Regulatory Updates Newsletter : October 2025
- Staff Correspondent
- Nov 2
- 8 min read
Welcome to the October 2025 edition of our regulatory newsletter, featuring landmark reforms in financial supervision and prudential policy worldwide. This month’s highlights: the Federal Reserve’s push for transparency in bank stress tests, India’s adoption of the global IFRS 9 credit loss model, new monetary signals from the Fed, major EU and UK rule consultations, pivotal Basel Committee and Singapore MAS amendments, and advances in fintech governance. Regulatory authorities responded to calls for greater clarity and predictability- setting the tone for more accountable, risk-aware financial markets.
Dive in for official updates and actionable insights from leading jurisdictions.
Federal Reserve Proposes Major Transparency Enhancements to Bank Stress Testing
On October 24, 2025, the Federal Reserve Board requested public comment on proposals to enhance the transparency of its annual bank stress tests significantly.
The three-part consultation addresses- 1. stress test models; 2. the framework guiding scenario design; and 3. hypothetical scenarios for 2026. This represents a fundamental shift in how industry concerns about opacity and unpredictability in capital requirements are addressed.
Under the proposed changes, the Fed would publish in advance both the models it will use and the specific economic conditions it will assess, with public comment periods before finalization. Vice Chair Michelle W. Bowman emphasized that "regulated firms should be subject to clearly articulated and transparent rules. Capital requirements should not be set in a way that is shielded from meaningful public scrutiny". The Fed released a 42-page draft outlining 2026 scenarios, including a severe global recession with unemployment exceeding 10 percent and home values declining nearly 30 percent.
Comments on model and scenario transparency are due by January 22, 2026, while comments on 2026 scenarios are due by December 1, 2025. The Board anticipates these changes will not significantly impact overall capital requirements across different stress scenarios.
Implications
Banks should prepare for a more predictable stress-testing environment with a better ability to anticipate capital requirements. The advance publication of models and scenarios will enable strategic planning and validation of internal stress testing against supervisory approaches. Institutions should actively participate in the comment process to shape the final framework, particularly regarding model specifications and scenario design. While transparency improves, supervisory expectations for robust stress testing remain unchanged, requiring continued investment in risk management capabilities.
RBI Proposes IFRS 9/ECL Credit Loss Framework
The Reserve Bank of India issued draft directions on October 7, 2025, proposing a fundamental shift from incurred-loss provisioning to an Expected Credit Loss (ECL) framework, aligning with the international IFRS 9 standards. The framework requires banks to provide for expected losses upfront rather than waiting for loans to turn non-performing, making financial statements more forward-looking.
The ECL framework introduces three-stage classification: Stage 1 (low credit risk with 12-month ECL), Stage 2 (significant increase in credit risk requiring lifetime ECL), and Stage 3 (credit-impaired requiring lifetime ECL). Existing NPA classification norms will be retained alongside the new ECL staging. Banks will calculate ECL using Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD) as key parameters. The framework also mandates income recognition under the Effective Interest Rate (EIR) method and establishes principles for model risk management.
Implementation begins on April 1, 2027, with a five-year glide path ending on March 31, 2031. RBI has specified suitably calibrated prudential floors for broad exposure classes across all three stages. While the shift may result in additional one-time provisioning, the overall impact on minimum regulatory capital is expected to be minimal. Public comments are invited through November 30, 2025.
Implications
Indian banks must begin immediate multi-year planning for ECL compliance, requiring significant upgrades to data infrastructure and credit risk modeling capabilities.
Finance and risk teams should coordinate on implementing the EIR-based income recognition methodology.
Banks should establish or strengthen model governance frameworks, including validation and monitoring processes.
Smaller banks may face disproportionate implementation costs and should consider leveraging industry utilities or vendor solutions.
Alignment with global IFRS 9 standards enhances comparability with international banks and may improve India's attractiveness to foreign investors.
Fed Governor Waller Explores “Payment Account” for Fintechs
Federal Reserve Governor Christopher J. Waller delivered remarks on October 16, 2025, outlining his views on monetary policy amid conflicting economic data. Waller supported continued easing from current restrictive levels, recommending a 25-basis-point rate reduction at the October 29 FOMC meeting. However, he highlighted a fundamental conflict between solid GDP growth and a softening labor market, noting, "something's gotta give- either economic growth softens to match a soft labor market, or the labor market rebounds to match stronger economic growth."
Waller emphasized that with underlying inflation close to the 2 percent target and inflation expectations well anchored, his primary focus is the labor market, where payroll gains have weakened significantly in 2025. He outlined two potential policy paths: if GDP growth continues and the labor market recovers, policy may be less restrictive than anticipated, requiring slower movement toward neutral rates; conversely, if labor weakness persists with inflation in check, the FOMC should proceed toward neutral, which Waller judges to be about 100 to 125 basis points lower than current levels.
Implications:
Financial institutions should prepare for continued monetary easing, but with heightened uncertainty regarding the pace. Banks need to reassess interest rate risk positions and net interest margin forecasts under multiple scenarios. Asset-liability management teams should stress test balance sheets against both gradual easing (if growth holds) and more aggressive cuts (if the labor market deteriorates).
The 100-125 basis point estimate to neutral provides a valuable benchmark for medium-term planning, though the actual path depends on how economic data conflicts resolve in the coming months.
