms to ensure products and services meet consumer needs, offer fair value, are clearly understood, and offer clients support throughout the customer relationship. 

The review is part of the Chancellor's “regulate for growth” strategy unveiled as part of the ‘Leeds reforms’, designed to boost lending, innovation, and returns. However, consumer advocacy groups argue that easing protections for consumers will lead to unforeseen risks, which could place a higher burden on compliance and risk teams.   

In September 2025, the FCA published its priorities for 2025/2026.  

Key areas of focus include: 

• Data and fair value, as firms have raised concerns about how they balance their vulnerability, data sharing, and data protection expectations.

• Sector-specific priorities, such as Consumer Investments, to support retail customers investing in complex ETPs, and ensure consumers have a clear understanding of whether peer-to-peer platforms achieve the returns they advertise.

In the FCA’s letter to the Chancellor, it proposed a plan to remove businesses with non-UK customers from the scope of Consumer Duty, provide more clarity for firms co-manufacturing products for retail investors, and clarify how the regulation applies to distribution chains and whether existing exemptions go far enough, for example, in B2B activity.    

In January 2025, the Prudential Regulation Authority, or PRA—part of the Bank of England— announced it would delay the implementation of new rules related to Basel 3.1 by one year. Designed to prevent a 2008-style financial crisis, the rules were set to come into force in January 2026 but have been delayed to January 2027.  

The Bank issued a statement, saying the delay allows “more time for greater clarity to emerge around its implementation in the US”, where banking regulations have faced higher levels of resistance.  

In June 2025, following the Bank of England’s announcement, the European Union followed suit, confirming a one-year delay to the rules, citing concerns around competition, as European firms, including BNP Paribas and Deutsche Bank, could be at a disadvantage if they had to comply with the rules ahead of their US-based competitors. 

Additionally, the PRA launched a consultation on its proposed delay to the Fundamental Review of the Trading Book Internal Model Approach, or FRTB IMA, by one year to January 2028. Again, it cited the importance of aligning UK timelines with other major jurisdictions and reducing operational complexity for firms with cross-border trading activities.