Regulatory Updates Newsletter : July 2025
- Staff Correspondent
- Aug 1
- 6 min read
Welcome to the July 2025 edition of our regulatory newsletter, highlighting major developments in financial regulation, AI governance, and enforcement activity across key jurisdictions. This month brings substantial momentum — from the EBA’s updates to default and credit risk modelling rules, to landmark U.S. stablecoin legislation, ECB revised internal models guide that includes expectations for machine learning, PRAs delay on FRTB and finally a strategic AI plan from the White House.
We also cover certain key anti-financial crime updates from across the globe including South Africa, Singapore, India etc focussing on anti-money laundering and KYC.
EBA Launches Consultations on Default and Credit Conversion Modelling Under CRR
On 2 July 2025, the European Banking Authority (EBA) released two critical consultations aimed at harmonising key credit risk parameters used under the Internal Ratings-Based (IRB) approach. These updates form part of the broader IRB repair programme and are highly relevant for institutions modelling credit risk under the CRR.
Definition of Default (DoD) Guidelines
Maintains the 1% Net Present Value (NPV) threshold for restructured debt, preserving consistency and managing arbitrage risk.
Proposes to shorten the forbearance probation period — potentially to as little as 3 months — for certain loan types, aiming to reduce borrower burden while maintaining prudential safeguards.
Suggests increasing the delinquency threshold from 30 to 90 days for purchased receivables in non-recourse factoring transactions, reflecting their different credit dynamics.
Credit Conversion Factor (CCF) Estimation Guidelines
Sets out expectations for estimating and applying CCFs to off-balance sheet exposures under IRB, with alignment to the PD/LGD methodologies.
Recognises the narrower application of CCFs and permits simplified approaches where risk profiles justify it.
Seeks feedback through a comprehensive questionnaire, with consultation closing on 15 October 2025.
Implications:
Banks using IRB models will need to revalidate and potentially recalibrate internal models, particularly for products like factoring and restructured loans. The proposed CCF harmonisation is expected to reduce supervisory divergence and improve comparability. Firms should assess internal inventories and prepare comments for the EBA ahead of the October deadline.
Source:
White House Unveils “America’s AI Action Plan” to Bolster Global Leadership
On 23 July 2025, the Biden administration released the long-anticipated AI Action Plan, responding to earlier executive orders on AI competitiveness and security. The plan outlines over 90 specific policy actions structured around three core pillars:
Accelerating Innovation – Agencies will streamline R&D funding and reduce bureaucratic obstacles to AI development.
Building American AI Infrastructure – Federal support will accelerate the construction of AI-critical infrastructure such as data centers and semiconductor fabs. The government will also invest in workforce development, targeting roles like technicians, HVAC engineers, and chip designers.
International Leadership and Diplomacy – The U.S. will collaborate with allies to export “end-to-end” AI ecosystems — from software to hardware — while ensuring values-based governance.
The plan also:
● Encourages public comments on outdated or burdensome AI regulations.
● Requires vendors in public procurement to ensure their frontier models avoid ideological bias — signalling future content neutrality standards.
Implications:
This marks a clear pivot toward industrial policy and international AI diplomacy. Firms in semiconductors, infrastructure, and AI software should prepare for expanded federal support, as well as new eligibility criteria for government contracts. Regulatory simplifications may follow in sectors like healthcare, finance, and education. Export rules could also tighten, with a push for American-designed AI to be embedded into allied systems.
UK PRA Delays FRTB Internal Model Implementation to 2028, Proceeds with Basel 3.1
On 15 July 2025, the Prudential Regulation Authority (PRA) proposed a delay to the FRTB Internal Model Approach (IMA) implementation — shifting the effective date from 2027 to 1 January 2028. The deferral is intended to provide global coordination time while the UK proceeds with other Basel 3.1 market risk reforms on the original timeline (from 1 January 2027).
Key additional proposals:
Introduce operational simplifications for collective investment undertakings (CIUs), easing the burden of boundary classification between trading and banking books.
Launch an ASA permissions regime to give banks greater flexibility when applying the Advanced Standardised Approach.
Update disclosure and reporting templates to reflect the phased implementation.
