EU’s State of the Union 2025 – key implications for financial markets
Written by
RegCORE Client Alert | Banking Union, Capital Markets Union, Insurance Union, EU Digital Single Market
QuickTake
Every year the President of the European Commission presents an annual State of the Union (SOTEU) report followed by a speechAvailable here.Show Footnote to the European Parliament. The SOTEU sets out the European Commission’s priorities for the year ahead including new and recalibrated initiatives as well as taking stock of performance over the past year. The address is followed by a debate with members of the European Parliament.
On 5 September the European Commission released its 69-page report entitled “From promise to progress” reflecting on its first year in office under its current mandate.Available here.Show Footnote On 10 September 2025, the President of the European Commission, Ursula von der Leyen delivered her SOTEU speech and a Letter of Intent,Available here.Show Footnote setting out the actions the European Commission intends to take by means of legislation and other initiatives. The announcements in the speech and in the SOTEU 2025 report along with the Letter of Intent, build off the European Commission’s priorities for the 2024-2029 legislative term that began December 2024, as set out in its overarching ‘Political Guidelines’, that were published July 2024.Details of which are available here.Show Footnote
Much has changed since the SOTEU in 2024. Against a backdrop of even more heightened geopolitical tensions, economic competition and EU-internal challenges, the EU has focused on strengthening competitiveness, fostering innovation, advancing decarbonisation, enhancing security and defence and supporting Ukraine. This has required extensive negotiation between Brussels and Member States’ capitals across a breadth of dossiers. Such negotiations have at times been difficult at best.
Less than ten months into her second term in office, President von der Leyen is facing intense pressure from the democratically elected European Parliament, the broader EU set-up along with unfolding world events that feel like a polycrisis 2.0 that is pervasive down to increased pressures faced by households. Political groupings that have supported centre-right Commission presidents for decades are increasingly beginning to doubt those long-standing allegiances. Growing right-wing pressures are becoming more assertive in demanding action on everything from tougher migration controls to further paring back of ESG commitments beyond what has already been “recalibrated”.
The financial services policy agenda is not fully immune to these developments. The deepening of the Single Market remains more crucial to strengthening Europe’s global competitiveness and economic growth prospects more so than ever before. However, drastic action is needed at the EU level and more so amongst national capitals, in particular to deliver upon the detailed calls for action raised in the Draghi and Letta ReportsSee coverage here.Show Footnote much of which, despite inclusion in the EU’s Competitiveness CompassSee our coverage in the following Client Alert here.Show Footnote (see below) have still been delayed to date.
While the EU’s reform agenda and its ability to act may be facing a more complex and, from certain corners, a more hostile (political) ecosystem, there should be solace in the fact that EU institutions, especially financial services policymakers have a good track-record in “never letting a good crisis go to waste”. This is also evidenced in analysis expressed in ESMA’s second stocktake for 2025 in its “Trends, Risks and Vulnerabilities Report”Available here.Show Footnote which reviews how EU financial markets are faring and which concludes that things could indeed be much worse but may of course become so where EU and national capitals as well as market participants fail to take timely action.
This Client Alert assesses the key implications for financial markets that follow from the announcements set out in the SOTEU 2025 as supplemented by President von der Leyen’s speech. This Client Alert should be read in conjunction with existing and forthcoming thought leadership from our EU RegCORE on the legislative, regulatory and supervisory developments stemming from the SOTEU 2025.
SOTEU 2025’s key implications for financial markets and participants
The SOTEU 2025 charts the EU’s strategic priorities and policy directions over the year ahead for the EU as a whole and across key dossiers. The SOTEU highlights that since the start of the Commission’s mandate on 1 December 2024, it has worked for a strong and competitive Europe in line with the Political Guidelines yet much more is needed over the years ahead.
In terms of the Single Market, including for financial services, the EU continues to place a strong emphasis on enhancing competitiveness, fostering innovation and deepening the operations of the Single Market. This also includes relying on and introducing new concepts via “28th Regimes” to sit at the EU level and thus above and alongside but as a voluntary alternative to national Member States’ regimes. The 28th Regime and forthcoming “European Innovation Act” in respect of company law refers to the voluntary, single, and harmonised legal framework for innovative companies seeking to operate across the Single Market, designed to reduce administrative burdens by providing a unified set of rules alongside national laws (including even where EU laws are enacted). Currently in a public consultation phase ending 30 September 2025, the initiative aims to facilitate cross-border scaling for companies and is based on the findings and recommendations of the Draghi Report, with legislative proposals anticipated in early 2026. Companies have the choice to opt into the 28th regime or continue to use national laws. The 28th regime is designed to work alongside existing national regulations (including EU laws), not to replace them entirely. Success on the 28th Regime for company law may open the door for further use of such regimes to drive harmonisation where at least so the hope, even with the increased use of EU Regulations over EU Directives, these voluntary alternative regimes could deliver results perhaps faster.
