The only financial certainty for 2025 is uncertainty—who will lead deregulation efforts and how current regulatory and tax initiatives will shift, renew, or end.

This will likely be further complicated with the unintended consequences of economic campaign promises aiming to be addressed as soon as possible. The Fed has already indicated a slower pace of interest rate cuts for 2025, creating an ominous start to the housing market and mortgage activity.

Below are topics and related strategies that organizations can use to prepare for 2025 and beyond.

AI and Automation

The artificial intelligence (AI) fever slowed a bit toward the end of 2024 as companies struggled to find effective use cases beyond fraud detection, but don’t expect AI to go away. There’s too much potential to automate routine tasks that has yet to be fulfilled. AI and automation disruption can be addressed in three main silos:

• Customer data
• Internal operational efficiency
• Data security

Institutions that are partnering with solution providers to deliver services to their customers should be aware that many companies and their third-party providers use AI to deliver these services.

Customer Data

With the concentration of more extensive customer data into consolidated areas, data exposure becomes a more significant threat. Institutions should carefully vet third-party providers experience in the depository space, paying particular attention to those companies base of like clients and track record.

Internal Operation Efficiency

Institutions will be presented with many options to increase internal efficiency in the operational aspects of their business. These options should be selected with a high degree of scrutiny to ensure they support the institution’s strategic plan and successful integration into the environment.

Data Security

The outer most ring to be considered is the security implications posed by AI solutions and the elevated training required to detect and prevent potential unwanted disclosures.

AI allows the ever-growing cybersecurity risk environment to be more effective at fooling team members into disclosing sensitive information. AI allows offenders to use deepfakes powered to obtain critical data by presenting themselves as legitimate. This means that the trust-but-verify adage should be front and center in all security training.

While AI solutions continue to garner attention, organizations should be educated on the full range of AI solutions in the market. Due to the complexity of the space, institutions should strive to ensure the chosen solution aligns with their strategic plan, customer service mission and approach to enterprise data security.

To facilitate a successful implementation, start by identifying the specific use cases and business results AI will support.  Using a result-first approach allow organizations to properly align the underlying business and technology objectives as well as the resources and operational changes to ensure success.

Relevant Issues in Accounting & Auditing Standard

PCAOB

The Public Company Accounting Oversight Board’s (PCAOB) proposed rule related to noncompliance with laws and regulations that would have been a big disruption to the auditing and accounting industry has been tabled for at least a year and could be eliminated. Opposition to other PCAOB initiatives is mounting, including recent rule activity that is pending SEC approval.

FASB

FASB’s tilt toward effective financial disclosure for financial statement users isn’t expected to subside anytime soon. Concessions have been made with regard to the Purchased Financial Assets proposal, where excluding credit cards from the accounting change is all but certain, as well as required retrospective treatment likely eliminated.

FASB is also intent on improving the cash flow statement for financial institutions with specific industry outreach in 2025 and continuing to make improvements to standards to ease derivative hedging requirements. Issuance of new standards beyond the current agenda will be limited.  

Accounting Standards Updates

Accounting Standards Update (ASU) 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, issued by the Financial Accounting Standards Board (FASB), aims to provide investors with more decision-useful information about a public business entity’s expenses by improving disclosures on income statement expenses. Notably, the ASU does not change or remove existing expense disclosure requirements and doesn’t change requirements for presentation of expenses on the face of the income statement.

However, it does affect where this information appears in the notes to financial statements because entities will be required to include certain existing disclosures in the same tabular format disclosure as the other disaggregation requirements in the amendments.

Key Highlights of ASU 2024-03

• Scope. The update applies to all public business entities.
• Disclosure Requirements. The update introduces new disclosure requirements, in the notes to financial statements, of specified information about certain costs and expenses.
• Effective Date. The amendments in the ASU are effective for public business entities only for annual reporting periods beginning after December 15, 2026, and for interim reporting periods beginning after December 15, 2027. Early adoption is permitted.

Main Provisions

The primary disclosure requirements are as follows:

• Disclose the amounts of purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depreciation, depletion, and amortization recognized as part of oil-and gas-producing activities (DD&A)—or other amounts of depletion expense)—included in each relevant expense caption. A relevant expense caption is an expense caption presented on the face of the income statement within continuing operations that contains any of the expense categories listed above.
• Include certain amounts that are already required to be disclosed under current generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements.
• Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively.
• Disclose the total amount of selling expenses and, in annual reporting periods, an entity's definition of selling expenses.

For the most accurate and detailed information, refer to the official FASB documentation or consult a financial reporting professional.

