UK-EU regulatory divergence in 2025
Asset managers operating across UK and EU markets know that 2025 will be an interesting year for regulatory compliance. While both regions pursue similar goals around transparency and sustainability, they're taking distinctly different paths... and creating unprecedented challenges for cross-border operations.
"Through it all, we do expect complexity to increase as we see ongoing regulatory divergence between the UK and EU markets, which will continue to create unique challenges for cross-border operations"
This divergence is particularly evident in sustainable finance regulations. While the EU continues to evolve SFDR, with major changes expected in 2025, the UK is forging ahead with its own Sustainability Disclosure Requirements (SDR) regime. The UK's approach to sustainable investment labelling has taken a more focused direction, though early implementation challenges remain.
The differences extend beyond sustainability. The UK's Consumer Composite Investments (CCI) regime represents a clear break from EU-inherited regulations, while the EU progresses with its own Retail Investment Strategy (RIS). This creates mounting complexity, particularly in consumer-facing disclosures and reporting consistency.
Real-world implications of this divergence include differing implementation timelines, plus:
- Dual reporting requirements for cross-border funds
- Varying standards for data collection and validation
- Distinct approaches to retail investor protection
"Working from spreadsheets and without ongoing investment into regulatory compliance is not just inefficient, it is risky. The forward-thinking firms are recognising that this environment demands a fundamental transformation in how they handle regulatory operations."
The cost implications are also significant. Firms managing multiple reporting frameworks through disconnected systems and manual processes face increased operational costs, higher risk of errors and the potential for compliance breaches.
And the divergence is likely to increase. The UK's SDR regime may extend to portfolio management in Q2 2025, while the EU's SFDR faces potential major revisions. Asset managers need to prepare for this growing complexity while maintaining operational efficiency. Being prepared means building integrated systems that can handle multiple – and sometimes conflicting – requirements through a single, verified data source.
Flexible, scalable systems that can handle evolving requirements across both jurisdictions will be crucial. This means investing in robust data infrastructure that can maintain consistency while adapting to different regulatory frameworks as they continue to evolve.
