2025 was another transformative year for the financial services industry. Geopolitical risks arising from conflicts in Ukraine and elsewhere were compounded by new fissures in the world order. The international paradigm of cooperation and harmonisation was shaken by a shift towards aggressive tariff policies, regulatory competition and unilateralism. An increasingly bold Trump administration challenged the consensus on issues ranging from climate change to capital requirements for banks. Governments across the world are recalibrating their attitudes towards risk in order to get their economies growing again. Meanwhile, digital assets and tokenisation are on the rise, and the advance of AI is impacting every aspect of the way in which financial institutions do business.

We expect these trends to accelerate in the year ahead, creating opportunities as well as risks for the sector. The emergence of new technologies will drive increased investment in fintech as well as more M&A activity. It will also raise new concerns around operational resilience and cyber security. The growth of private credit is attracting interest from both borrowers and investors, as well as regulators trying to understand the impact on financial stability. The increasing participation of retail investors in private markets is opening up new sources of funding, while at the same time presenting new compliance challenges for private asset managers. In order to succeed in this dynamic environment, firms need to be nimble – capable of not only responding to the challenges of geopolitical risk, technological transformation and regulatory change, but turning them into an advantage.            

In this client briefing, we examine 12 of the most important trends in financial services, to help you navigate the year ahead.

1. Geopolitical risks

2025 saw a ramping up of geopolitical risks for financial institutions grappling with issues such as the financial and operational impacts of military conflicts, tariff structures, international diplomatic shifts and trade rule changes. We expect this trend to continue in 2026. Banking sector exposure is multifaceted and includes direct impacts through correspondent banking and cross-border payments, as well as indirect impacts via client losses and credit impairment and operational impacts through supply chain disruption and talent mobility constraints. In order to manage these risks, firms need to track developments, coordinate responses and plan across multiple time horizons. Practical steps that financial services firms should consider include stress-testing client portfolios, reviewing correspondent banking relationships, preparing for increasing sanctions regime complexity and developing hedging strategies. Firms that proactively transform regulatory change into competitive advantage – rather than viewing it as a penalty to avoid – can gain edge.

2. Deregulation and simplified/proportionate regulation

The move towards deregulation and simplified regulation in financial services is becoming a global policy trend as governments and regulators seek to boost their economies and become more competitive. The result is increased fragmentation as differences emerge between jurisdictions, presenting compliance challenges for firms. Across the world, approaches are diverging in areas such as AI, cryptoassets and sustainability. The Basel consensus on capital requirements appears to be eroding, with jurisdictions pursuing locally competitive frameworks rather than harmonised standards. Cross-border issuance in equity and debt capital markets is becoming more complex. Firms benefit from consistency rather than divergence. In order to succeed in this increasingly confusing international environment, they need to position themselves as regulatory navigators – understanding and managing the differences between local regimes, adapting to regulatory change and taking advantage of new opportunities as they emerge. At the same time, as governments encourage retail savers to transition into becoming investors as part of broader growth investment and agendas, the quest for more retail participation creates tensions between the desire to encourage more risk-taking and the need to protect consumers.

3. Retailisation

The proportion of private market assets held in retail accounts is growing. The trend links to other market dynamics, such as the rise of the secondaries market, which allows liquidity and exit mechanisms, the growth of private credit as a retail-accessible alternative to public bonds, and capital-intensive AI infrastructure projects seeking diverse investor bases to absorb risk. Regulatory reforms in the US, UK and Europe intended to increase access to investments in private capital are also increasing retailisation and are expected to continue in 2026. Large retail platforms are well positioned to capture capital freed up by regulatory reforms, while PC firms are exploring collaborations with banks to access their customer networks. The illiquid and long-term nature of private market investments can create a mismatch with retail investor expectations, however, and PC firms must be prepared to navigate new onboarding and other regulatory obligations as their investor base becomes more diverse.