Relevant Issues in ESG

In 2025, the financial services sector is adapting to a landscape shaped by evolving environmental, social, and governance (ESG) trends and regulatory frameworks. Particularly in the form of California's climate bills, such as SB-253 and SB-261.

While less activity is anticipated at the federal level in 2025, we expect to see increased activity at the state level as other states follow California’s lead with similar climate legislation, as the demand from stakeholders for disclosure isn’t likely to change. These regulations mandate comprehensive greenhouse gas (GHG) emissions disclosures and reporting on climate-related risks and opportunities, prompting financial institutions to enhance their reporting practices.

Stakeholder Expectations

In addition to meeting regulatory requirements, financial services organizations are facing heightened expectations from stakeholders, including large companies within their value chains.

These stakeholders increasingly seek transparency and accountability. Organizations that effectively communicate their ESG strategies and performance will find themselves better aligned with their own ESG initiatives and corporate missions. This trend encourages organizations to engage in voluntary reporting initiatives and public pledges, such as:

• Science Based Targets initiative (SBTi)
• Carbon Disclosure Project (CDP)
• Corporate Social Responsibility (CSR) annual reporting

Balancing compliance with voluntary commitments presents opportunities for financial services, as those that adapt to these trends can strengthen their reputations, improve their competitive positioning in the market and be better prepared for future mandated reporting.

Next Steps for Your ESG Strategy

The next steps for financial services in 2025 should involve:

• Evaluating current ESG practices
• Identifying any compliance gaps related to applicable climate bills
• Enhancing data collection processes to facilitate accurate reporting
• Establishing governance structures to oversee ESG initiatives
• Engaging with stakeholders, including investors and clients, which is crucial for understanding their expectations and aligning corporate strategies with sustainability objectives

By implementing these measures, financial services can effectively navigate the evolving ESG landscape, address regulatory challenges, and seize opportunities for growth.

Fintech Update

The 2025 fintech landscape is poised for transformative growth, driven by advancements in the following areas:

• Technology
• Regulatory evolution
• Changing consumer expectations

Technology

As digital banking becomes increasingly mainstream, traditional financial institutions will continue to adapt by integrating innovative solutions such as artificial intelligence, blockchain, and open banking APIs.

These technologies will enhance customer experiences through personalized services, streamlined processes, and improved security measures. The rise of neobanks and digital wallets will further challenge conventional banking models, compelling legacy institutions to innovate or risk losing market share.

Banking-as-a-Service (BaaS)

The proliferation of BaaS will lead to increased competition among financial institutions, pushing them to innovate and adapt their offerings to retain customers. Traditional banks will be compelled to partner with fintech companies and technology providers to enhance their service delivery and tap into new customer segments.

This collaboration will result in the development of more agile and customer-centric banking solutions, such as customizable accounts and embedded finance options that cater to specific consumer needs.

As a result, the banking landscape will become more fragmented, with a diverse array of players competing to deliver unique value propositions through innovative BaaS offerings. Regulatory developments will continue play a critical role in shaping the BaaS ecosystem in 2025.

Regulatory Developments

Increased regulatory pressure on fintech companies and their partner banks came to fruition as expected in 2024. The pressure isn’t expected to lessen anytime soon, as banks feel the impact of high-profile fintech failures impacting consumers, regardless of who’s customer is whose.   

As we look toward 2025, regulatory developments will be a pivotal factor shaping the FinTech landscape.

Governments and regulatory bodies worldwide are increasingly recognizing the need for frameworks that not only foster innovation but also ensure consumer protection and financial stability. This will likely lead to the establishment of clearer guidelines around data privacy, anti-money laundering (AML), and know-your-customer (KYC) requirements, enabling fintech companies to operate with greater confidence and clarity.

Decentralized Finance and Cryptocurrency

The rise of decentralized finance (DeFi) and cryptocurrencies will prompt regulators to develop more comprehensive frameworks to address the unique challenges posed by these innovations.

We anticipate that regulatory bodies will implement specific guidelines for digital assets, focusing on:

• Consumer protection
• Market integrity
• Prevention of illicit activities

This could include the introduction of licensing requirements for crypto exchanges and stricter oversight of stablecoins.

As regulators strive to balance innovation with risk management, collaboration between FinTech firms and regulatory authorities will become essential, fostering an environment where new technologies can thrive while maintaining the integrity of the financial system.

Regulatory Technology (RegTech)

The emphasis on regtech will become increasingly pronounced in the fintech sector by 2025. As compliance requirements grow more complex, fintech companies will increasingly turn to regtech solutions to streamline their compliance processes, reduce costs, and mitigate risks.

