KPMG, a provider of audit, tax, and advisory services, has revealed the findings of its latest UK Financial Services Sentiment survey, showing a decline in confidence among financial services leaders regarding future profitability.
As geopolitical events continue to disrupt the global economy, over 60% of financial services leaders are increasing their investments in risk mitigation strategies.
Despite these challenges, optimism about overall business growth for the second quarter of 2025 remains strong, with nearly 90% of leaders still confident in the sector’s expansion.
The survey, which gathered insights from over 150 leaders across the financial services industry, found that confidence about profitability fell by five percentage points from 94% in the first quarter of 2025 to 89% for the second quarter.
However, the survey also indicated that leaders are more optimistic than they were a year ago, with 89% confident about Q2 2025, compared to 87% during the same period in 2024. This shift reflects a cautious approach in response to ongoing economic and geopolitical uncertainties.
As geopolitical risks have grown in prominence over the past year, nearly 30% of leaders have cited them as a top concern for their business in the upcoming quarter.
In response, six in ten financial services leaders are increasing their allocation of revenues to risk mitigation efforts, including investments in business continuity planning and cyber resilience.
On average, leaders are dedicating 8% of their total revenues this financial year to risk-proofing their operations, with expectations to increase this percentage to 10% by 2030. More than a quarter (28%) of leaders predict they will invest over 15% of their revenues in such measures by the end of the decade.
Karim Haji, Global and UK Head of Financial Services at KPMG, said: “We are in the most volatile geopolitical and economic environment since 2008 and the stability that the sector thrives on is in short supply. So, despite the dip in confidence about future profitability, it’s encouraging to see most leaders maintain a positive short-term outlook, supported by the uptick in services sector growth reported in March. But volatility is putting pressure on revenues, and we can expect this to be a long-term trend.
“The most significant threat to future growth and lower inflation is the fragile state of geopolitics, shifting the focus of investment from efficiency to resilience
“This will continue to intensify for financial services firms as they grapple with the unavoidable challenges of heightened global tensions, cybersecurity threats, the knock-on effects of China’s slow growth and persistent economic headwinds driven by the rise of geopolitical risks.
“While investment in risk-proofing is going to increasingly put pressure on revenues, if done in the right way, it will not only drive a better understanding of geopolitical risk exposure to inform business preparedness and response planning but will help firms achieve both resilience and opportunities for growth.”
Despite these concerns, leaders remain optimistic about the future of the financial services sector, particularly with regard to government efforts to drive growth through regulatory reform.
Confidence in the Chancellor’s plans to “regulate for growth” and introduce a Financial Services Competitiveness Strategy has risen sharply, with 85% of leaders now expressing confidence that these measures will enhance the sector’s competitiveness. This is a significant increase from 70% in the first quarter of 2025.
In addition to regulatory reforms, leaders are hopeful that the government’s initiatives will attract foreign investment and strengthen the UK’s position in sustainable finance and fintech. However, some leaders have expressed concerns about potential challenges, such as tax increases and broader economic pressures, which may hinder the government’s ability to achieve its goals.
Looking ahead, financial services leaders remain confident in the UK’s ability to maintain its status as a global financial hub.
Nearly 80% of respondents believe the UK will continue to be a leading player in the global financial landscape over the next three years, with six in ten agreeing that the country is now more attractive to investors than it was five years ago. Despite the economic and geopolitical challenges facing the sector, the survey reflects a sense of cautious optimism about the future growth and resilience of the UK financial services industry.
Karim concludes: “A key part of the Chancellor’s plan to kickstart economic growth is to cut the cost and complexity of regulation. We’re already seeing the Government act on this in financial services by folding the Payment Systems Regulator into the FCA, which may have instilled greater confidence among leaders that the country really is taking steps towards reform.
“Leaders want certainty and clarity, so reduced regulatory complexity is welcome. However, reversing regulation doesn’t come without risk and must be proportionate to preserve a safe and stable financial system, particularly in such a volatile world.
“Despite the rise in confidence of the Government’s sector plans, there are still concerns related to the impact of tax increases and economic headwinds on growth in financial services. So, leaders will want to see more detail on the Chancellor’s plans to achieve this and cement the UK’s position as a leading financial centre.”