EBA Consults on Revised SREP and Stress-Testing Guidelines
The European Banking Authority launched a public consultation in October 2025 on revised Guidelines for the Supervisory Review and Evaluation Process (SREP) and supervisory stress testing. The revision aims to simplify and enhance the efficiency of the EU supervisory framework while supporting risk-focused supervision. The draft brings changes across all main SREP elements and further clarifies the ongoing nature of SREP.
Key improvements include enhanced proportionality (reflecting peer review recommendations), incorporation of new CRD VI mandates on output floor and third-country branches, alignment with interest rate risk in banking book (IRRBB) and credit spread risk (CSRBB) packages, and integration of ESG factors and operational resilience considerations. The Guidelines also emphasize supervisory effectiveness by providing clearer links between supervisory measures and assessment areas, streamlining liquidity assessments, and enhancing focus on ICT risk assessment by incorporating the Digital Operational Resilience Act (DORA) framework.
The consultation deadline is January 26, 2026, with a virtual public hearing scheduled for December 4, 2025. Once in force, the current SREP Guidelines and Guidelines on ICT risk assessment under SREP will be repealed.
Implications
EU banks should prepare for a more streamlined yet comprehensive supervisory assessment. Enhanced proportionality means smaller institutions may benefit from reduced burden, while larger banks should expect more focused assessment of material risks. Institutions need to strengthen governance around interest rate risk and credit spread risk in the banking book.
The incorporation of ESG factors signals that climate and sustainability risks will be integrated into capital assessments—banks should ensure ESG risk frameworks are embedded organization-wide. The emphasis on operational resilience and ICT risk, aligned with DORA, requires comprehensive cyber and technology risk management. Firms should engage in the consultation, particularly regarding the escalation framework and SREP outcome communications.
UK Publishes Near-Final “Strong and Simple” Capital Regime for Small Banks
The Bank of England's Prudential Regulation Authority published a near-final Policy Statement PS20/25 on October 28, 2025, detailing the simplified capital regime for Small Domestic Deposit Takers (SDDTs) under the "Strong and Simple" Framework. This represents a groundbreaking initiative to deliver proportionate and simplified prudential requirements for small, domestically focused deposit takers. As of October 13, 2025, 56 firms have opted into the SDDT regime out of approximately 80 eligible firms.
The framework significantly simplifies capital requirements- Pillar 1 based on Basel 3.1 standardized approaches with targeted simplifications; streamlined Pillar 2A methodologies for credit, operational, and concentration risks; a new Single Capital Buffer (SCB) of at least 3.5% replacing multiple buffers; reduced ICAAP and ILAAP update frequency from annually to every two years; and simplified reporting.
Key refinements from consultation include removing operational risk bucketing in favor of scenario analysis, amending Pillar 2A credit concentration risk calculations, and providing additional guidance on stress testing. Implementation is January 1, 2027, coinciding with Basel 3.1. Final rules will be published in Q1 2026.
Implications
Eligible firms should assess whether opting into SDDT advances their strategic objectives —substantial cost savings from reduced compliance burden versus potentially higher Pillar 1 capital charges.
The March 31, 2026, deadline for consenting to SDDT status means firms need to make decisions soon.
Those opting in should update capital planning frameworks to reflect SCB structure and recalibrate stress testing.
The regime creates strategic optionality- smaller banks can grow within the simplified framework (up to £25 billion) while maintaining lower compliance costs.
Basel Committee Approves G-SIB Assessment and Enhances Grading System
The Basel Committee on Banking Supervision met virtually on October 2, 2025, approving the results of the end-2024 assessment exercise for global systemically important banks (G-SIBs), which will be submitted to the Financial Stability Board before it publishes the 2025 G-SIB list. The Committee also improved the clarity of its Regulatory Consistency Assessment Programme (RCAP) grading system by changing the third grade from "materially non-compliant" to "partially non-compliant".
Additionally, the Committee approved a finalized technical amendment on hedging of counterparty credit risk exposures and discussed a joint report with IOSCO on margin requirements for non-centrally cleared derivatives, finding the framework has made the financial system more resilient.
Implications:
G-SIBs should prepare for potential designation changes when the FSB publishes the 2025 list- changes can significantly impact capital requirements through G-SIB surcharges. Banks near thresholds should consider strategic actions to manage systemic importance scores. National regulators should ensure domestic rules fully align with Basel standards to avoid downgrades. The technical amendment on counterparty credit risk hedging will require banks to review their hedging arrangements once it is published.
Singapore MAS Revises Capital Requirements and Defers Cryptoasset Standards
On October 9, 2025, the Monetary Authority of Singapore issued MAS Notice 637 (Amendment) 2025, revising capital adequacy requirements for Singapore-incorporated banks. The amendments disqualify AT1 or Tier 2 capital instruments issued to retail investors from regulatory capital treatment, aiming to protect retail investors from complex instruments. The revisions also incorporate the Basel Committee's revised methodology for calculating interest rate shocks in IRRBB and enhance clarity on capital buffer computations.
Notably, MAS deferred implementation of the Basel Committee's standards on prudential treatment and disclosures of cryptoasset exposures, allowing Singapore banks more time to prepare systems and processes.
Implications:
Singapore banks must review existing AT1 and Tier 2 capital instruments to ensure compliance with revised investor eligibility requirements. Banks that issued such instruments to retail investors will need alternative capital sources, potentially increasing the cost of capital. The updated IRRBB methodology requires recalibration of interest rate risk measurement systems. The cryptoasset standards deferral provides breathing room, but banks should use this time to develop robust frameworks for classifying, measuring, and managing cryptoasset risks.
Summary of other Notable 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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