This trend will lead to the emergence of new partnerships between fintech firms and regtech providers, enabling more efficient monitoring and reporting mechanisms.

Additionally, regulatory sandboxes will become a more common tool for testing innovative solutions in a controlled environment, allowing regulators to better understand emerging technologies while providing fintech startups with the opportunity to refine their offerings.

Overall, the regulatory landscape in 2025 will be characterized by a proactive, collaborative approach that supports innovation while safeguarding consumers and the financial system.

Mortgage Outlook

Residential mortgage loan origination volume is expected to top $2.1 trillion in 2025, up from expected volume of $1.8 trillion in 2024 according to the Mortgage Bankers Association (MBA).

Despite the Federal Reserve cutting interest rates a combined 100 bps over three separate meetings in 2024, the MBA’s forecast for mortgage rates remains at 6.4% through 2025, level with the 2024 rate environment.

Mortgage rates are benchmarked with the 10-year treasury. The expectation for mortgage rates reflect spreads holding steady with the 10-year treasury as forward yield curve forecast yields to fall within a 4.2-4.3% range in 2025.

The outlook for 2025 is somewhat encouraging with modest growth expected and a steadier rate environment driving profitability, although challenges persist including affordability, limited supply, and inflation.

Housing Trends

Some key housing trends to be aware of include:

• Mortgage Servicing. Mortgage servicing right (MSR) valuations remain strong. Higher for longer rate forecasts are driving MSR purchase transactions. MSR remains a source of liquidity for sellers and buyers who can effectively leverage the asset.
• Ginnie Mae. New risk-based capital requirements are effective as of December 31, 2024. APM 2024-12 provides capital relief to issuers hedging MSRs.
• Technology. The mortgage market remains competitive; a solid tech stack is key to lowering the cost to deliver while improving the customer experience.
• Housing Supply. Inventory levels remain tight however more housing supply is expected. Sales of new and existing home sales is forecasted to increase in 2025 according to the MBA. Younger age cohorts entering prime homeownership age are battling against increases in median home price, cost of insurance and property taxes.
• Non-agency. S&P Global projects 2025 issuances of non-agency RMBS of $160 billion a 16% increase compared to 2024. Non-agency is an opportunity as housing price appreciation pushes certain loans beyond conforming loan limits.

Tax Update

Several tax updates are worth monitoring this year including the following.

TCJA

The Tax Cuts and Jobs Act (TCJA) is scheduled to expire on December 31, 2025. With a new administration and Senate majority expected to take office in early 2025, there will likely be increased efforts to extend all or some provisions of the TCJA.

Key business provisions under consideration for extension or restoration include:

• Qualified Business Income Deduction (QBID) and 100% bonus depreciation
• C Corporation 21% tax rate not expiring

Excise Tax on Stock Repurchases

On June 28, 2024, the IRS released final regulations regarding the reporting and payment of a 1% excise tax on stock repurchases, which applies to certain corporate stock buybacks occurring on or after January 1, 2023.

This tax must be reported annually using Form 720 and Form 7208. The return is due by the deadline for Form 720 for the first full calendar quarter following the end of the corporation’s fiscal year.

For calendar-year taxpayers, this deadline falls on April 30 of the following year. As a reminder, the transition rules state that for tax years ending after December 31, 2022, and on or before June 28, 2024, the forms must be filed by October 31, 2024.

Allowance Charge-Off Method

The IRS has issued proposed regulations under Sec. 1.166-2, introducing a method known as the Allowance Charge-Off Method.

This method allows financial institutions to conclusively presume that a debt has become worthless, either in whole or in part, when it’s charged off from the allowance for credit loss in accordance with U.S. Generally Accepted Accounting Principles (GAAP) on an applicable financial statement.

To use this proposed method, a Form 3115 must be filed. However, there are still unresolved questions regarding the application of this regulation to related issues, such as nonaccrual interest and the timing of recoveries.

ASU 2023-09

ASU 2023-09 is effective for public business entities with annual periods beginning after December 15, 2024. For entities other than public business entities, it’s effective after December 15, 2025, but early adoption is permitted. The goal of this amendment is to improve the transparency and decision usefulness of income tax disclosures.

It might be advisable to begin computing tax provisions required under the new standard in the period before adoption for footnote comparability.

We’re Here to Help

To learn more about emerging financial trends and how your business can plan for them, contact your Moss Adams professional.

Additional Resources

• Financial Consulting Services
• Financial Services Practice