The Most Important Legislation Shaping European Banking in 2026

Introduction

For years, compliance has been viewed as an unavoidable cost of doing business. Banks and financial service providers viewed compliance operations as a cost center, one that was necessary to stay in line with auditors and mitigate operational risks.

In recent years, a wave of new legislation aimed at compelling banks to adopt new standards for KYC/AML, regulatory agility, and operational resilience has transformed the legislative landscape in the wider financial sector. These new regulations, some already in effect and others pending approval, have made compliance a key consideration for banks, with those that have been the fastest to evolve gaining a competitive advantage.

As outlined in previous articles, compliance is no longer a cost center but a competitive advantage when data is properly integrated and leveraged across an organization. New legislation is poised to drive additional change in the sector, and this article aims to assess the most impactful new EU laws and directives that banking executives should take into account when planning their compliance strategy.

Europe’s Legislative Landscape at a Glance

There are several driving factors behind the recent increase in legislation aimed at standardizing compliance practices across Europe, building operational resilience, and limiting the threat of financial crimes. One of the primary drivers was the fragmentation of European financial laws. Even within the common market, banks operating across EU member states were bound by different compliance laws in each state, where levels and standards of enforcement could differ considerably from one nation to another.

These supervisory gaps created loopholes in compliance, made cross-border fraud more difficult to detect, and created major inefficiencies for financial institutions themselves, who all too often were playing by a different set of rules in each country they operated in.

Standardization became a key need, both for regulators and for banks. Harmonizing compliance practices, especially as the financial sector continues to rapidly digitalize, with real-time transaction monitoring, and AI-driven fraud being important new considerations for regulators. The need for a unified legal blueprint that would allow a harmonized operational landscape to grow, along with the new wave of digital threats that don’t stop at national borders have been the catalyst for major legislative changes.

And auditors have been active in pushing financial institutions to strengthen their compliance standards or face major fines.

The Cost of Non-Compliance

Germany has taken the lead in regulatory enforcement. Several high-profile cases of major financial institutions being fined for mismanagement of data and not addressing operational vulnerabilities have set a precedent felt across Europe.

BaFin’s proactive mandate is driving banks to develop a “compliance-first” approach, meaning proactive risk management, integrating compliance considerations into existing tech stacks, and ensuring that transactions can be fully traced across a bank’s internal systems, workflows, and reporting channels.

Auditability, transparency with regards to transactions, and sound management of data are key points that regulators are scrutinizing when assessing the operational resilience of individual financial institutions. More than just ticking a check box, the long-term vision is that banks will adopt a culture of compliance and regulatory agility, enabling them to effectively counter new threats.

The Legislation Shaping European Finance

While the list of new EU legislation is extensive, we’ve pinpointed the six most consequential new laws and directives that will most impact the financial services industry. Some have already come into effect, while others are poised to in the near future.

DORA - Digital Operational Resilience Act

The Digital Operational Resilience Act (DORA) is a regulation brought into application on 17 January 2025 that aims to harmonize rules relating to operational resilience in the financial sector. It seeks to strengthen the operational resilience for banks and financial service providers, ensuring they can withstand and respond to cyber attacks, system failures, and other related technology disruptions.

DORA covers a full range of financial operations, including ICT risk management, third-party risk management, information sharing, and digital operational resilience. Creating a unified regulatory framework for financial services companies operating across the EU should reduce vulnerabilities while also harmonizing regulations regarding the use of IT systems.

SFDR - Sustainable Finance Disclosure Act

The EU Sustainable Finance Disclosure Regulation (SFDR) is a transparency regulation which dictates that financial service providers, as well as financial advisers, must disclose sustainability-related information. This aims to provide transparency to investors who want to invest funds into companies with an active sustainability profile. The long-term goal is to have SFDR contribute to the EU’s net-zero economy strategy.

AMLR - Anti-Money Laundering Regulation

The EU Anti-Money Laundering Regulation (AMLR) is a new framework in activity since 2024 that seeks to harmonize anti-money laundering, counterfeiting, and combating terrorist financing (CFT), closing existing legal gaps and loopholes in terms of enforcement across its member states.

