Regulatory Updates Newsletter : April 2025
- Staff Correspondent
- Apr 30
- 8 min read
Updated: May 15
Welcome to the April edition of our regulatory newsletter, where we bring you the latest developments in AI risk, financial risk regulations, compliance, and financial crime across key jurisdictions. This month, we cover regulatory updates from the United States, United Kingdom, European Union, UAE, India, Nigeria, and Australia.
From benchmark reports on bank capital to new consultation papers and enforcement actions, we break down what’s happening and what it means for risk and compliance professionals.
Whether you’re focused on market risk models, alternative investments, stress testing, anti-money laundering, or the impact of new technologies, we’ve got you covered.
Let’s dive in!
EBA Report on FRTB Benchmarking and Credit Risk Variability (EU)
The European Banking Authority (EBA) published its 2024 benchmarking reports covering internal models used by banks for market and credit risk, including both the Fundamental Review of the Trading Book (FRTB) and standard credit risk models. The exercise covered 117 banks from 16 countries and provides supervisors with insights into the variability of risk-weighted assets (RWAs) across institutions.
The FRTB Standardised Approach (SA) results, collected for the second time, show improved consistency in capital requirements across firms using SA, a sign that banks are progressing in their FRTB readiness.
The FRTB Internal Models Approach (IMA) results show persistent dispersion in RWAs across institutions, particularly in equity and credit spread risk classes. This suggests differences in modelling assumptions and risk factor eligibility, even though some convergence has been observed since the last exercise.
On the credit risk side, the benchmarking revealed considerable variability in RWAs across banks using IRB models. Variations were especially high in exposures to institutions and corporates, driven by differing modelling practices, use of conservative overrides, and parameter assumptions (e.g. PD and LGD estimates).
Implications:
This broad benchmarking effort reveals key supervisory concerns heading into final implementation phases of Basel III.
For FRTB SA banks: Continued alignment and documentation of their capital calculations is critical, as EU supervisors are increasingly scrutinizing even standardized submissions.
For FRTB IMA banks: The persistent dispersion in outputs points to future challenges in gaining or maintaining internal model approval. Firms using IMA must be ready to justify model performance and risk factor selection, particularly in risk classes with wide variability.
For IRB credit risk banks: Supervisors will likely follow up with targeted reviews of models showing outlier results. Risk and compliance teams must be prepared for increased model validation requirements, backtesting, and consistency checks as part of upcoming SREP cycles.
Overall, the EBA’s benchmarking exercise helps supervisors spot potential undercapitalization or aggressive modelling assumptions, and ensures that banks’ internal models are producing reliable and comparable capital figures across jurisdictions.
UK FCA Launches New AI and Digital Testing Service (UK)
The UK FCA announced the launch of its AI and Digital Hub Testing Service, a new tool designed to help regulated firms safely develop, test, and deploy artificial intelligence and other digital innovations. The service provides a controlled environment where firms can collaborate with the FCA to test innovations against regulatory expectations, with a particular focus on fairness, transparency, and accountability in automated decision-making. The initiative builds on the FCA’s previous Digital Sandbox program and complements broader government efforts to establish a pro-innovation AI regulatory framework.
In her April 29 speech at the IGFS conference, FCA Executive Director Jennifer Marshall emphasized that "a robust AI ecosystem will be built not only on investment and innovation, but also on trust and regulatory clarity." She explained how the testing service will support firms through early engagement with the regulator and practical tools to identify unintended harms in AI deployment – such as discrimination or data misuse – before solutions reach the market.
Implications:
The launch of the FCA's AI Testing Service signals the regulator's proactive approach to enabling responsible AI in financial services.
Compliance and technology teams at financial institutions now have an avenue to test emerging AI models against regulatory principles, reducing the risk of non-compliance or adverse outcomes post-deployment.
The initiative also positions the UK as a leading jurisdiction for AI governance by combining innovation support with supervisory oversight.
Firms exploring AI use in areas such as credit scoring, fraud detection, or customer onboarding should consider leveraging this service to validate model fairness and accountability. As UK AI-specific legislation develops further, early participation could prove a strategic compliance advantage.