More fundamentally, the EU has announced that it will reinforce preventive mechanisms at EU level and introduce a “Sherpa” to promote application of Single Market rules in every Member State. It will also organise meetings of the comparably new Single Market Enforcement Task Force (SMET). In terms of impact – from regulated financial services firms and their counterparties and clients of all types and sizes participating in financial markets – the SOTEU is highly significant in specifically signalling the direction of future legislative and supervisory initiatives including those, as covered in a separate Client Alert, are to be deprioritised as they are either irreparably in pollical deadlock or no longer deemed as relevant.
The European Commission concurrently plans to prioritise the reduction of regulatory burdens, simplification of rules and the removal of barriers that hinder cross-border business. The so-called "Competitiveness Compass" identifies simplification, further Single Market integration, skills and financing as key enablers for growth. Initiatives such as the VAT in the Digital Age and the new Single Market Strategy and Roadmap to 2028 are designed to streamline cross-border operations and reporting, making it easier for (all and not just financial services) firms to operate across the EU. Enhanced cross-border recognition of professional qualifications and streamlined product rules are likely to facilitate expansion and the passporting of services across the EU.
For regulated market participants, the above means a move towards a more harmonised regulatory environment, with fewer national divergences and a greater push towards digitalisation of compliance processes both across the financial services sector but perhaps more fundamentally to all corners of the real economy.
While the EU’s policymakers’ increased (and very welcome) focus on simplification may reduce compliance costs, particularly for SMEs and mid-caps, it will also require all but in particular non-financial corporates to adapt to new digital reporting and data-sharing requirements. This specifically applies due to the transition to e-invoicing and, for certain real economy market participants, the pending introduction of digital product passports.See a visual representation here.Show Footnote These new requirements may over the longer term translate into realisable opportunities for financial services firms support to supply chain financing but may also require some time for the real economy to adjust to the new operational realities of such requirements.
In terms of financing growth, with the rebirth of the Capital Markets Union (CMU) as a Savings and Investment Union (SIU), the EU is seeking to unlock the vast pool of savings held in bank deposits and to reduce fragmentation in the EU’s capital markets.See our coverage in the following Client Alert here.Show Footnote The SIU strategy aims to connect savers with businesses and deepen capital markets, while the NextGenerationEU and Recovery and Resilience Facility (RRF) continue to provide significant funding for investment and innovation. For regulated firms, this points to further legislative initiatives (beyond those already scheduled) to deepen the CMU/SIU, including harmonisation of insolvency laws, securities settlement and cross-border investment frameworks. Firms should be mindful of forthcoming targeted changes to prospectus, listing and disclosure regimes, as well as new rules facilitating retail investor participation that are in the SIU’s initial timetable through to 2027. Moreover, the drive to mobilise private capital for green and digital transitions will create new product opportunities, such as green bonds and digital assets, but will also bring additional ESG-related disclosure and due diligence obligations.
Digital finance, artificial intelligence and innovation equally remain very much at the heart of the EU’s agenda. The EU is investing heavily in AI, quantum computing and digital infrastructure, with initiatives such as InvestAI and the AI Act. The EU’s Start-up and Scale-up Strategy, along with the development of digital innovation hubs, is designed to foster a vibrant fintech ecosystem. For regulated firms, the AI Act and related digital finance regulations (such as DORA and MiCAR)See extensive coverage on these developments from our EU RegCORE.Show Footnote will require a thorough review of the use of AI, data and digital tools to ensure compliance with new standards on transparency, risk management and consumer protection. Firms leveraging AI or offering digital assets must prepare for enhanced supervisory scrutiny, mandatory risk assessments and potential licensing or registration requirements. There are also opportunities for collaboration with EU-funded innovation hubs, but firms must ensure robust governance and compliance frameworks for new technologies.
