A System Under Pressure
Across Europe, the United States, Asia and the world’s major financial centres, the industry speaks the language of transformation. It celebrates digitalisation, automation, AI-driven risk analysis and the promise of real-time transparency. Regulatory bodies promote resilience; institutions showcase innovation; consultants describe a future where processes are streamlined and data flows seamlessly.
Yet beneath this confident narrative lies a very different operational reality. The financial system has become progressively shaped — and in many cases strained — by an expanding regulatory reporting burden that generates a permanent backlog. It is not a temporary imbalance or a cyclical challenge: regulatory reporting has become a structural force, quietly reshaping how financial institutions allocate people, capital, technology and management attention.
The scale of this shift is now well documented. According to the EY–ABBL Cost of Regulation Survey 2025, regulatory investment costs for European banks have increased 4.5 times between 2020 and 2024. Large banks now spend on average €8.1 million per year on regulatory investments and more than €20 million in recurring regulatory operating costs. Smaller institutions, with fewer buffers, dedicate up to 21% of their entire workforce to compliance-related roles. In Luxembourg, where labour costs are notoriously high, a regulatory full-time equivalent costs €60,000 more per year than in comparable EU markets.
What emerges is a picture not of discrete compliance challenges, but of a financial system that must operate under a continuous and compounding regulatory load.
The Endless Layering of Obligations
What distinguishes today’s regulatory environment from previous decades is not merely the volume of obligations, but their rhythm. Regulatory reporting used to follow a pattern: a directive is adopted, implemented, stabilised, and integrated into business-as-usual. That rhythm has been broken.
According to the EY–ABBL report, 72% of institutions now manage regulatory compliance through ongoing projects, indicating that very few regulations ever reach a “steady state.” As soon as an implementation wave subsides — for instance, AIFMD Annex IV or SFDR templates — another emerges: EMIR Refit, DORA, MiFIR transparency, PRIIPs updates, ESG data requirements, sanctions screening enhancements, cross-border distribution oversight and tax reporting refinements.
This layering creates a perpetual motion machine of interpretation, operationalisation, remediation and audit. It is not unusual for compliance, legal, risk and operations teams to work simultaneously on several unrelated regulatory programmes, each with its own timeline, dependencies, data needs and technology impacts.
The difficulties are substantial. Institutions surveyed report that 88% find CRR III/IV implementation difficult, 82% struggle with DORA, and 84% encounter significant challenges with AML frameworks.
At the same time, new regulatory domains — ESG, sustainability reporting, carbon footprint transparency — require data of unprecedented breadth and granularity. Morningstar, MSCI and ESMA all document major inconsistencies in ESG data coverage, methodologies and interpretations. Institutions often lack the data they are required to disclose, or they struggle to reconcile multiple versions of the same indicator supplied by different external providers.
The result is an environment in which compliance timelines and operational capacity rarely align.
The Underreported Operational Impact
While regulatory expansion is frequently analysed from legal or prudential perspectives, its operational consequences receive far less attention. Yet they are profound.
The EY–ABBL survey reveals that most institutions cannot fully track the total cost of compliance, including remediation projects, temporary staffing, external consulting, system patches, change requests and integrated operational impacts. This lack of visibility stands in stark contrast to the otherwise rigorous financial discipline of the sector.
Furthermore, regulatory projects often mobilise the same scarce resources: data analysts, risk specialists, IT developers, operations experts and senior management. These resources cannot be allocated twice. When a new regulatory requirement emerges, transformation programmes slow down, change management is deferred and operational efficiency targets slip.
Financial stability institutions note similar concerns. Reports from the Financial Stability Board and the Basel Committee highlight that, although regulatory reforms strengthen resilience, they also create substantial data and reporting obligations that can strain institutions with limited capacity or fragmented legacy systems.
Private markets add further weight. Preqin and PitchBook both describe double-digit annual growth in private equity, private debt and infrastructure funds, whose operational models require complex data collection, manual enrichment and bespoke reporting for regulators and investors alike.
Every expansion of private markets introduces new frictions into regulatory reporting chains.
Luxembourg as a Testing Ground
Luxembourg offers a particularly striking example of how regulatory reporting shapes an ecosystem. As Europe’s leading hub for cross-border fund distribution, the country hosts an abundance of fund structures, asset classes, operational models and service providers. This diversity is both an advantage and a source of complexity.
Regulated entities must reconcile requirements originating not only from European legislation but also from the expectations of dozens of foreign regulators across the distribution network. A change in a single regime can impact AIFMs, management companies, administrators, custodians and distributors simultaneously.
CSSF publications — ranging from monthly fund statistics to circulars on governance, risk and AML — provide transparency but also contribute to a continuous flow of operational adjustments.
In this environment, regulatory backlog is not a temporary state but a structural feature of the market. Institutions absorb it through increased hiring, outsourcing, automation where possible, and temporary reinforcements.
The reliance on specialised external expertise has grown significantly. This is precisely where We Put You In Touch offers tangible value by enabling financial institutions to access vetted and highly specialised independent consultants who can strengthen compliance, operations and reporting functions during periods of regulatory intensity. As obligations continue to multiply, flexible access to expertise becomes less a convenience than a necessity.
A Hidden Cost to Innovation
One of the least understood consequences of regulatory backlog is its effect on innovation. Technology departments and transformation programmes are increasingly diverted from long-term strategic priorities to short-term compliance-driven updates.
Modernisation efforts — cloud migration, data governance frameworks, front-to-back integration, automation of complex workflows — require sustained focus and resources. But when regulatory projects command priority, institutions often reallocate teams, budgets and management attention, delaying or shrinking transformation ambitions.
Paradoxically, the regulatory frameworks that demand resilience and transparency can impede the adoption of technologies that would ultimately reinforce both.
References
- EY–ABBL Cost of Regulation Survey 2025
- Luxembourg Times summary on regulatory cost pressures in Luxembourg
- Morningstar EU Sustainable Finance Action Plan analysis
- Morningstar SFDR Article 8/9 fund classifications and reporting review
- MSCI ESG Ratings Methodology (latest edition)
- Sustainalytics ESG Risk Ratings Methodology
- ESMA publications on sustainable finance and ESG rating technical standards
- Preqin Global Alternatives Report (latest edition)
- PitchBook Private Markets Outlook
- LPEA Annual Report 2024
- CSSF Publications and Data on regulatory guidance and sector updates
- Financial Stability Board (FSB) analyses on transparency and operational resilience
- Basel Committee on Banking Supervision documents on data, risk and reporting frameworks
- ECB Financial Stability Review