4. Private credit

Private credit has grown substantially in recent years, benefiting corporate borrowers through expanded financing options and reducing the dependence on bank intermediation. However, this rapid growth and interlinkages with the traditional financial sector have drawn the attention of regulators around the world, who are concerned about the implications for financial stability and are increasing their scrutiny of private credit funds' governance, fee structures and liquidity risk management. Enhanced data collection and transparency requirements may follow as regulators seek to gather more information from funds to understand the risks. For financial services firms, the opportunity lies in structuring their business to comply with any new regulation without inhibiting innovation, providing institutional and retail distribution capabilities and managing the regulatory interface between banks (as funding sources) and PC funds (as users of capital).

5. Cybersecurity and operational resilience

Financial institutions increasingly rely on third-party service providers for mission-critical functions. The AWS outage in 2025 highlighted the systemic importance of cloud and third-party infrastructure. The EU’s Digital Operational Resilience Act and equivalent frameworks require firms to conduct ongoing risk assessments, establish incident response procedures and maintain resilience testing schedules, as well as manage third-party dependencies. Meanwhile, cybersecurity incidents are on the rise and do not respect borders; ransomware attacks and data breaches affect institutions across jurisdictions with increasing frequency. Regulatory expectations now require coordinated threat intelligence sharing, incident reporting timelines and business continuity planning. The regulatory environment is tightening, and firms should expect more prescriptive requirements for critical services. Firms need to understand how different regimes interact and design efficient compliance programmes that can satisfy multiple requirements simultaneously. Firms should periodically assess their programmes and update them as needed. In addition to designing and testing robust frameworks, firms also need to respond effectively when incidents occur.

6. Digital assets and tokenisation

Stablecoins are on the rise around the world, thanks in no small part to encouragement from the current US administration and the GENIUS Act. In the EU, the Markets in Crypto-Assets Regulation has been in effect since 2024, introducing licensing requirements for crypto-asset service providers, market abuse prevention rules and anti-money laundering controls. Other jurisdictions like the UK are still in the process of formulating their regulatory regimes. More broadly, tokenisation is being rolled out across a wide range of applications from payments and deposits to bonds and funds. The convergence of regulatory clarity, institutional adoption and technical maturity presents opportunities to build tokenised asset platforms, custody solutions, trading infrastructure and distribution channels. However, regulatory surveillance is also intensifying around market manipulation, information asymmetries and cross-asset contagion. Interoperability risks are also emerging as tokenised money market funds become stablecoin reserve assets, raising new challenges for market integrity and investor protection.

7. FIG M&A

Global financial services deal values in 2025 reflected a market concentrating on fewer, larger strategic transactions. While regulators desire consolidation, cross-border M&A faces political headwinds. Additionally, regulated deals are significantly more complex than M&A in other industries, with protracted regulatory approval timelines, integration challenges and cultural differences between legacy and acquired entities. As a result, in-market consolidation within the banking sector is more likely than transformative cross-border transactions in the near term. Meanwhile, fintech is poised for consolidation as stronger fintech players acquire smaller firms, particularly those with differentiated AI capabilities. Payments sector consolidation is also accelerating, with firms seeking scale to compete in a tech-driven environment. In the asset management space, traditional and alternative managers are scaling through organic growth and M&A. Private equity is increasingly active, setting up holding structures to acquire wealth management and asset managers to find synergies. Tie-ups between asset managers and insurers are also rising, particularly in Asia, and asset-intensive reinsurance is gaining traction in Japan. Expect a busy 2026.

