Banks and Investment Firms

Ever increasing divergence between the UK and EU frameworks will continue to be a key part of the regulatory landscape for internationally active banks and investment firms in 2026. In parallel, the drive for growth and international competitiveness will perhaps mark the high watermark of post-financial crisis regulation in various areas, including capital and reporting requirements for banks and investment firms. However, significant reforms are on the horizon and 2026 is a crucial year for example for non-EU firms affected by upcoming EU rules on cross-border deposit-taking, lending and other core banking services under the Sixth EU Capital Requirements Directive (known as “CRD6”).

The overlap between traditional financial markets and digital assets markets will only continue to grow. We have recently advised on the launch of the UK’s first tokenised authorised fund and more firms are exploring tokenisation of existing product ranges and the use of tokenised securities as collateral. Artificial intelligence and the regulatory focus on reliance on third party service providers will continue to be major themes.

We have summarised what we view as the most impactful developments below, and explained their practical impact.

Pursuit of growth and international competitiveness should continue to decrease the compliance burden, but will lead to increasing regulatory divergence between the UK and EU

A new focus on growth and international competitiveness were trumpeted by UK and EU regulators at what seems to have been every opportunity in 2025. We are starting to see that translate into practical, real world impacts, with further delays to the implementation of the final elements of bank capital rules known as Basel 3 having been announced in the UK and EU, and with further reforms likely on the horizon.

Investment banks and other users and administrators of indices will experience a tangible reduction in the compliance burden, following the streamlining of the EU’s Benchmarks Regulation with effect from 1 January 2026. The UK and EU continue to recalibrate the MiFID II pre- and post-trade transparency regime, with important implementation milestones to come in 2026.

Further work is required in relation to transaction reporting, with ongoing reviews in the UK and EU. Affected firms may be keen to take the opportunity to press for simpler and better calibrated requirements, particularly in light of the FCA’s first fines for breaches of the MiFIR transaction reporting regime in 2025.

In 2026, we may also (finally) see the launch of a European consolidated tape, with the EU most likely to authorise a provider for the bonds tape first. The launch of the UK and EU consolidated tapes will be a major milestone for European capital markets, giving domestic and international audiences an easily accessible view of the depth and liquidity of equity, fixed income and eventually derivatives markets.

Since the financial crisis, prudential regulators have (slowly) sought to better calibrate the international Basel standards for smaller banks and for investment firms. 2026 will be an important year for affected banks to prepare for the introduction of the new framework for “small domestic deposit takers” (“SDDTs”), which is due to enter into force on 1 January 2027.

The FCA’s new, slightly simplified rules for MIFIDPRU investment firms will enter into force in April 2026, removing the need for such firms to trawl through the onshored UK Capital Requirements Regulation, instead being able to consult the applicable rules in one place, in the FCA Handbook. The FCA plans to consult in H2 2026  on bespoke market risk capital requirements for specialised trading firms (in particular, electronic liquidity providers and market makers), with a view to improving liquidity.

It remains to be seen to what extent and how long it will take for these reforms to translate into real world impacts for financial markets.  

2026 will be a crucial year for firms affected by major EU market access reforms, including UK and other non-EU based internationally active groups

CRD6 and, in particular, the introduction of the so-called Article 21c requirement for certain third country undertakings providing core banking services to establish a regulated branch in the EU is set to apply from 11 January 2027. This is a major development for UK and other non-EU firms currently providing deposit-taking, lending and other core banking services to EU customers.

To the extent they have not already done so, internationally active banking and finance groups must assess how their business models will be affected by the new regime and start to finalise and operationalise their plans for compliance. EU and third country regulators increasingly expect firms to be able to explain in detail how they will be impacted by CRD6 and what active steps they are taking to prepare for it.

A number of jurisdictions are yet to deliver their proposed implementing measures. Through our international network of offices with extensive coverage in the EU, we will be continuing to track developments as national laws are finalised and it becomes clearer how the requirement and the exemptions from it will be applied in practice. For further information on the third country branch requirement under CRD6 and how your firm can prepare for it, please see our recently updated client note.

Derivatives market participants are likely to be affected by ongoing EMIR 3.0 implementation, in particular with respect to the active account requirement, which mandates certain EU counterparties to maintain at least one account at an EU central counterparty and to clear a representative number of trades through that account.

The legislative text of the EU’s Retail Investment Strategy is on the cusp of being finalised, with the potential to have a significant impact on UK-based product manufacturers with EU distribution networks. Please see our recent client note on the potential implications. Firms should therefore anticipate reviewing the detail of the new rules early next year. Practically, this is likely to then translate into a review of any potentially affected governance and distribution arrangements.

Artificial intelligence, digital assets, operational resilience and third party service providers

The Bank of England and the UK’s regulators continue to have a laser focus on the emerging risks from the increasing use of artificial intelligence, including its impact on firms’ operational resilience and reliance on third parties. The EU is continuing to embed the AI Act, though the EU level regulators seem to be taking a similar approach to the UK regulators, so far not rushing to introduce sector-specific regulation for AI and instead relying on the existing, technology neutral rulebooks. In a roundtable event at CMS in 2025, we were told by the FCA that it is now “technology positive” on AI, and 2026 will see the FCA engage with a second cohort of firms on its AI testing initiative.  

In recent years, operational resilience has been elevated to on par with financial stability and we continue to see a cultural shift towards viewing operational resilience as a strategic business imperative rather than just a regulatory compliance requirement. In 2026, the UK and EU will continue to implement their operational resilience and third party regimes, with the UK expected to designate critical third parties and the EU now engaging with the third parties it has already designated.

There will be ever increasing overlap between traditional financial markets and digital assets markets. Many traditional firms are continuing to explore tokenisation of their existing product ranges and the use of tokenised securities as collateral, and digital assets firms are rapidly expanding their offerings to include traditional investment services. At the end of 2025, the FCA published its suite of proposed rules for regulating cryptoasset activities, which will be of general interest. For an overview of the new regime, please review our client note on this topic.