This package includes the EU AML Authority (AMLA) that will handle enforcement of the new regulations and work to identify potential cases of cross-border money laundering, serving as a central authority across the EU to ensure that such instances are handled effectively.

The AMLR is applicable across all member states, reducing fragmentation and creating a single rulebook for customer due diligence and reporting standards. Additionally, AMLA will coordinate with national regulators to supervise high-risk institutions, with a strong emphasis on risk-based oversight.

AMLD6 - Sixth Anti-Money Laundering Directive

The Sixth Anti-Money Laundering Directive (AMLD6) strengthens criminal law enforcement and measures that can be taken against money laundering throughout the EU. It defines money laundering as a stand-alone criminal offense that is now punishable by longer prison terms and tougher penalties.

On the operational side, the Directive aims to widen the use of financial intelligence units to combat money laundering.

PSR/PSD3 - EU Payments Package

The EU Payments Package (PSR/PSD3) is a combination of a Directive (PSD3) and a Regulation (PSR) that aim to combat fraud and enhance customer protection in the payments space. Through the implementation of measures such as IBAN verification and streamlined guidelines for payments policies across all EU member states, the package sets the protection of consumer rights as its main objective as it seeks to strengthen the security of digital payments.

Furthermore, there are provisions in the package for increased transparency regarding fees and charges from financial services providers, improving competition in the banking space by leveling the playing field between bank and non-bank payment service providers, along with streamlined dispute resolution.

EU AI Act

AI is becoming increasingly used for core operations by banks and financial service providers. From AI-powered AML monitoring to data management tools using LLMs, and beyond. European legislators have sought to regulate the use of AI with the EU AI Act, passed in 2024.

The act, which is applied to industries beyond the finance sector as well, nonetheless has major implications for how banks leverage AI.

The Act establishes the need for more direct oversight of AI systems and how they’re deployed. This includes additional scrutiny on model risk management practices, explainability, and audit trails. The responsibility now lies with banks to demonstrate that they are practicing sound AI governance, with robust controls and compliance-ready practices.

How can European Banks and Financial Services Providers Stay Compliant?

Given the shifting regulatory landscape, staying compliant will require a clear strategic outlook that accounts for new laws and directives, while developing internal workflows and operational frameworks that meet new standards.

What is needed is an approach that treats compliance as a capability, or a strategic asset, as opposed to a required task. A few steps banks can take to improve their regulatory agility include the following:

Custom-built Solutions

Creating custom-built compliance tools that align with individual company needs is a strong first step in adopting a comprehensive compliance strategy and improving auditability. Proprietary tools struggle to incorporate new legislation, something that creates compliance black holes, and their feature sets offer one-size-fits-all solutions that aren’t tailored to the operational realities of individual organizations.

Custom compliance solutions allow organizations to adapt to new regulatory changes and often provide more comprehensive transaction monitoring and anti-fraud features that better align with corporate strategic objectives.

We’ve recently published a blog post comparing the most popular regulatory software and matching each tool against custom solutions, allowing companies to assess which option best suits their needs.

Digital and Data Sovereignty

Digital and data sovereignty are at the core of the EU’s new regulatory push to improve transparency, safety, and operational resilience in the financial sector. Data sovereignty, meaning the access and rights a company has to its own data, is a crucial consideration when assessing regulatory agility, as much of the new legislation that’s passed specifically relates to the use, processing, and storage of data by financial institutions.

Data sovereignty means restricting external dependencies on proprietary tech for data processing and analysis, and custom-built solutions, along with open source projects, provide unrestricted access to data and more control.

With digital sovereignty being a core compliance issue, the use of a tech stack that offers unrestricted access and full transparency is a necessity for banks going forward.

Conclusion

With Europe’s regulatory climate quickly changing and new laws governing financial operations being more comprehensively enforced, banks must see this period as an opportunity to future-proof their compliance technology.

Doing so not only reduces the risk of long-term vulnerabilities to fraud and cybercrime but also lessens the scrutiny of auditors. The most impactful benefit of creating a compliance-first organizational culture is the long-term competitive advantage it brings. The sound utilization of data through custom tools tailored to individual company needs means reducing costs and turning data into an asset and catalyst for growth.