• Kris Costello, Regional Head of Sales, UK & Ireland at Aryza


• 03.03.2025 09:45 am
#BankingMarket #ComplianceRisk

The banking sector is poised for both growth and significant regulatory challenges in 2025. While financial institutions aim to expand and leverage technological advancements such as artificial intelligence (AI) and blockchain, they must also navigate an increasingly complex regulatory landscape.  The dual challenge of driving innovation while maintaining compliance remains a critical concern for banks worldwide. Some would argue that excessive regulatory requirements could stifle innovation, making it harder for smaller banks to compete with larger institutions that have the resources to invest in compliance technology. 

The Rising Complexity of Regulatory Compliance 

Banks face heightened scrutiny from regulatory bodies, requiring them to implement robust compliance frameworks. Institutions such as the Office of the Superintendent of Financial Institutions (OSFI) have signalled a stronger regulatory stance, with consultations on Regulatory Compliance Management planned for 2025. Additionally, OSFI has revised its Supervisory Framework and introduced new guidelines focusing on integrity, security, operational resilience, and third-party risk management. While these regulations are designed to enhance financial stability, some question whether they add unnecessary complex layers that slow down decision-making and innovation. 

Economic and Capital Challenges 

The banking market in 2025 is expected to be shaped by a mix of growth potential and compliance risks. Financial institutions are adapting to a low-growth, lower-interest-rate environment while simultaneously reinforcing their foundations for long-term sustainability. However, increased capital requirements are driving up lending costs, pushing banks to explore strategies to reduce capital retention while maintaining liquidity. This shift could potentially result in stricter lending standards, making it more difficult for small businesses and first-time homebuyers to secure financing. 

Emerging Regulations and Compliance Costs 

Upcoming regulations, including open banking and Basel III Endgame, aim to strengthen the regulation, supervision and risk management of banks, alongside new debit card swipe fee rules adding further compliance burdens. The cost of regulatory adherence continues to rise, with banks investing heavily in compliance teams, training programs, and technology solutions, scaling up their hiring efforts for experts in AI and machine learning to navigate these evolving landscapes effectively.  

The Growing Threat of Cybersecurity Risks 

Cybersecurity remains a top priority as financial institutions face increasingly sophisticated cyber threats, including ransomware, phishing attacks, and large-scale data breaches. To mitigate these risks, banks are deploying AI-driven detection and response systems that offer real-time monitoring and advanced protection mechanisms. Moreover, the implementation of strict data governance policies ensures compliance with stringent data privacy laws, further strengthening security frameworks. However, as banks invest in cybersecurity defences, there is a growing debate about whether regulatory requirements should extend to third-party vendors that banks rely on, as these external entities could pose additional vulnerabilities. 

The Role of Technology in Compliance Solutions 

Technology is playing an increasingly crucial role in helping financial institutions navigate regulatory challenges. Innovations such as AI-driven compliance tools, blockchain for secure transactions, and real-time data analytics are transforming how banks approach risk management and regulatory reporting. These advancements allow banks to enhance efficiency, automate processes, and ensure adherence to evolving regulations. However, while technology can improve compliance, institutions must also invest in governance structures and employee training to ensure these solutions are effectively implemented and aligned with regulatory expectations. 

Outlook for 2025: Navigating Compliance for Sustainable Growth 

Despite regulatory and security challenges, the banking sector is expected to experience profitable growth in 2025. A potentially stronger economy and expanding profit margins provide opportunities for financial institutions willing to innovate while maintaining compliance. However, navigating the evolving regulatory environment and cybersecurity threats will be crucial for banks to sustain growth and protect customer data.