Europe’s financial services sector is burdened by excessive rules. As of mid-last year, more than a quarter of EU Delegated Acts adopted across all policy areas concern financial services – more than agriculture and environment combined. And that’s before counting the EU Directives, Regulations, national laws and supervisory expectations layered on top or underneath. The volume has become so vast that it is hard to keep track.
The EU’s rule-making system for banking and financial services – originally developed as a necessary reaction to the Global Financial Crisis and the subsequent EU Sovereign Debt Crisis – is now holding back the sector’s competitiveness compared with other jurisdictions. While the Commission has put competitiveness and simplification at the heart of its current agenda, it remains unclear how, or whether, this will translate into meaningful improvements for financial services. Even if changes are agreed in principle, EU-wide reforms risk moving too slowly compared with faster decision-making possible in single jurisdictions.
The result: European banks are less agile, less competitive, and constantly navigating overlapping obligations, duplicated reporting requirements, and shifting supervisory expectations — all without a clear understanding of the true cost or effectiveness of each rule and their cumulative impact.
Simplification is Not Simple
What makes the challenge of simplification for financial services truly daunting is that no one has ever fully quantified the costs stemming from this complexity. Thousands of pages of laws, hundreds of delegated acts, and layers of supervisory guidance interact in ways that are often highly complex, diverting time, capital, and human resources away from supporting clients and the real economy. The result is an industry often burdened well beyond what’s needed to ensure a stable and well-functioning financial system.
This does not mean simplification cannot be pursued. On the contrary, it underscores the urgency of a comprehensive review. Achieving meaningful simplification will require sustained effort, rigorous assessment, and above all, recognition that the European rulebook is more than just a set of discrete rules: it is a complex ecosystem whose cumulative weight affects every corner of financial services – and the real economy as a result.
Quick wins within reach
There are short-term wins within reach if the EU can focus its policymaking machinery on some clear targets.
For instance, larger banks are subject to at least eight different kinds of own funds requirements – known as capital stacks. Each stack comprises different components, sometimes covering the same risk or set by different authorities with varying objectives. Some of this is by design, stemming from post-crisis reforms. Other parts, however, reflect national authorities’ desire to retain control or political compromise.. Because these requirements originate from different source texts, simplification becomes far more complex in the EU than in a single jurisdiction. Still, as is often said in EU policymaking circles, “where there’s a will, there’s a way,” and meaningful streamlining can be achieved without lowering capital standards.
The EU could also consider pausing non-essential rulemaking in order to avoid adding further layers of complexity. For example, ongoing proposals such as the Financial Data Access Regulation (FiDA) and the Retail Investment Strategy (RIS) should either be dropped or paused to allow for reflection.
Intellectual resource and political capital could then be redirected to how the EU should react to game changers, such as digital assets and infrastructure, which have the potential to revolutionise capital markets for the good of investors and businesses. Without decisive action, however, Europe risks falling behind on the global stage.
A bold reset is needed
Meaningful simplification must also go further. The EU needs a coordinated stocktake of the entire financial services rulebook: cutting outdated mandates, removing unnecessary guidance, and tackling structural barriers that prevent banks from operating at scale.
The Commission’s current proposals to deprioritise 115 forthcoming level two mandates, along with similar bottom-up work carried out by the European Banking Authority are steps in the right direction. But they are only the start. All bodies involved in the rule-making process need to coordinate these efforts, apply simplification both to existing rules and the future pipeline, and consult industry – especially when firms are the primary addressees of the rules.
Supervisory processes should also be more transparent and risk-based with proportionality applied across the board. The Single Supervisory Mechanism’s simplification initiative could make real progress here - provided ambitions are high, they lead to simplification at the supervised entities as well, and supervisory culture adapts accordingly.
Ultimately, the Lamfalussy process itself needs a reset. A framework originally designed to speed up law-making has become too slow and clunky and will increasingly hold us back.
The financial crisis justified a rapid expansion of Europe’s rulebook. Today, the challenge is different: ensuring the framework is effective, proportionate, and fit for a competitive Europe. Simplification does not mean weaker regulation — it means smarter, clearer rules that keep taxpayers and markets safe, while supporting growth. It also means modernising our policymaking in line with the times we live in.
If the Commission is serious about competitiveness, it must also put the regulatory environment for financial services at the centre of its simplification drive. We need strong banks and vibrant markets to drive investment, innovation and economic growth. Europe cannot afford to let its economy be left behind.
