8. Global regulatory trends to watch in 2025By Joseph Barry, Global Head of Public Policy and Sven Kasper, International Head of Regulatory, Industry and Government AffairsWhen it comes to government policy impacting the global financial industry, 2025 is shaping up to be anything but business as usual. A new administration in the United States that is poised to rewrite regulations across the board, newly composed EU institutions and political uncertainties in Europe, ongoing changes in China’s economy, and global tensions at the highest level since the Cold War make up a shifting landscape for financial services.
At State Street, we’ve identified three major trends that may provide a useful framework for keeping abreast of global regulatory developments in 2025. These include:
1. Increasing regulatory divergence across jurisdictions
The incoming Trump Administration in the United States is expected to pursue a deregulatory approach, but with an anti-ESG/climate risk agenda and a preference for bilateral engagement rather than participation in multi-lateral organizations. There are a number of implications from this approach. First, we would expect to see reduced global cooperation and coordination through multi-lateral organizations such as the Basel Committee, Financial Stability Board, and International Organization of Securities Commissions. Second, there may be potential pressure from the US on the EU to eliminate the extraterritorial reach of EU rules, particularly around climate and sustainability.
ESG and climate risk regulations stand out as an area of increasing divergence. In the US, we expect a strong anti-ESG/climate/DEI focus across the government, starting with internal mandates to government agencies followed by a focus on government contractors and regulated entities. For the asset management industry, we expect heightened questions around the impact of ESG investment principles and a shift away from mandated disclosures of climate risk.
At the same time, the EU is continuing to standardize sustainability disclosures with companies in scope of the Corporate Sustainability Reporting Directive (CSRD) reporting for the first time in 2025 on 1,000 ESG indicators where material. Additionally, there are the requirements from the Sustainability Finance Disclosure Regulation (SFDR) and additional requirements for funds’ names using ESG or sustainability terminology that came into effect for new funds in November 2024 and will come into effect for existing funds in May 2025. As a result, the gap between the EU and US will widen around sustainability rules, increasing complexity and costs for global firms.
Other areas of potential regulatory policy divergence include bank capital rules. There could be a reconsideration of the Biden Administration approach to Basel 3 Endgame capital rules. Over time, a revised, capital-neutral proposal seems likely, but complete abandonment of the Basel process is also possible. Then there are regulations around cybersecurity/operational resilience of financial firms and issues of data privacy which the EU is focused on and affect firms doing business in the region.
2. Regulations that may impact capital allocation decisions
Regulations in the US and EU around different asset classes could open the way for significant shifts in asset allocation among institutional and retail investors. For example, in the US, we expect a far more accommodating SEC view on crypto and private markets products and in the EU, we see continued focus on encouraging and attracting retail investors into capital markets.
In the US, we expect a strong pro-crypto shift across government agencies, particularly the SEC, the Commodity Futures Trading Commission (CFTC) and banking agencies. And it is likely that the SEC’s current stance to prohibit bank custody of digital assets will be reversed. However, it remains to be seen whether the new administration’s overall approach amounts to a complete deregulation of crypto firms or a new regulatory regime.
In the EU, the impact of critical regulations such as Markets in Crypto-Asset Regulation (MiCAR) will be felt in 2025 as the framework to standardize key regulatory principles for crypto companies across the EU is put into practice and enforced by individual member country regulators. Other regulations that will impact crypto firms include the Transfer of Funds Regulation (TRF) and the Digital Operational Resilience Act (DORA). EU regulators are also looking into the potential of central bank digital currencies, while in the UK stablecoins are being considered by regulators. In APAC, China and Japan have been focused on stricter regulations on cryptocurrencies and that is likely to continue in 2025.
In private markets, the European Commission’s (EC) 2024 amendments to the European Long Term Investment Fund (ELTIF) rules have the potential to significantly increase both the volume and source of capital flows into European private markets in 2025.
3. Regulations around data and artificial intelligence
The EU continues to lead on regulatory efforts around data, data privacy, and technology that may have implications for the rest of the world, especially if global firms operating in the EU are in scope. In 2024, the EU published the EU Artificial Intelligence (AI) Act, the first comprehensive regulation around AI anywhere in the world. And it also has a digital action plan that includes the Digital Services Act, the Digital Markets Act, and the Data Act.
In 2025, the EU’s Data Act will come into effect on September 12, establishing rules for data access, switching cloud providers, and interoperability across the EU. It focuses on user rights and fair data sharing practices while still protecting personal information and will likely have a significant impact on how firms handle data in the EU.
The introduction of ChatGPT and the advent of generative artificial intelligence (GenAI) heightened global attention on AI regulations in 2024 with several countries, including the EU, proposing AI frameworks to promote fair competitive practices. Regulators from the US, UK and the EU issued a joint statement outlining concerns about market concentration and anti-competitive practices in GenAI: “Given the speed and dynamism of AI developments, and learning from our experience with digital markets, we are committed to using our available powers to address any such risks before they become entrenched or irreversible harms,” the regulators noted, emphasizing the need for swift action in a rapidly evolving landscape.
Although the US, UK and EU authorities are unlikely to create unified regulations in the near term (especially with a new Administration in the US), their focus could lead to closer scrutiny of AI-related mergers, partnerships, and business practices in the coming months.
Conclusion
While much of the Trump Administration’s detailed regulatory agenda is still to be determined, several key takeaways are already apparent from the shifting global regulatory landscape in 2025. First, given the EU’s focus on retail investors and the US’s likely focus on encouraging retail investment in crypto and private assets, we see 2025 shaping up as a year of new investment opportunities for retail investors. Second, given the potential divergence in regulatory postures between the EU and the US around ESG/climate, banking, and data, we see an increase in complexity and costs for global institutional investors. Third, due to the acceleration of deglobalization and regionalization, we see a focus on increasing the competitiveness of capital markets particularly in the UK and EU, but also in APAC.