Implications:
FRTB-IMA users now gain a critical year of transition but must continue preparing for full adoption. Trading firms and market risk teams should adjust project timelines accordingly, while remaining alert to implementation details on CIU treatment and simplified standardised options. PRA seeks feedback on CP17/25 by 5 September 2025.
Source: CP17/25 – Basel 3.1: Adjustments to the market risk framework | Bank of England
ECB Publishes Revised Guide to Internal Models, Adds Machine Learning Standards
On 28 July 2025, the ECB published a significantly revised Guide to Internal Models, reflecting Basel 3.1 (CRR3) and integrating supervisory insights gathered over recent years. One of the most notable changes is a dedicated section on machine learning (ML), clarifying when and how ML-based models can be used in credit, market, and counterparty risk.
Key updates include:
Clearer expectations for explainability and proportionality in ML models.
Revised guidance on Probability of Default (PD) and Loss Given Default (LGD) estimation in line with CRR3.
A split of market risk sections between CRR2 and CRR3 regimes, reflecting the EU’s phased implementation of FRTB.
Strengthened requirements for counterparty credit risk, particularly in relation to margining and exposure profiles.
Implications:
Firms using ML in regulatory models will face increased scrutiny. The ECB’s emphasis on explainability and performance justification may require model redevelopment or enhancements to documentation. The revised Guide will likely form the basis of upcoming model validations and inspections — institutions should proactively align governance and model inventory frameworks with the new standards.
Source: ECB Revised Internal Model Guide
President Signs GENIUS Act — U.S. Establishes First Federal Stablecoin Law
On 18 July 2025, the U.S. enacted the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins), its first comprehensive regulatory framework for fiat-backed stablecoins.
Key provisions:
All stablecoins must be backed 1:1 by liquid U.S. dollar reserves (e.g., cash, Treasuries), with monthly reserve disclosures.
Misleading marketing is prohibited — stablecoins must not imply federal guarantees unless explicitly provided.
Stablecoin issuers are brought under the Bank Secrecy Act, ensuring AML/CFT compliance.
Both banks and non-bank financial institutions may issue stablecoins, subject to regulatory approval.
This Act was passed alongside the Clarity Act (governing other crypto-assets) and the Anti-CBDC Act, prohibiting the launch of a retail digital dollar by the Federal Reserve.
Implications:The GENIUS Act signals mainstream integration of stablecoins into the U.S. financial system. Banks and fintechs now have a clear pathway to issue compliant dollar-backed digital tokens. Legal and compliance teams must prepare frameworks for reserve management, disclosures, and AML obligations. The law is likely to shift stablecoin issuance onshore — with broader implications for USD dominance in digital finance.
Summary Table: Other Notable Updates
Jurisdiction | Regulator | Update | Summary & Source |
UK | FCA | Launch of AI Lab | Firms can now test AI in live markets. The FCA is also expanding its sandbox with NVIDIA tools for early-stage AI development. |
UAE | CBUAE | AML fine on foreign bank | A foreign branch was fined AED 5.9 million under Article 14 of AML Decree-Law No. 20 of 2018 for KYC failures and compliance breaches. https://www.centralbank.ae/en/news-and-publications/news-and-insights/ |
EU | EBA | AML/CTF Opinion | EBA warned of rising fintech and crypto-related ML/TF risks and urged stronger supervision and updates to risk-based frameworks. |
Singapore | MAS | S$27.45M in AML penalties | Nine firms, including Citibank and UBS branches, were penalised for lapses tied to a 2023 laundering scandal. MAS cited poor risk scoring and due diligence execution. |
South Africa | SARB | G20 participation | SARB contributed to G20 discussions on digital currencies and AML thresholds, suggesting possible follow-up guidance. |
EU | EBA, EIOPA, ESMA | DORA oversight guide | The European Supervisory Authorities (EBA, EIOPA, ESMA – the ESAs) published a guide on oversight activities under the Digital Operational Resilience Act (DORA). The aim of this guide is to provide an overview of the processes used by the ESAs to oversee critical Information and communication technology (ICT) third party service providers (CTPPs). https://www.esma.europa.eu/press-news/esma-news/esas-publish-guide-dora-oversight-activities |
India | RBI | Co-op bank penalties | Two regional banks fined for failing cybersecurity and KYC controls. The RBI flagged delayed IMPS reversals and non-compliance with CKYCR. |
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
Comments