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KPMG UK has released the second edition of its Regulatory Barometer, providing a biannual measure of the regulatory pressure UK and EU financial services firms face. The Barometer Impact Score stands at 7 (out of 10), up marginally from 6.9 in October 2022, showing no let-up in the regulatory intensity facing UK and EU financial services firms.

For the second time, KPMG found that ESG and Sustainable Finance regulations are putting the most pressure on firms. The industry can expect this level of focus to continue through 2023 and beyond as disclosure requirements are implemented, supervisors increase their expectations around climate risk and initiatives around ESG data and ratings, product labels and carbon markets ramp up.

Rob Smith, Head of KPMG Risk and Regulatory Advisory said: “Regulators have faced a challenging six months. The need to respond to market volatility and the cost-of-living crisis could easily have distracted from progressing longer term priorities, however the drive towards a more responsible and sustainable sector continues with a relentless focus on ESG and Sustainable Finance. We expect the pressure on firms to persist as supervisors and customers increase their expectations.”

The Barometer also maps regulatory divergence between the UK and the EU where the greatest differences can be seen in Governance Expectations, Customer Protection and Access to Markets. The Edinburgh Reforms reopen 43 rulebooks creating significant potential for further divergence.

Kate Dawson, a Director in KPMG’s Regulatory Insight Centre added: “As the UK forges ahead with new approaches post-Brexit, and regulators consider their new competitiveness objectives, firms will likely need to adapt to an increasingly different set of requirements in the UK versus Europe. The volume of emerging requirements for ESG and Sustainable Finance may lead to further differences despite global standard-setters’ best efforts to be aligned.”

Operational resilience regulation

The Barometer Impact Score for 'Strengthening operational resilience' rose from 7.1 in October 2022 to 7.3 in the latest Regulatory Barometer. KPMG explains that "The score for operational resilience has ticked up slightly, due in large part to the shift to implementation for DORA – firms now have a clear deadline, although technical standards are still to be issued. Focus on critical third parties also contributes to the increase."

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