EY Reports Growing Divide in Global Finserv Regulations
EY's 2025 Global Financial Services Regulatory Outlook has revealed a growing fragmentation in how different jurisdictions approach financial services regulation, with national regulators increasingly pursuing independent paths on AI oversight and cryptocurrency governance.
AI and Digital Assets: A Fractured Landscape
Geopolitical tensions and rapid technological advancement have reshaped the regulatory environment, particularly in the realm of artificial intelligence and digital assets.
Asian financial centres have emerged as early movers, with Singapore's Monetary Authority of Singapore (MAS) launching Project MindForge, a regulatory sandbox for testing generative AI applications in financial services.
This initiative forms part of a broader framework governing AI risk management in the city-state's financial institutions.
Taking a parallel but distinct approach, the Hong Kong Monetary Authority (HKMA) has established its GenA.I. Sandbox, tailoring requirements to its specific market conditions.
These initiatives stand in contrast to China's push for global coordination on AI governance, where authorities have implemented strict safety requirements for large language models, including restrictions on harmful content in training datasets.
Regional approaches continue to diverge, with Japan's AI Safety Institute publishing comprehensive safety guidance and Australian regulators proposing mandatory guardrails for high-risk AI applications.
The European Union has adopted perhaps the most structured approach through its AI Act, implementing prohibitions on certain AI uses from February 2025 and introducing rules for high-risk systems in August 2026.
By contrast, the United Kingdom is developing a more targeted framework, focusing specifically on advanced AI models.
Operational Resilience and Third-Party Risk
The fragmentation in regulatory approaches extends to digital assets. While the European Union has established comprehensive requirements through its Markets in Crypto-Assets Regulation (MiCA), Dubai has taken a different route by creating a dedicated Virtual Assets Regulatory Authority.
This regulatory divergence could widen further following the 2024 US presidential election, which may herald shifts in American digital asset policy.
Recent events have underscored the importance of operational resilience. A major service outage at cybersecurity provider CrowdStrike in July 2024 exposed vulnerabilities in the sector's technology infrastructure, prompting regulators to strengthen their oversight of critical third-party providers.
The European Union's response, through its Digital Operational Resilience Act (DORA), requires financial institutions to demonstrate robust defences against IT disruptions while establishing new frameworks for monitoring technology suppliers.
These operational concerns coincide with structural changes in financial markets. The Financial Stability Board has noted the growing influence of non-bank financial institutions (NBFIs), which now manage 47% of global financial system assets, up from 42% in 2008.
The private credit market exemplifies this evolution, with investment funds accumulating US$2.1tn in assets and commitments by lending directly to corporate borrowers.
While these alternative lenders provide vital capital to companies outside traditional banking channels, their rapid growth has raised concerns about market opacity and systemic risk transmission.
Consumer Protection and Financial Crime
“Good governance is always important, but especially during periods of heightened uncertainty and change”
Elsewhere, the digitisation of financial services has catalysed a fundamental shift in consumer protection frameworks.
The UK's Financial Conduct Authority has pioneered this change through its Consumer Duty rules, requiring firms to demonstrate concrete benefits for retail customers.
This approach has resonated globally, influencing Singapore's expanded Guidelines on Fair Dealing and New Zealand's upcoming Conduct of Financial Institutions Regime.
Digital transformation has also necessitated evolution in financial crime prevention.
The Australian government's expansion of anti-money laundering legislation to cover digital currencies and virtual asset providers acknowledges the new technological frontiers of financial crime.
Similar concerns have shaped the US Treasury's Financial Crimes Enforcement Network's enhanced control frameworks.
These technological shifts have implications for data security and financial stability.
The US government's planned restrictions on bulk data transfers under Executive Order 14117 reflect growing concerns about cybersecurity and espionage, while Australia's proposed limitations on its national digital identity scheme highlight the increasing importance of data sovereignty.
The digitisation of banking has introduced new vulnerabilities to the financial system, as demonstrated by the bank failures of spring 2023.
Digital technology can accelerate deposit withdrawals, challenging central banks' crisis management capabilities in an interconnected system.
This risk takes on added significance against a backdrop of rising private debt, with global public debt projected to exceed 93% of gross domestic product by the end of 2024.
Christopher Woolard CBE, Chair of EY Global Regulatory Network and former interim chief executive of the UK Financial Conduct Authority, says: “Good governance is always important, but especially during periods of heightened uncertainty and change.”
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