UK FCA & HM Treasury Overhaul AIFM Regulations (UK)
The UK government and the Financial Conduct Authority have launched a joint review of the Alternative Investment Fund Managers (AIFM) regime. HM Treasury is consulting on a legislative overhaul to repeal and replace EU-derived AIFMD requirements, aiming to simplify the framework and align it more closely with UK market needs. Simultaneously, the FCA is seeking input on how it should design a more streamlined and proportionate rulebook that supports investor protection and innovation.
Key proposals include:
Tailoring regulatory obligations to the size and type of the fund manager.
Creating bespoke regimes for closed-ended listed funds and venture capital firms.
Shifting prescriptive rules from primary legislation into the FCA Handbook for easier updates.
The consultation period runs through June 9, 2025, and further FCA proposals are expected in 2026.
Implications:
Alternative fund managers operating in the UK should prepare for a major shift in their regulatory obligations. While the new regime may reduce compliance costs and offer more flexibility, firms will need to transition carefully as legacy EU rules are phased out.
Risk and compliance teams should assess how proposed changes may impact disclosures, reporting, liquidity management, and other core requirements.
This is an opportunity for industry stakeholders to help shape a UK-specific framework that could improve the country’s global competitiveness in asset management—without compromising core investor protections.
U.S. Federal Reserve Seeks to Smooth Stress Test Capital Volatility (US)
The Federal Reserve Board announced a proposal to reduce year-to-year volatility in large bank capital requirements stemming from annual stress tests. Under the proposal, the Fed would average a bank’s stress test results over two years when setting its stress capital buffer (SCB), instead of relying on a single annual result.
Additionally, the effective date for updated capital requirements would be pushed back from October 1 to January 1, giving banks a few extra months to meet any higher buffers. The Fed also plans to streamline certain data collections. These changes, part of a broader stress testing overhaul, are not intended to materially lower overall capital levels but to improve stability and transparency in the process. Public comments are due 60 days from Federal Register publication.
Implications:
Risk officers at large US banks can expect a smoother ride in capital planning if these changes are finalized. The averaging of stress test outcomes would dampen the impact of any one unusually severe scenario year, preventing whipsaw swings in capital demands. This allows banks to manage capital distributions (like dividends and buybacks) with more certainty.
However, it also means banks will need to perform well consistently on stress tests – a bad year will still linger in the average. The delayed effective date to January 1 aligns the stress capital buffer with banks’ fiscal years, making compliance a bit more convenient.
Overall, regulators are trying to strike a balance: increase the predictability of capital requirements without weakening resilience. Risk and compliance teams should continue to prioritize strong stress test performance and begin planning for additional model disclosures the Fed has signaled are coming later in the year.
United Arab Emirates: AML Overhaul and Crypto Regulation Intensify
The UAE has significantly reinforced its anti-money laundering (AML) framework following its removal from the FATF Grey List in February 2024.
Key developments include:
Federal Decree-Law No. 7 (August 2024): Established the Supreme Committee for AML/CFT to enhance national coordination and policy oversight.
2024-2027 National AML/CFT Strategy: Prioritizes cybercrime, digital payments, and trade-based money laundering.
Expanded Oversight: The SCA and the Virtual Asset Regulatory Authority have formalized cooperation to standardize AML regulations for virtual asset service providers (VASPs), requiring:
Rigorous KYC, wallet verification, blockchain forensics, and cross-border monitoring
Stricter UBO disclosure rules to prevent misuse of shell companies
Sector-Specific Regulation: The CBUAE has introduced enhanced AML controls for payment processors and digital banks, with updated guidelines in January 2025 encouraging AI-driven transaction monitoring for high-risk fintechs.
Free Zone Alignment: DIFC and ADGM maintain independent AML regimes but align with federal standards, with the DFSA and FSRA imposing ongoing monitoring and enhanced due diligence, especially for crypto-related activities.
Implications:
UAE-based financial institutions, fintechs, and DNFBPs face heightened AML scrutiny, especially those in crypto, real estate, and trade finance. Non-compliance risks severe penalties, including heavy fines and imprisonment. Firms must strengthen risk-based due diligence, implement advanced monitoring (including AI solutions), and ensure robust governance and timely suspicious transaction reporting.
Summary Table of Additional Updates
Stay informed with our regulatory updates and join us next month for the latest developments in risk management and compliance!
For any feedback or requests for coverage in future issues (e.g. additional countries or topics), please contact us at info@riskinfo.ai. We hope you found this newsletter insightful.
Best regards,
The RiskInfo.ai Team
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