Trend 4: Regulation—A Light Touch or An Invisible Hand?

In our previous articles, my colleague Jost Hoppermann and I have talked about the glut of innovation; platforms in general and for banking and insurance, specifically.  These three trends are invariably shaped by regulators and the compliance staffs that must assure adherence, regardless of whether it’s a traditional institution or an emerging fintech. And with regulatory frameworks and philosophies so different across regions, location matters. 

Let’s look at five specific directions on the 2026 horizon. 

1. First, it depends on where you are and what you do.  In the US market, the administration is driving a lighter, maybe even invisible hand when it comes to regulation.  That said, US banks are looking at changes to their capital frameworks and regulatory floors.  European and multi-national banks are going to be looking at more complicated and fragmented regulation as countries adopt more nationally driven regulation. For insurers, it looks like we’re going to lose the Federal insurance office in the US.   And while there were many state-level compliance requirements issued in 2024 and 2025, expect to see a lot more ESG and climate risk disclosure for both banks and insurers, especially in Europe. 
2. As Jost noted in our first Trends LinkedIn post, technology development is moving fast,  faster than regulators, no matter where you are.  While not a trend we’re dwelling on today, it’s all things AI and the need for transparency, responsible use, and of course, governance.  We’ve talked about what happened to the software market in early February—what will AI-powered software development mean for regulators and their state of “AI literacy”? 
3. And it’s not just AI—it’s the evolving “digital asset market”, cryptocurrency whether we’re talking about bitcoins, stablecoins, or whatever.  What will be the digital asset regulatory frameworks that will emerge, especially as you see this not solely in the realm of startups, now traditional firms invest or spin up offerings around these alternatives to what we consider “assets”? Alternative understandings of the notion of “assets” will change business models and can potentially change entire economic models.
4. While we’ve focused on banking and insurance, traditional industries that we understand, there’s one non-bank financial market is looming as a big and obscure risk—private credit.  Just like in the financial crisis with CDOs, MBSs and still other acronyms, insurers are investing some of those premiums we send them into private credit, estimated to be $US 2 trillion.  And talk about risks:  it’s opaque, illiquid, and interconnected to a degree we—and regulators—don’t even know about. The private credit market is also where a lot of the AI software companies are getting the funding for their AI data centers. This is one area where European regulators are stepping up their focus on these non-bank financial entities. Finally, this appeared in Bloomberg on the 16th: The risk that AI bets don’t pay off is breathing new life into the market for credit derivatives, where banks, investors and others can protect themselves against borrowers adding on too much debt and becoming less able to pay their obligations.  Credit derivatives tied to single companies didn’t exist on many high-grade Big Tech issuers a year ago. Now they are some of the most actively traded US contracts in the market outside of the financial sector, according to Depository Trust & Clearing Corp.
5. AI powered software development opens a whole new can of worms: Let’s just focus on two aspects.  First, individual – AI powered – software development can virtually create operational risk in minutes. Thus, regulators will need to put a much greater emphasis on individual software development than they have done to date. Particularly when it comes to fintechs -regulators will need to start governing complete – maybe continuously changing – process chains. For example, they have done that already, in the payment space, but the focus will broaden, creating new burdens for FSIs, for example with requirements for -- and oversight of -- interfaces and end-to-end resilience.

To wrap up our take on regulation, it also makes sense that with the current state of geopolitical instability, there will be a “flight to stability” in the banking and insurance markets.  The key will be how effectively the regulators can and will be actually instituting that stability. So, given these five trends, what are the implications and how should traditional and emerging banks, insurance firms, and their technology partners be planning strategies for addressing them?  In our next twoartcles, the Angry Rabbit Group will offer its take on how these organizations can best steer in these changing currents.