8. AI

AI is now deeply integrated across financial institutions – not only to improve efficiency and reduce costs, but also to transform customer engagement, risk management and revenue generation. Agentic AI, which enables autonomous decision-making and complex task execution, is rapidly gaining traction, with some firms piloting and deploying it in areas such as fraud prevention, compliance and customer engagement and services. Regulatory responses vary across jurisdictions. Some have introduced dedicated AI legislation, while others are adapting existing frameworks. Common themes include consumer protection and governance of AI, particularly its role in strategic and financial decision-making. Regulators also highlight systemic risks – such as financial stability concerns if firms rely on similar AI models – and the possibility of collusive trading and other activities, between algorithms. Alongside a strong focus on financial crime, regulators are increasingly focused on the risk that bad actors will exploit AI vulnerabilities, using advanced methods to perpetrate fraud faster than firms can adapt systems to detect and prevent it. Firms therefore face a dual challenge: harnessing rapidly evolving AI effectively, while navigating emerging risks and evolving regulatory expectations.

9. ESG and sustainable finance

Divergent approaches to sustainable finance regimes continue to be heavily influenced by the political environment. Although many cash-strapped governments are rowing back or slowing down on net zero policies, ESG considerations remain important for firms outside the US, both in designing and marketing investments to investors (who are increasingly scrutinising ESG claims in their investment decisions) and in meeting regulatory expectations for long term risk management. Firms need to ensure that claims and commitments around ESG factors are accurate, not misleading and can be backed up by evidence of commercial benefit for clients, especially in the US in light of the administration’s approach to ESG commitments. Litigation and enforcement risk is increasing for FS firms that fail to handle the risks effectively, but firms can also benefit strategically and differentiate themselves from competitors by incorporating ESG considerations into business planning.

10. Market misconduct

There is a renewed focus of regulators on tackling insider dealing and market manipulation, partly driven by the need to enhance the reputation of financial markets in the context of increased competition between global financial centres. In the UK, the FCA is investigating more market abuse cases involving market professionals and using better tech to analyse market data. Despite this, the FCA found that 38–40% of UK corporate takeovers were leaked to the media from April 2024 to May 2025, so it has been looking hard at insider dealing around market announcements. The FCA has asked firms to consider information leaks, market soundings and the risks of organised crime and is also considering innovative products (cryptoassets), which indicate issues they have identified in their investigation caseload. Other regulators in Asia and the US are focusing investigations and enforcement on similar issues, so firms should redouble their efforts around detecting and preventing market abuse to mitigate enforcement risk.

11. Fraud

Fraud against firms and their customers continues to be a major problem. Scammers are using technology to expand their methodology. They are leveraging generative AI to stay ahead of fraud detection systems, creating deepfakes and spoofing communications. Simultaneously, customers have increasing expectations of reimbursement by their bank or other firm when they cannot recover funds from a fraudster. Developments that increase liability for firms include fraud protection measures in further EU legislation on payments and the UK’s reimbursement scheme imposing obligations on firms to refund retail customers. Firms also face the risk of litigation by customers to recover funds obtained by fraudsters. There is also the potential for increased liability for fraud committed by employees, for example with the implementation of the UK’s failure to prevent fraud corporate offence. Firms that track market intelligence about criminal activity, collate data on customer fraud and adapt internal systems to spot and prevent fraud on customers will be in the best position to mitigate these risks.

12. AML and sanctions

AML enforcement continues to increase in the UK as well as the EU. In the EU, the new AML Authority will begin selecting firms subject to direct supervision from 2027 (supervision will then start on 1 January 2028). Firms must invest in robust, automated AML systems and ensure board-level oversight of AML and other financial crime programmes. Regulators expect data and systems to be central to AML programmes, not a back-office function. Enhanced data quality, timely reporting and rigorous oversight are regulatory priorities. Firms also are having to navigate a complex web of robust multilateral sanctions regimes that differ between jurisdictions and that could diverge further for policy reasons. Though the sanctions enforcement regime hasn’t significantly shifted, the combination of sanctions, geopolitical risks and trade should be a high priority for firms. We have also seen AML enforcement in support of sanctions regime compliance. Tension between sanctions rules and international payment obligations continue to feature in litigation, and we expect an uptick in sanctions enforcement – for example, there are proposals to make UK OFSI enforcement more robust.