Even with recent recalibration and simplification efforts, sustainable finance and ESG considerations remain increasingly central to the EU’s regulatory landscape. The creation of the Industrial Decarbonisation Bank and the Clean Industrial Deal State Aid Framework aims to mobilise over EUR 100 billion for the green transition. The EU is also developing a role for CleanTech, a Nature Credits Roadmap, recalibrating ESG reporting and due diligence requirements. For regulated firms, this means preparing for more amended ESG disclosure obligations under the Corporate Sustainability Reporting Directive (CSRD), the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy. The expansion of state aid and public funding for green projects will likely create new financing and investment opportunities, but will also increase scrutiny of greenwashing and compliance with sustainability criteria. The Carbon Border Adjustment Mechanism (CBAM) and related measures may impact firms with cross-border exposures or clients in carbon-intensive sectors.
Security, resilience and operational risk are also understandably likely to remain very high on the EU’s agenda as it moves to foster a “preparedness culture” through legislative and non-legislative measures. The EU is prioritising security, resilience and crisis preparedness, with new strategies for critical infrastructure, cybersecurity and supply chain independence in a more wide-spread fashion than ever before. The SOTEU appeals to industry as a whole to take action so that those real economy firms, many of whom are currently under-complying with resilience standards and thus hardly insurable, can contribute to the growth, stability and future viability of supply chains across all industries of the EU and the breadth of the Single Market.
The EU’s emerging “Preparedness Union Strategy” and the forthcoming Critical Medicines Act are examples of sector-specific resilience initiatives, which are welcome but also an area where financial services firm will be at the forefront. EU insurers’ long-standing expertise – from risk assessment and prevention to recovery after disasters will likely define the delivery of these efforts across the EU. The fact that the European Commission explicitly names the insurance sector as part of societal preparedness further underlines the role the (re-)insurance industry will likely play here.
For the Single Market more broadly, these new projects will translate into heightened expectations for operational resilience, including under the EU’s existing DORA and sectoral cybersecurity frameworks that will further operationalise during 2026 and beyond. As a result, all and not just financial markets-relevant firms should proactively review and enhance their business continuity, third-party risk management and incident reporting processes. Supervisory authorities are likely to conduct more frequent and intrusive resilience testing, including cross-sectoral and cross-border exercises.
The EU is also accelerating its efforts in strengthening its social model, skills base and governance standards. The “Union of Skills plan” and the “Pact for European Social Dialogue” aim to address skills shortages and promote social dialogue, while the EU is also focusing on diversity, equality and inclusion, with new targets for gender balance and anti-discrimination. For regulated firms operating in the EU, this may mean increased regulatory and stakeholder scrutiny of human capital, diversity and inclusion policies. Enhanced requirements for board diversity, pay transparency and social reporting may necessitate changes to governance structures and HR practices. The EU’s support to strengthen social factors—the "S" in ESG—will become more prominent in supervisory assessments and possibly in investors’ expectations.
Finally, the EU’s proposed (yet still to be finalised) budget, the Multiannual Financial Framework (MFF) for 2028–2034 is the most ambitious to date, with a focus on flexibility, results-orientation and rule of law conditionality. The EU is reinforcing the link between access to funding and compliance with rule of law and sound financial management. Firms benefiting from EU funding or participating in public-private partnerships must ensure robust compliance with procurement, anti-corruption and rule of law standards. Supervisory authorities may have enhanced powers to enforce compliance and impose sanctions for breaches of EU law or misuse of funds.
Strategic and operational considerations for financial markets
The evolving regulatory landscape outlined in SOTEU 2025 presents both significant opportunities and complex challenges for financial market participants. To remain competitive and compliant, firms must adopt a forward-looking, holistic approach to strategy and operations, integrating regulatory developments into their core business planning and risk management frameworks.
Firms should step-up their efforts to establish robust mechanisms for monitoring legislative and supervisory initiatives at both the EU and Member State levels. Early engagement with regulators, industry associations, and EU institutions is essential to anticipate regulatory changes, influence policy outcomes, and ensure timely adaptation of internal policies and procedures. Leveraging RegTech solutions (such as but not limited to PwC Legal’s Rule Scanner) for automated regulatory intelligence, horizon scanning and compliance mapping can provide a competitive edge by enabling real-time tracking of regulatory developments and facilitating efficient implementation.
The EU’s emphasis on digitalisation, including the transition to e-invoicing, digital product passports, and the adoption of AI and digital finance regulations (such as DORA and MiCAR), necessitates significant investment in digital infrastructure and data governance. Accordingly, firms should assess and upgrade their IT systems to support new reporting, data-sharing and risk management requirements and relevant supervisory expectations.
