Global Investment Banking Enters a New Era of Regulatory Divergence

Cross-border financial regulation in 2026 is in flux as the US is seeing the most impactful shift in the financial regulatory environment since the Dodd-Frank Act, with enforcement and oversight taking a backseat. In June 2025, we saw the SEC postpone or withdraw 14 proposed rules like Regulation Best Execution and Consolidated Audit Trail adjustments and change direction on new rules.ⁱ

US agencies now operate in a less punitive posture, allowing US investment banks and prime brokers to stretch their wings. However, the repercussions of US regulatory policy are rippling through other regions like the EU and Canada, exerting pressures to conform. Throw in the complete technology transformation molding the markets, and financial institutions are in for another round of radical adaptation in 2026.

If regulatory orientations are as cyclical as macroeconomic trends, are we seeing a complete 180 in terms of investment banking frameworks? Wall Street is basking in the glow of one of its best years on record.ⁱⁱ European and Canadian regulators are attempting to avoid falling behind the US by pushing regulations firmly but not so punitively that their local financial institutions cannot compete with US banks.

US: Investment banking seizes the moment

Thanks to its current financial regulatory posture, there are distinct divisions between the US and other regions in terms of M&A, crypto, private credit, and repo clearing. The US is experiencing an acceleration in bank M&A — a trend that’s likely to continue through 2026, as the current US regulatory environment has driven M&A timelines to under four months — a stark contrast when compared with the prior administration’s deals, which typically required 12 to 18 months to close.

We expect to see massive consolidation, potentially shrinking from 4,500 banks to as few as 1,000 in three or four years.ⁱⁱⁱ Institutions are aggregating assets, moving into new geographies and business lines, expanding growth overall. Additionally, a fintech boom of banking is taking shape, which is having an impact on certain pockets of retail and merchant banking, as well as other parts of the banking universe. The Office of the Comptroller of the Currency (OCC) approved five new national trust bank charters in December, commenting that, “New entrants into the federal banking sector are good for consumers, the banking industry and the economy.”^iv

US sets the stage for crypto and private credit leveling

The current US administration, while retrenching other financial guardrails, is seeking clarity on digital assets, allowing banks like Citi to leverage blockchain in its operating model to create a 24/7, always-on, on-demand ecosystem for clients.^v Further, the OCC is considering approving non-risk-taking activities in the crypto space for banks, meaning banks are only acting in a capacity equivalent to that of a broker acting as agent.^vi

Meanwhile, banking leaders are feeling optimistic as US rulemaking agencies are taking aggressive actions to level the playing field between private credit and banks. In a recent speech, Federal Reserve Vice Chair for Supervision Michelle W. Bowman said, “We have been faithful to the goals of supporting market liquidity, affordable homeownership, and bank safety and soundness. One way we have addressed this is through adjustments to the capital treatment of mortgages and mortgage servicing. The existing approach has reduced bank participation in mortgage lending and has limited access to credit from banks. These changes will benefit institutions of all sizes.” In 2008, banks originated around 60% of mortgages and held the servicing rights on about 95% of mortgage balances. As of 2023, banks originated only 35% of mortgages and serviced about 45% of mortgage balances.^vii Regulations on banks put in place from 2010 to 2012 were seen as an overreach that inadvertently spurred the growth of the less-regulated private credit market as banks sought workarounds. Banks are now partnering with private credit funds to offload punitive bridge loans from their balance sheets and maintain advisory fee revenue.

US Basel III decision to drop a boulder in a pond

The Q1 US Basel III announcement will be a massive regulatory event, akin to throwing a boulder into a pond. It will likely be much gentler in de-leveraging banks than previously thought; another force challenging other regions’ competitiveness. As Bowman noted in her comments on Basel, “This misalignment between capital requirements and actual risk has important consequences. Banks hold substantial numbers of mortgages with low loan-to-value ratios. By requiring disproportionately high capital, we reduce a bank's ability to deploy capital to support the needs of their community.” Basel rules provide a global framework, but they are applied at the sovereign level. This allows countries to gear metrics like risk-weighted assets (RWA) and core tier 1 equity (CET1) to their own jurisdictions. The UK, EU, and Canada are waiting to see what happens in the US so they can keep pace. Some assert that softened capital adequacy standards in the US will signal the start of a race to the bottom, regulatory-wise.

Canadian bank regulation and prime brokerage 

Canadian regulators are seeking ways to empower their big banking players to participate in the boom. Canadian banks are interested in growing deposits in the US, particularly commercial deposits but have lower interest in continued inorganic expansion via acquisition in the near term, opting for organic growth instead.^viii Canadian investment banks, which have traditionally been active in the repo marketplace, are currently redefining their business models to adapt to the global shift toward cleared transactions.

Canadian banks are also trying to capitalize on US trends by offering increased prime brokerage services, more client financing, and expanding their presence in the asset finance and retail spaces. Institutions are seeking to establish global prime brokerage businesses and are increasing their activity in mortgage structuring within the US.

Europe: M&A, crypto inertia

I attended the World Finance Forum in Paris in early December and noted that a key takeaway from investment banks in the EU was the realization that they needed to play catchup with developments in the US. EU regulators want to be firm in their conviction that they need to keep pushing forward on developing regulations to keep pace with evolving market demands, but they don't want to fall behind the US by being punitive in their approach. European banks fear being left behind as they struggle to replicate this in a more fractured financial ecosystem than the US.

Another category which keeps EU banking leaders up at night is blockchain, as the US has demonstrated a pro-crypto assets and pro-securitization stance. European banks are certainly trying to get their arms around how they can become part of the stablecoin revolution. European policymakers are actively talking about stablecoins and digital assets, though regulators lack a high enough risk appetite to move the needle. Markets in Crypto-assets Regulation (MiCA) is in place, but the US is pushing faster to enable banks to adopt stablecoins and digitized securities as part of their focus.

Another potential regulatory headwind is blowing, in the form of countries-focused regulations that are, in many cases, prohibitive or creating high hurdles to getting M&A deals done, such as the Digital Markets Act, which portends that “US Big Tech suitors eyeing European targets may soon find life appreciably tougher.”^ix UK, French, German, and Italian banks all know that mergers are an accelerant to growth. They're screaming from the mountaintops for regulators to create an environment that's more amenable.

EU exploring central clearing in repo markets

The US delayed its phase of pushing repo markets toward central clearing to June 30, 2027.^x This is another category in which the EU has not finalized a rule but is deliberating on sensible approaches to a possible government bond clearing mandate.^xi Prime brokers and banks are thinking about how they redefine some of their business models to adapt to a more cleared world. One of the chief concerns is about their systems’ operational resilience, noting that central clearing will lead to a substantial increase in the volumes and participants through capital markets. When we say volumes in 2026, we’re talking about data: trade-level data, intraday margin data, collateral movement data, and stress and exception data. Data management is top of mind for just about everybody in financial services, and for good reason.