With a considerable number of new rules and directives poised to reshape how companies, financial institutions and insurers navigate compliance and risk management, 2025 will see the regulation landscape undergo significant transformation.
Among the most notable developments will be increased reporting directives and emerging fraud protections, while from a geopolitical perspective the second Trump administration is set to usher in its own significant changes, including the rollback of many ESG-related initiatives.
Here, I’ll take a look at some of these changes – along with the implication for insurers – in further detail.
Ever-increasing reporting requirements
Reporting requirements for companies and fund directors continue to increase, with the Corporate Sustainability Reporting Directive obligations due to come into effect this year. Alongside that we also have the Economic Crime and Transparency Act, the Digital Operational Resilience Act (DORA) and Alternative Investment Fund Managers Directive 2.0, amongst others.
The greater the burden in terms of regulation that companies may need to prepare for and implement, the greater the perception of regulatory risk. Typically, any changes in price or coverage are reactive (i.e. as a result of a severe claim) but in the event that insurers do see more notifications in relation to regulatory breaches we can expect coverage to naturally be sub-limited and pricing adjusted accordingly.
As we have seen from the Russia and Ukraine conflict, additional questions also need to be asked by insurers to clarify associated risk, such as services provided to or domiciled in any countries that are involved with the conflict. In the case of emerging regulation, while we are yet to see a standardised question set, it is reasonable to expect that queries regarding CSRD reporting will become applicable for relevant insureds.
Trump’s second administration
In the US, there is significant expectation that the new Trump regime will herald the removal of ESG initiatives – with Diversity, Equity and Inclusion on the chopping block alongside climate related legislation.
For financial institutions, the recent election results ostensibly ensure an indefinite postponement of the SEC’s ESG regulatory agenda for asset managers. Ensuring robust policies and procedures regarding the utilisation and integration of ESG considerations in investment processes remains recommended, but as the SEC pauses its ESG regulatory agenda at the federal level, at the state level there is a bifurcated approach to ESG regulation. Consequently, a fragmented ESG regulatory approach in the US could force asset managers to stay on top of regulatory initiatives at both the federal and state levels to ensure that their compliance framework reflects the same.
The knock-on effect of this will be the increased difficulty of adopting a one-size-fits-all model for those asset managers that operate globally. As the SEC hits pause on its ESG regulatory agenda, we expect the focus to remain on identifying ESG compliance failures. It remains to be seen whether any changes will be made to the ‘Names Rule’ (the need for strategy to align with advertisement with regard to ESG investment), as this will have been a key element of these compliance requirements.
APP fraud
The payments system regulator has recently updated the regulation on Authorised Push Payment (APP) fraud to increase protection for consumers. As of 7th October 2024, all types of payment firms (banks, e-money firms and payment processors) are now subject to the new reimbursement arrangements.
The maximum amount of money people can claim is £85,000 which currently aligns with the Financial Services Compensation Scheme (FSCS) limit and will cover over 99% of claims. There is an optional £100 excess that firms can apply (individual firms may choose to apply the excess, choose an alternative excess value up to the maximum £100, or choose not to use it at all). This excess cannot be applied to vulnerable consumers. Firms will also be required to process the reimbursement within five business days of a claim being made (although firms are able to ‘stop the clock’ to gather more information on the fraud up to a maximum of 35 days).
This may lead to a rise in insolvency as smaller payment processing firms may not have the required balance sheet to deal with the new reimbursement thresholds. We should also see a rapid increase in payment security as firms try to minimise their potential payouts. From an insurance perspective, it appears all the leading fintech insurers are waiting to see the data over 2025 on losses and reimbursements prior to committing to providing cover for this loss. (Although one insurer has indicated their willingness to offer cover initially subject to a wider review of the firm’s controls.)
A changing landscape necessitates a proactive approach
Businesses should prepare to navigate an increasingly complex political and regulatory landscape. Adapting to these changes will require a proactive approach to compliance, risk management and insurance. Staying ahead of potential challenges, and ensuring long-term risk mitigation, will require both flexibility and foresight.
Now more than ever appropriate expertise is needed to give us much specialism and improve the efficiency of processes such as insurance for firms, who have increased day-to-day responsibilities. The BMS FINPRO team provide access to senior personnel for every client and relish the opportunity to provide advice, even if purely for a second opinion.
Reach out now with any queries you may have.