Matt Lonsdale, Director – Consulting, Davies
2025 is going to bring some big changes to financial services firms, in terms of regulation and compliance. Here are our top five trends to look out for:
Consumer Duty – a continued focus
Consumer Duty was a dominant topic for many firms in 2024 and it’s here to stay for 2025.
The FCA proved in 2024 that it means business, and several high-profile cases have shown individuals and organisations could be facing serious fines for not implementing regulations quickly.
The FCA recently identified four focus areas for 2025:
- Embedding the Consumer Duty and raising standards.
- Enhancing understanding of the price and value outcome.
- Sector-specific priorities – Areas of existing concern in: Retail Banking, Consumer Finance, Payments and Digital Assets, Consumer Investments, General and Life Insurance, Sustainable Finance.
- Realising the benefits of Consumer Duty.
Putting vulnerable customers at the heart of CX
Ensuring that an effective CX caters to vulnerable customers is now not just about recognising financial vulnerability but recognising other vulnerabilities such as digital vulnerability. Consumer Duty has helped shine a light on the need to cater to these vulnerabilities, and this now needs to be shown in terms of good customer outcomes.
There is evidence to suggest that there is a growing swell of consumer dissatisfaction with service in general. The UK Customer Satisfaction Index for July 2024 revealed that customer satisfaction in the UK reached its lowest level for 14 years. As part of providing effective CX, firms need to think more broadly about how they can identify vulnerable customers and take a proactive approach.
DORA & Operational Resilience
The?Digital Operational Resilience Act (DORA)?is an EU regulation that applies as of 17 January 2025. Its aim is to strengthen the IT security of financial entities such as banks, insurance companies and investment firms to ensure that the European financial sector is able to stay resilient in the event of a severe operational disruption.
UK firms will need to determine if they fall in scope of DORA, based on the wide scope of financial markets activities it covers and whether those take place within EU jurisdictions.
In addition, the FCA has its own operational resilience rules for UK firms that come into force on 31 March 2025. Like DORA, the aim of these rules is to ensure that businesses can recover from disruptions without harming consumers or the financial system. Firms have until 31 March 2025 to carry out relevant mapping and scenario testing to ensure they will be able to operate consistently within their set impact tolerances for important business services.
Treasury Clearing
Another big focus for firms should be Treasury Clearing. The US Treasury Security Clearing Mandate and FICC Rule Proposals require that all eligible US Treasury transactions must be cleared through a central counterparty (CCP) by 2025.
The aim of the transition to central clearing promises is to reduce systemic risk. However, these changes could introduce new operational and financial challenges for firms, including increased margin requirements and technology upgrades.
Our research from September 2024 showed that 43% of firms were unfamiliar with upcoming mandatory U.S. Treasury clearing rule changes and less than a third (29%) of businesses were fully aware of the SEC’s regulations requiring central clearing of U.S. Treasury transactions. Almost half (43%) of companies expressed concerns about their ability to meet the 2025 clearing deadline, while 72% of firms expect the cost of mandatory clearing to be impactful.
New clearing agreements need to be negotiated between counterparties and, since there is much optionality embedded in the SEC Final Rule, firms will have to ensure they are making the right choices for their respective business models.
Proactive Remediation
Remediation – the process of cleaning up customer data to ensure it complies with the latest regulations – will be an important theme of 2025. During the course of 2024, regulators have paid close attention to firms’ activities. Now, a more proactive approach, whereby businesses examine their own practices and business processes ahead a full regulatory investigation, is needed. Firms that are not already taking this approach need to ensure that remediation remains a focus and invest as appropriate to make sure they are ready to act quickly.
In conclusion, 2025 will likely be another year of regulators flexing their muscles. Firms will find that if they are found wanting in one area, regulators will become interested in all areas of their business. With hefty fines, brand damage and even court appearances at stake, 2025 needs to be the year of proactivity.
Those organisations that are successful at being proactive and activating change can future-proof their businesses not only in terms of ensuring regulatory compliance but also in maximising their commercial success. Better data, superior CX, robust technology, a proactive approach to remediation (which ensures they aim to pre-empt problems before they arise) and strategies which align to centralised actions such as treasury clearing are all key. These tools will undoubtedly enable organisations to improve efficiency, harness technology innovation, avoid sanctions and increase client tenure.
In essence, firms need to continuously watch what is happening in the sector as a whole and use that insight to not only keep their own house in order from a regulatory perspective but steal a march on their competitors too.
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