Staying Ahead in an Evolving Regulatory Landscape
As 2025 unfolds, regulations remain a top concern for capital market participants. A new U.S. political administration’s anticipated policies favoring bank deregulation have sparked questions about changes in the regulatory landscape. However, the long-term impact of these policies remains uncertain.
For now, firms across the globe continue to contend with evolving regulations like the Markets in Financial Instruments Regulation (MiFIR) and the Fundamental Review of the Trading Book (FRTB). These frameworks bring updated rules, diverse implementation timelines, and significant compliance challenges. To navigate this terrain effectively, financial institutions must prioritize risk management practices and invest in robust analytics and technological solutions. We discuss more about dealing with regulatory uncertainty in our newly released white paper: Navigating Regulatory Uncertainty in 2025.
Coping with the Regulatory Landscape: What’s to come?
While a new U.S. administration may phase out some regulations, many financial experts believe such changes will primarily affect rules still in development, leaving existing regulations largely intact. Stuart Plesser, a senior director monitoring U.S. banks at S&P Global, stated in a recent Global Finance article: “Our take is that existing regulation will not see a significant rollback.” As a result, firms are likely to need to retain focus on complying with major regulations, such as MiFIR and FRTB, which aim to enhance market transparency, integrity, and risk management.
Addressing Key Regulations in 2025
Markets in Financial Instruments Regulation (MiFIR)
MiFIR is designed to improve market transparency, investor protection, and overall efficiency. It enforces stricter reporting requirements and trading obligations, particularly for over-the-counter (OTC) derivatives.
In 2024, changes to MiFIR aimed at strengthening market data transparency were introduced, providing participants better access to critical market data and enhancing the EU’s capital market competitiveness. In 2025, firms must ensure compliance with more stringent reporting guidelines and trading obligations under these updated rules.
Fundamental Review of the Trading Book (FRTB)
FRTB represents a significant overhaul of trading book capital rules, requiring banks to adopt more rigorous approaches to market risk measurement. Firms must choose between the standardized approach (SA) or the Internal Model Approach (IMA), each presenting unique operational challenges.
The phased adoption of FRTB across jurisdictions highlights its complexity. For instance, only ten banks globally have committed to implementing the IMA due to its stringent requirements. These banks aim to leverage the IMA’s potential for capital savings and improved risk management but face hurdles in securing supervisory approval and maintaining compliance.
Basel III and IV
In 2025, the Basel III and IV frameworks continue to enforce stringent capital and liquidity requirements, significantly increasing funding costs for banks. To adapt, many firms are finding Funding Valuation Adjustments (FVA) to be a helpful tool in achieving compliance with Basel regulations, as FVA accurately incorporates the cost of funding derivative positions into pricing and risk management. While FVA is not a Basel requirement, many firms view it as a valuable enabler for accurately allocating capital and managing risk more efficiently.
Under Basel III, banks must maintain sufficient capital and manage liquidity risks, which FVA addresses by reflecting the true funding costs of uncollateralized or partially collateralized trades. By properly accounting for these costs, banks can optimize their funding strategies, improve capital efficiency, and ensure compliance with leverage ratio, liquidity coverage ratio (LCR), and net stable funding ratio (NSFR) requirements. This alignment may help to reduce regulatory capital charges and enhance risk transparency.
Responding to Regulatory Change
The 2025 regulatory landscape presents both challenges and opportunities. Frameworks such as MiFIR, FRTB, and Basel guidelines impose significant compliance burdens, but also work to foster market resilience. However, the new U.S. administration’s approach to regulation raises questions about potential delays or rollbacks in policy.
To ensure that financial institutions are poised to handle any range of regulatory changes or uncertainty that comes their way, they should look to integrate governance structures to ensure that regulatory initiatives are implemented holistically, minimizing the risk of non-compliance. Another essential priority will be investing in advanced analytics and technologies, and adopting best practices in risk management that can support firms in agilely navigating this rapidly evolving landscape.
Just Released: Regulatory White Paper
For a deeper look into this topic, download our newly released white paper: Navigating Regulatory Uncertainty in 2025. In it, you’ll learn how financial institutions can navigate this complex terrain through adopting proactive risk management strategies and leveraging advanced technology for addressing an evolving regulatory landscape.