The EU’s renewed drive to deliver a SIU will create new opportunities for cross-border business and product innovation. Firms should review their structures and strategies to take advantage of harmonised frameworks for prospectus, listing, and disclosure, as well as streamlined passporting regimes. At the same time, they must remain vigilant to the risks of regulatory fragmentation and ensure that compliance frameworks are sufficiently flexible to accommodate both EU-level and national requirements.
Heightened expectations for operational resilience, as reflected in the EU’s Preparedness Union Strategy and further sectoral initiatives, will require firms to strengthen their business continuity planning, third-party risk management, and incident response capabilities. Regular resilience testing, including participation in cross-sectoral and cross-border exercises, should be embedded into operational routines. Firms must also ensure that their insurance arrangements and recovery plans are aligned with evolving regulatory standards and industry best practices.
The EU’s focus on skills, diversity, and social factors will increasingly influence the shape of both supervisory assessments and stakeholder expectations. Firms should review and, where necessary, enhance their governance structures, board diversity, pay transparency, and social reporting practices. Investment in workforce upskilling and the promotion of inclusive workplace cultures will be critical to attracting and retaining talent, meeting regulatory requirements, and maintaining a strong social license to operate.
In this dynamic environment, financial market participants must adopt a strategic, integrated approach to regulatory compliance, digital transformation and sustainable growth. By proactively engaging with regulatory developments, investing in technology and human capital, and embedding ESG and resilience considerations into their core operations, firms can position themselves to seize emerging opportunities and navigate the complexities of the next phase of EU financial market integration.
Outlook
In conclusion, the SOTEU 2025 signals a period of significant regulatory evolution, with a strong emphasis on competitiveness, digitalisation, sustainability and resilience while, according to President von der Leyen securing the EU’s strategic autonomy and independence in a geopolitical reality where “battlelines in the quest for new global power are being drawn”. Regulated financial services firms should proactively monitor and engage with upcoming legislative initiatives, particularly in digital finance and capital markets as well as an overall shift in the European economy.
Investment in compliance, risk management and digital transformation will be essential to meet new regulatory and supervisory expectations. Firms should also leverage opportunities arising from EU funding, innovation hubs and the deepening of the Single Market (for financial services and beyond), while ensuring robust governance and risk controls that will return into the supervisory focus in 2026 as various new legislative and supervisory mandates come into full force.
Preparation for increased scrutiny of operational resilience and alignment of internal policies will be critical. Increasing the scope and timeliness of (earlier) engagement with regulators, industry associations and EU institutions will be vital across all financial markets participants in shaping and adapting to the evolving landscape and firms should consider conducting regulatory impact assessments and scenario planning to ensure readiness for the next wave of recalibrated as well as new EU financial services and wider markets-focused reforms.
About us
PwC Legal is assisting a number of financial services firms and market participants in forward planning for changes stemming from relevant related developments. We have assembled a multi-disciplinary and multijurisdictional team of sector experts to support clients navigate challenges and seize opportunities as well as to proactively engage with their market stakeholders and regulators.
Moreover, we have developed a number of RegTech and SupTech tools for supervised firms, including PwC Legal’s Rule Scanner tool, backed by a trusted set of managed solutions from PwC Legal Business Solutions, allowing for horizon scanning and risk mapping of all legislative and regulatory developments as well as sanctions and fines from more than 2,500 legislative and regulatory policymakers and other industry voices in over 170 jurisdictions impacting financial services firms and their business.
Equally, in leveraging our Rule Scanner technology, we offer a further solution for clients to digitise financial services firms’ relevant internal policies and procedures, create a comprehensive documentation inventory with an established documentation hierarchy and embedded glossary that has version control over a defined backward plus forward looking timeline to be able to ensure changes in one policy are carried through over to other policy and procedure documents, critical path dependencies are mapped and legislative and regulatory developments are flagged where these may require actions to be taken in such policies and procedures.
The PwC Legal Team behind Rule Scanner are proud recipients of ALM Law.com’s coveted “2024 Disruptive Technology of the Year Award” as well as the “2025 Regulatory, Governance and Compliance Technology Award”.
If you would like to discuss any of the developments mentioned above, or how they may affect your business more generally, please contact any of our key contacts or PwC Legal’s RegCORE Team via de_regcore@pwc.com or our website.
