Financial services in Europe are confronting 'Compliance Fatigue' as per a recent report from Sumsub, a notable challenge in the industry.
In the rapidly evolving world of fintech and financial services, European institutions are grappling with a host of challenges, particularly in the areas of regulatory complexity, compliance controls, cybersecurity, and market pressures.
According to a recent survey, more than half (55%) of the professionals in the sector report annual fraud losses between €100,000 and €1 million. Synthetic identity document fraud has surged 378% in Q1 2025, and over 20% admit they're unable to detect newer, more innovative fraud methods. Without real-time detection, cross-channel monitoring, and consolidated data, teams are left without effective strategies to prevent fraud.
The European Banking Authority (EBA) and other regulators are enforcing more detailed and stringent regulatory frameworks. The EU’s finalisation of the Digital Operational Resilience Act (DORA) mandates enhanced operational resilience, effective from July 2025. The EU crypto regulatory framework is advancing, with the EBA issuing draft Regulatory Technical Standards for crypto-assets exposures, ensuring prudential treatment and limiting exposures. The introduction and application of the EU AI Act, with new guidelines on general purpose AI models as of August 2025, impose compliance conditions on AI usage in fintech products and services.
The EBA has flagged "weak compliance controls" within the fintech sector, highlighting that rapid innovation and growth can outpace firms’ ability to manage money laundering (ML) and terrorist financing (TF) risks. Payment institutions and e-money firms are particularly exposed, with concerns that some fintechs prioritize growth over compliance. The evolving fraud landscape includes criminals’ increasing use of AI and sophisticated technologies, creating more complex risks that financial firms must counter with evolving measures.
Growth in fintech adoption and embedded financial services brings greater cybersecurity risks. Institutions are adopting advanced cybersecurity frameworks including blockchain-based zero-trust architectures and enhanced API security to build trust and resilience. The DORA framework enforces operational risk management enhancements, including requirements for penetration testing and supply chain risk management for subcontractors.
Regulatory hurdles coincide with market pressures demanding scalability, profitability, and innovation. Fintech consolidation through mergers and acquisitions is expected, driven by a need to balance innovation with regulatory compliance. Licensing clarity remains critical; 32% of fintech leaders globally emphasize the importance of clear licensing frameworks to navigate compliance effectively.
In a report titled "The State of European Financial Services: 2025 Report," the global verification leader, Sumsub, found that 51% of fintech professionals cite "keeping up with changing regulations" as their biggest challenge. Emerging fraud types like AI-generated deepfakes and synthetic identity document fraud are exposing the limitations of manual checks and siloed tools. AI-generated deepfakes increased by 900% in Europe in Q1 2025.
Financial institutions across Europe are at an inflection point, facing a compliance environment that's growing more complex and costly to navigate, especially with outdated, manual systems still in place. Nearly one in five (18%) loses over €1 million each year due to fraud, and 44% of respondents report high operational costs as a major burden. More than 53% of firms rely on fully or partly manual processes for reporting suspicious activity and transactions, and 25% of professionals highlight frequent false positives as a drain on resources.
The ability to integrate robust compliance, cutting-edge cybersecurity, and innovative technology under these constraints will define resilience and competitive advantage going forward. Nearly half of respondents (47%) anticipate higher penalties for non-compliance in the next 12 months, and 38% expect stricter KYC/KYB requirements. Without addressing these challenges, European fintechs and financial institutions risk falling behind in a rapidly evolving market.
Sources: - Finextra, “Fintech in 2025,” August 2, 2025 - Linklaters, “UK & EU Fintech and payments regulation update,” August 5, 2025 - Regulation Tomorrow, “EBA final report on crypto exposure,” August 6, 2025 - FF News, “Regulatory Changes Impacting Global Fintechs,” August 6, 2025 - Sumsub, “The State of European Financial Services: 2025 Report,” August 7, 2025 - 50% foresee increased regulation around transaction monitoring. - Compliance operations in the European financial sector remain fragmented, leaving teams reactive to threats rather than proactive.
- The evolving digital operational resilience framework, as mandated by the European Union's Digital Operational Resilience Act (DORA), calls for enhanced operational risk management, including requirements for penetration testing and supply chain risk management for subcontractors.
- To counter the increasing use of AI and sophisticated technologies by criminals in the evolving fraud landscape, financial institutions are adopting advanced cybersecurity frameworks, such as blockchain-based zero-trust architectures and enhanced API security, to build trust and resilience.
- Regulatory bodies like the European Banking Authority (EBA) have highlighted "weak compliance controls" within the fintech sector, emphasizing the importance of balancing rapid innovation with effective management of money laundering (ML) and terrorist financing (TF) risks.
- As regulations change and evolve, more than half (51%) of fintech professionals cite "keeping up with changing regulations" as their biggest challenge, with suggestions of increased regulation around transaction monitoring and stricter KYC/KYB requirements on the horizon.
