Key points
- Upcoming US mid-term elections could have a major short to medium term influence on the direction of the US and wider global economy.
- European defence spending is set to increase as the region aims to become less reliant on US support.
- The European Union (EU) Savings and Investment Union (SIU) could help European savers become investors, unlocking deeper private capital markets.
- AIFMD II comes into force in April and should harmonise and enhance the EU’s rule set for cross border non-UCITS, regulated funds.
- European institutions must guard against complacency on the move to T+1 settlement.
McIntosh: In terms of the geopolitical forces shaping the landscape this year, what would you say are the key points to watch?
Galbraith: While the 2026 US mid-term elections are not yet taking centre stage, they could be very consequential. Historically, the US president’s party loses ground in the mid-terms, and polling suggests Democrats have an advantage in the House of Representatives. However, the Senate map is challenging, and Republican optimism around the tax cuts outlined in President Trump’s One Big Beautiful Bill Act and wider cost of living issues could complicate the picture.
McIntosh: Is there anything we should be watching particularly closely on the European front?
Galbraith: In Europe, defence spending is becoming a major focus, and we believe European nations are serious about boosting their defence commitments. That said, there is divergence across the region. Those countries which are geographically closer to Russia are already spending more and will continue to do so.
Changes to EU debt rules and NATO targets have enabled this shift, and we expect it to be meaningful both for the defence industry and the broader Eurozone economy, though macro impacts will take time to materialise. EU debt rule changes have enabled a step change, and there is now a strong consensus across much of Europe that, post the invasion of Ukraine, meaningful defence spending is no longer optional.
McIntosh: Where will the money come from to fund this spending and what might all this mean for asset managers and banks?
Whelan: Europe has the money - it just hasn’t mobilised it very effectively so far. The EU’s own Savings and Investment Union (SIU) is central to this. As our own 2026 regulatory outlook highlights, Europeans are good savers but poor investors, and capital often sits idle in low yield environments such as low interest bank savings accounts.
If the SIU can turn savers into investors, Europe could unlock deeper capital markets similar to those in the US. This presents a huge opportunity for asset managers and banks to play a more visible role in the real economy. But it will require political will, fiscal incentives, and cultural change.
McIntosh: What role if any can tokenization play in this?
Whelan: Europe cannot close its investment and funding gap without mobilising private capital. Tokenization may help over time, but it is not a silver bullet. At present, fund tokenization is a lower order priority compared to simply getting more people invested at all.
McIntosh: Beyond the SIU are there any other European regulations we should be paying close attention to?
Whelan: The Alternative Investment Fund Managers Directive (AIFMD) II, which is set to come into force in the EU in April this year, is, I believe, going to be a regulation that will have a positive effect. It is designed to enhance the EU’s rule set for cross border non-UCITS, regulated funds and should harmonise loan origination across Europe and help facilitate loans to real business. It should also go some way to harmonising the rules around alternatives that have, to date, been very fragmented across Europe.
McIntosh: Responsible investing and ESG have faced some stern criticism in recent years particularly from a strong body of US policymakers sceptical about their benefits. For all that, can we expect to see any kind of rebound against that, either in Europe or in the US?
Whelan: While it is true some have been hostile to responsible investment in the US - with some of the loudest voices of dissent coming from the White House - a number of US states, including California, remain committed to its principles and have invested heavily in ‘green’ technologies.
In our regulatory outlook, we talk about ESG globally being a phoenix waiting to rise again from the flames. I think it will, once again, become another important constituent element of conversations with clients as you look to risk management, supply chain, sustainability, and its widest sense of your investments. Responsible investment continues to be driven by some fundamental concerns and is of huge relevance to investors.
McIntosh: Is there anything on the longer-range horizon of 2027 we should be bracing ourselves for?
Galbraith: Again, I’d flag elections as a potentially major risk in 2027. Many major European countries face elections next year and leading parties have very different views on European integration, which could slow or reverse progress on the current reform agenda.
McIntosh: 2027 also brings T+1 to Europe. Where should firms focus operationally for the October 2027 European move to a T+1 settlement cycle?
Whelan: In my view, there is a dangerous level of complacency about this. The fact the US transition to T+1 went smoothly last year seems to have led many to assume everything will be smooth for Continental Europe. In reality, the European market is more fragmented than the US, and firms need to engage now with the UK and EU guidance. This is a tactical change with major strategic implications, especially for firms operating across multiple time zones.
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