Risk & Compliance Report weekending 27th June
- James Ross
- Jun 29
- 5 min read
Executive Summary
This report provides an analysis of significant regulatory developments from the last week of June 2025, restructured to prioritise issues based on their direct impact on firms' business models and strategy.
The most critical developments—those requiring urgent attention at the board level—concern fundamental operational viability and strategic direction. The FCA's stark findings on operational resilience and wind-down planning for payments firms pose a potential existential threat to some business models. At the same time, the effort to integrate ESG risks into core stress testing and the UK's new focus on competitiveness and growth represent significant, long-term shifts that will reshape product design, risk appetite, and capital allocation.
Developments with a medium-term impact relate to core governance-specific, high-growth business sectors. The reinforcement of senior management accountability continues to influence leadership culture and risk appetite, while the strengthening of digital asset regulation establishes key operational boundaries for firms in this sector.
Finally, critical foundational adjustments to compliance and operations, such as the decommissioning of specific regulatory reports and the evolution of AML standards, offer opportunities for efficiency but do not fundamentally alter core business strategy.
I. High Impact: Fundamental Business Model & Strategic Shifts
These developments have a direct impact on strategic decision-making, core profitability drivers, and operational viability. They require immediate board-level consideration.
A. Operational Resilience and Wind-Down Planning (UK)
Development: An FCA multi-firm review of e-money and payment firms revealed widespread weaknesses. The FCA found that no firms fully met expectations, citing inadequate enterprise-wide risk frameworks, immature liquidity risk management (particularly a lack of stress testing), and Wind-Down Plans (WDPs) that were neither credible nor operable.
Business Model Impact: This is the most critical development of the week. The findings challenge the fundamental viability of some business models in the payments sector. It signals an extremely low regulatory tolerance for operational weakness and will require significant, immediate investment in risk and liquidity management, which directly impacts cost structures and profitability. Firms that cannot demonstrate credible resilience and wind-down capabilities may face significant supervisory intervention, including potential restrictions on their business activities.
B. ESG Integration Moves from Disclosure to Practice (EU & UK)
Development: The Joint Committee of the ESAs has launched a pivotal consultation on integrating ESG risks into supervisory stress tests for banks and insurers. In parallel, the UK government is consulting on making climate transition plans mandatory.
Business Model Impact: This marks a paradigm shift for the entire financial sector. Moving ESG from a disclosure exercise to a core component of capital adequacy and risk management will fundamentally alter business models. It will directly influence lending criteria, investment portfolio construction, insurance underwriting, and the pricing of risk. Firms that fail to build quantitative capabilities for ESG risk will face strategic disadvantages and potential capital add-ons.
C. The Competitiveness and Growth Mandate (UK)
Development: FCA CEO Nikhil Rathi's speech and the PRA's second report on its growth objective confirm a deliberate cultural shift. The regulators are seeking an "open debate on risk appetite" and aim to support innovation, while warning that they will not compromise on integrity.
Business Model Impact: This creates a new strategic dynamic for UK-based firms. It signals an opportunity to engage with regulators on innovative products and new business lines with a potentially more receptive audience. It directly impacts strategic planning around growth, product development (e.g., mortgages), and M&A activity. Firms must now factor this pro-growth stance into their strategic decision-making and articulate how their models support the UK's competitiveness.
D. Potential Simplification of CSRD and CSDDD Creates Uncertainty (EU)
Development: In a significant move, the Council of the EU has agreed on a negotiating position to reduce the scope of both the CSRD and CSDDD. Proposals include raising employee and turnover thresholds, as well as limiting the scope of due diligence.
Business Model Impact: While simplification may ultimately reduce costs, the current uncertainty presents a major strategic challenge for large firms. Multi-year, multi-million-euro compliance projects are now in flux. This affects strategic resource allocation, budgeting, and supply chain management. The scope of a firm's responsibility for its value chain is a core business model question, and this ambiguity makes long-term planning difficult.
II. Medium Impact: Evolving Governance and Business Line Requirements
These developments have a significant impact on how firms are governed and the rules for specific, important business lines.
A. Senior Management Accountability and Governance (UK)
Development: The Upper Tribunal's decision to uphold the FCA's ban of former Barclays CEO Jes Staley sends a powerful message on integrity and cooperation with regulators, reinforcing the personal stakes under the SMCR.
Business Model Impact: While not changing the rules, this significantly elevates the practical risk for senior leaders. This impacts a firm's risk culture, the speed of decision-making, and the internal processes for governance and regulatory communication. It can indirectly constrain business models by fostering a more cautious approach to risk-taking at the leadership level.
B. Digital Asset Regulation Solidifies (EU)
Development: The European Commission has adopted detailed RTS under MiCA specifying liquidity management policies for token issuers. Separately, an ESMA report recommends making the DLT Pilot Regime permanent.
Business Model Impact: For firms in the digital asset space, these developments have a high impact on their core operating model. The MiCA RTS impose specific liquidity and treasury management requirements, directly affecting the cost and structure of issuing tokens. A permanent DLT regime provides the regulatory certainty needed for investment in new DLT-based market infrastructure business models.
C. Emerging Risks for the Insurance Sector (International)
Development: The IAIS's mid-year market report highlights geoeconomic fragmentation, increased investment in private credit, and the adoption of AI as key risk areas for insurers.
Business Model Impact: This directly affects the two core pillars of the insurance business model: investments and underwriting. Insurers must adapt their investment strategies to account for the heightened risks in private credit and adjust their underwriting and operational models to safely incorporate AI, which presents both efficiency opportunities and significant new risks.
III. Foundational Compliance & Operational Adjustments
These are significant developments that require adjustments to compliance functions and operations, but are unlikely to alter the core business strategy.
A. Regulatory Simplification and Data Decommissioning (UK)
Development: Through FCA Handbook Notice 131 and Policy Statement PS25/7, the FCA is immediately removing several data collection requirements.
Business Model Impact: This has a positive but primarily operational impact. It reduces the administrative cost of compliance and allows firms to reallocate resources to higher-priority risks. However, it does not change the nature of the products or services a firm offers.
B. Virtual Assets and AML/CTF (International)
Development: The FATF's latest update highlights ongoing challenges in implementing the "travel rule" for virtual assets and provides new guidance on applying a risk-based approach to promote financial inclusion.
Business Model Impact: This represents an evolution of core AML/CTF compliance. For VASPs, implementing the travel rule is a critical operational requirement. For all firms, guidance on financial inclusion may enable refinements to onboarding processes. These are adjustments to the compliance framework rather than a change to the core business model itself.
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