In 2025, asset managers operating across the United Kingdom and European Union must prepare for increasing complexity, higher costs and dual compliance requirements as regulatory frameworks in the two regions continue to diverge, according to Luxembourg-based financial data company FE Fundinfo. In a report on Wednesday 15 January 2025, FE fundinfo acknowledged that while both jurisdictions share goals of promoting transparency and sustainability, their “distinctly different paths” are creating unprecedented challenges for cross-border operations. Liam Healy, CEO of FE Fundinfo, emphasised that this regulatory divergence would result in unique compliance challenges for firms navigating both markets.

Sustainable finance

FE Fundinfo noted that sustainable finance regulations highlight the growing gap between UK and EU policies. The EU’s sustainable finance disclosure regulation (SFDR) is set to undergo major changes in 2025, while the UK continues to develop its sustainability disclosure requirements (SDR) regime. Although the UK has adopted a more focused approach to sustainable investment labelling, early implementation has encountered challenges, underscoring the complexity of aligning sustainability standards across jurisdictions.

Regulatory divergence is not limited to sustainability. The UK’s consumer composite investments (CCI) regime represents a clear departure from EU-inherited regulations. Meanwhile, the EU is advancing its retail investment strategy (RIS), further increasing complexity for asset managers. Differences in these frameworks are particularly evident in consumer-facing disclosures and reporting standards, creating additional operational burdens for firms operating in both regions.

Operation and compliance

The real-world implications of these regulatory differences include varying implementation timelines, dual reporting requirements for cross-border funds and distinct standards for data collection and validation. Asset managers must also contend with differing approaches to retail investor protection.

Joerg Grossmann, chief product officer at FE Fundinfo, highlighted the inefficiency and risks associated with manual compliance processes, stressing the need for firms to invest in more integrated regulatory systems.

Cost implications

Managing compliance across diverging frameworks also has significant cost implications. Firms relying on disconnected systems and manual processes face increased operational expenses, greater risk of errors and potential compliance breaches. Grossmann emphasised the importance of investing in modern systems that can handle these complexities efficiently, ensuring firms remain compliant while controlling costs.

The regulatory landscape is expected to become even more fragmented, according to the firm’s analysis. By the second quarter of 2025, the UK’s SDR regime may expand to include portfolio management, while the EU’s SFDR framework is anticipated to undergo significant revisions. These changes will add further complexity to compliance requirements.

To effectively address these challenges, asset managers must focus on developing scalable and adaptable systems that can respond to evolving regulations across jurisdictions. According to FE Fundinfo, “Investing in robust data infrastructure that can maintain consistency while adapting to different regulatory frameworks will be crucial.”