As we look back at the predictions we made for 2025, one thing stands out: we were directionally spot-on. The themes we highlighted last year - AI adoption, long-term strategic investment, continued M&A activity, the evolution of Consumer Duty, and the growing importance of resilience - are still the forces shaping the industry. But the story has moved on. If 2025 was a year of experimentation and cautious adoption, 2026 will be the year in which the sector expects evidence. Firms are no longer asking whether these trends matter; they are asking how to make them deliver.

1. The acceleration of AI

AI continued to dominate boardroom agendas in 2025, and in 2026 its influence is even more pronounced. Almost every financial services firm is now using AI in at least one area of their business, often starting with operational or internal functions. Yet many leaders admit that the gap between small wins and full enterprise-level transformation is still substantial.

The biggest challenges remain stubbornly familiar. Data quality continues to be a major constraint, and most organisations now recognise that AI cannot simply be “switched on” without proper preparation. Training staff, embedding new skills and fostering the right culture are proving just as important as choosing the right technology. What has changed is the appetite: firms increasingly understand that AI adoption is not a standalone tactical exercise but a strategic commitment that needs to be integrated across the whole organisation, not just in isolated pockets.

Despite the challenges, we are now seeing genuine, measurable examples of AI adding value - supporting quicker decision-making, improving processes, reducing friction and enhancing the customer experience. The sector is accelerating through the test-and-learn phase, but with a greater awareness of the discipline required. Organisations know they cannot afford to fall behind, yet equally understand the risks of moving too quickly. In 2026, the winners will be those that combine ambition with thoughtful implementation.

2. Prioritising long-term value over short term gains

Last year we talked about the importance of investing for the future rather than focusing solely on the present. That theme has only strengthened. Financial services firms are operating against a backdrop of ongoing global uncertainty, constrained budgets, shifting employment trends and continued cost-of-living pressures affecting customers. Despite these challenges, the system has shown resilience.

Many organisations have moved beyond incremental improvements and short-term fixes. Instead, they are looking at more substantial transformation agendas, re-evaluating long-standing approaches to customer experience, and addressing legacy systems that can no longer support the pace or scale demanded. We are seeing a renewed focus on longer-term value, with firms recognising that differentiation cannot come from doing more of the same. It requires clarity of purpose, strategic investment and a willingness to make decisions that may not pay off immediately but are essential for future competitiveness.

In 2026, this shift from reactive planning to proactive, future-focused strategy will become even more important. Those willing to invest with intent rather than caution will be best positioned to thrive.

3. M&A: Scaling up and looking beyond traditional deals

When we predicted a rise in M&A activity last year, the signs were strong - but the scale of what followed has been striking. 2025 delivered a wave of significant deals across the sector, demonstrating that organisations remain ready to pursue growth through acquisition when the right strategic fit appears. The momentum is set to continue into 2026.

Large incumbents have been focused on acquisitions that build scale or bring new capabilities, and this will continue with the recently-announced acquisition of TSB by Santander. At the same time, digital challengers are using M&A to redefine their own models and expand their capability. Banks like Starling and Monzo are as much technology providers as financial institutions, exploring acquisitions in the US to accelerate their international ambitions beyond the UK.

For smaller building societies and mutuals, collaboration and consolidation are becoming increasingly sensible strategies. Greater cooperation gives them stronger bargaining power, access to shared infrastructure, and economies of scale. Even without full mergers, partnerships and joint ventures are becoming more common as a way to remain competitive.

Taken together, these developments show that M&A remains a fundamental lever for growth in financial services. The activity we witnessed in 2025 was not a peak but an early phase of a wider trend. In 2026, we expect deal-making to evolve from opportunistic to highly strategic.

4. Consumer Duty: The topic that remains front and centre

Consumer Duty continues to be one of the most persistent and demanding regulatory themes in the sector. Over the past year the Financial Conduct Authority has sharpened its expectations, publishing further examples of what good looks like and where firms are falling short. There is particular focus on how vulnerable customers are identified and supported, whether products are genuinely suitable and fair, and how easy it is for customers to understand the information provided to them.

While many firms are embracing the regulation, evidencing good outcomes remains challenging. Authenticity is essential, and it is increasingly obvious when efforts are superficial or inconsistent. The cultural dimension - changing the mindset of the organisation, not just the processes - is proving to be the hardest part for some.

A key area to watch in 2026 is communication. As AI becomes more embedded in customer interaction, firms will need to ensure that automated or AI-enhanced messaging enhances clarity rather than adds confusion or jargon. Meanwhile, customers are becoming less tolerant of friction; they expect a digital-first experience that still feels personal and human.

Consumer Duty is evolving from a compliance requirement into a core marker of credibility. Firms that demonstrate genuine care, clarity and cultural alignment will stand out.

5. Resilience: A broader, deeper expectation

The concept of resilience has expanded significantly in the past year. While traditional issues such as capital strength and operational continuity remain important, more organisations are now recognising that resilience is as much about ecosystems as it is about individual firms. Several high-profile cyber incidents in 2025 reinforced that many vulnerabilities arise not just from core systems but from third-party providers and connected services.

In 2026, boards are increasingly focused on the strength of their supply chain, their preparedness for cyber threats, and - crucially - the quality of their crisis response. Recent events have also highlighted how effective communication during a disruption can maintain customer trust, while poor communication can erode it rapidly. The example set by M&S, with its ongoing dialogue and clear external messaging during a high-profile incident, has been widely noted across the sector.

Governance is also coming to the fore. Constructive challenge and strong oversight are now seen as enablers of agility, not obstacles. Many firms have spent the last 18 months stabilising, shoring-up and remediating. This work may not always be glamorous, but it is the foundation on which future growth depends. Strong resilience creates the freedom to take strategic risks; weak resilience constrains ambition.

Summary

In my opinion, the Financial Services sector sits within a melting pot of heightened customer expectations, rapid AI evolution, regulatory pressure and economic uncertainty. But this combination also presents opportunity.

The organisations best placed to succeed in 2026 will be those that pair strategic discipline with practical innovation - those that build strong foundations while still looking outward and forward. As always, our priority at Johnston Carmichael will be to continue to support clients through this period of change, helping them transform with confidence, strengthen resilience and seize the opportunities ahead.