- Adoption of AI at a turning point
- Regulation reset in 2026
- Private capital’s growing role
- Sustainability and responsible business priorities refocus
- Looking ahead in 2026
As financial institutions enter 2026, they face a rapidly evolving digital landscape influenced by technological advances, shifting regulations, and changing priorities in responsible business practices.
Adoption of AI at a turning point
Agentic AI’s emergence marks a turning point in the development and adoption of AI in financial services. Its autonomous functionality offers the prospect of exciting new use cases, particularly in wealth management. AI agents could act as virtual advisers, tailoring investment, tax, and retirement strategies, by engaging clients across multiple channels and adapting to client preferences. Consequently, 2026 is likely to see more strategic, tech-driven M&A, particularly in AI-led investments, as FIs seek to gain a competitive advantage in an increasingly digital financial ecosystem.
“To thrive in wealth management’s evolving landscape, banks and wealth managers must embrace technology, invest in compliance infrastructure and develop agile strategies,” says Ansgar Schott, Baker McKenzie partner, Zurich. However, AI is a double-edged sword. It can strengthen cyber resilience while increasing the risk of more sophisticated cyber attacks, with financial services remaining a prime target. As outsourcing risks increase, a new framework of financial regulatory obligations for cybersecurity is developing. It is essential that contractual frameworks for outsourcing set the best standards for cybersecurity and IT hygiene.
Regulation reset in 2026
Deregulation will gain momentum in 2026, driven by a desire to shake up the existing order, boost economic growth, and counter post-2008 financial crisis caution. Led by the US and echoed in other major economies, regulators and market participants are recalibrating. Less sustainability regulation is just one example.
Deregulation does not mean no regulation, and market participants operating a global platform, benefiting from the cost efficiencies in any one jurisdiction, thanks to regulatory differences, may find it more difficult than envisaged. Not all regulation is unwelcome. The new US GENIUS Act introduces a regulatory regime for stablecoins that offers market integrity and consumer protection, giving confidence to markets.
“International payments entities are looking to modernize cross-border transactions using blockchain, including stablecoins and tokenized deposits to facilitate transactions,” says Karen Man, Baker McKenzie partner, Hong Kong.
Meanwhile, cybersecurity is another area of increasingly complex regulation. In addition to data protection and privacy legislation, there is now a developing framework of financial regulatory obligations with more stringent cybersecurity incident reporting.
Private capital’s growing role
Private capital’s footprint continues to grow, becoming more attractive in Europe, and this is expected to continue in 2026. Private equity has experienced a resurgence in deal activity, while in private credit, direct lending has become a real alternative to traditional banks with many private debt products now available. A key driver behind this is the data center boom, which requires significant amounts to finance construction. Given high debt levels and increasing credit delinquency, especially in the US, supervisors are becoming more concerned about systemic risk. US, UK, and EU central banks are all beginning to “stress test” nonbanks to understand how interactions with regulated banks could amplify shocks across markets. Their outcomes open the possibility of heightened regulation and more disclosure around private capital.
“Authorities are scrutinizing private capital to boost transparency, including the use of stress testing. This opens the possibility of heightened regulation and more disclosure,” says Carlo de Vito Piscicelli, Baker McKenzie partner, Milan.
Sustainability and responsible business priorities refocus
Sustainability and responsible business practices remain important considerations for FIs but are also expected to refocus. Amid the rise of data centers, sustainable finance is an important funding tool, enabling developers and operators to align finance with key performance indicators (e.g., on carbon, energy, and water usage), which will often also satisfy end-user targets. As a result, global standards on what makes a sustainable data center are anticipated.
There is also a growing focus on the prevention of financial crime and accountability. Individuals and their employers are at more risk than ever of facing prosecution for facilitating misconduct by others. This highlights the importance of risk assessments. Elsewhere, workforce strategies are facing a global shift. The US is witnessing a retreat from institutional diversity, equity, and inclusion programs, while other parts of the world are moving in the opposite direction.
Looking ahead in 2026
- Financial institutions will be defined by their ability to integrate technological innovation with robust but adaptive governance frameworks.
- Jurisdictions that embrace flexible, principle-based regulatory frameworks are likely to attract greater investment and foster development.
- 2026 will reward those that can transform legal and regulatory challenges into efficiencies and competitive differentiation in an increasingly digital and uncertain financial ecosystem.