The European Union’s financial regulatory landscape is facing growing challenges, with concerns over increasing complexity, regulatory fragmentation, and a disconnect between EU citizens and the regulations that govern them. These issues are particularly prominent in the financial sector, where cumbersome rules are often costly, difficult to interpret, and disconnected from the practical realities of implementation. The "Less is More" report, authored by legal and banking experts, academics and the European Credit Sector Associations delves into these concerns and proposes actionable solutions aimed at simplifying and stabilizing the EU’s regulatory framework.
Key Issues Highlighted in the Report
- Declining Competitiveness: The EU's financial sector is becoming less competitive, partly due to an overabundance of regulations that fail to keep pace with the rapid evolution of the sector.
- Regulatory Complexity: With the proliferation of Level 1, Level 2, and Level 3 regulatory texts, including directives, regulations, guidelines, and technical standards, the regulatory environment has become overly complex and costly for both financial institutions and citizens.
- Lack of Prior Impact Assessments: Many regulations are adopted without adequate prior assessment of their impact, leading to unforeseen consequences, unnecessary complexities and inefficiencies.
Core Findings
The report identifies several root causes of the issues currently plaguing EU financial regulations:
- Inflation of Regulatory Texts: A growing body of European regulation is characterized by excessive detail, which has become bureaucratic and difficult to navigate. New regulations are often introduced without addressing existing inefficiencies, leading to overlapping mandates.
- Shifting Normative Power: There has been a noticeable shift in regulatory authority from the EU's co-legislators (the European Parliament and Council) to the European Commission and European Supervisory Authorities (ESAs), which have increasingly adopted regulations without proper consultation or oversight.
- Over-Regulation in Emerging Fields: New areas, such as digital finance and sustainable finance, have led to an influx of regulations, further complicating the landscape and increasing compliance costs.
Proposed Solutions: A Toolbox for Reform
The "Less is More" report presents a series of solutions aimed at simplifying the EU's regulatory framework:
- Stabilize and Simplify the Regulatory Framework: Propose a renewed interinstitutional agreement on "Better Regulation" to ensure that new regulations are introduced in a more coherent and manageable manner.
- Better Distinction Between Regulation and Supervision: Clearly delineate the roles of regulation and supervision, which would reduce the overlap and confusion in the current system and improve regulatory oversight.
- Strengthen Control of Level 2 and 3 Acts: Implement measures to improve the transparency and scrutiny of delegated acts and soft law, ensuring they are subject to adequate impact assessments and consultations.
- Stakeholder Involvement: Increase the involvement of key stakeholders, such as financial institutions, in shaping regulatory decisions to ensure that regulations are practical and aligned with the needs of the industry.
Why This Report Matters
The "Less is More" report underscores the need for urgent reform in the EU financial regulatory framework. By simplifying and stabilizing the regulatory environment, the EU can boost competitiveness in the financial sector, encourage innovation, and better serve both institutions and citizens.
The proposed solutions aim not only to reduce complexity but also to ensure that the EU's regulatory system is fit for the future — flexible enough to address emerging issues while stable and predictable enough to foster long-term growth and stability.
Next Steps: A Call for Action
As EU financial regulations continue to evolve, policymakers and regulators must take immediate steps to address the issues identified in the report. The authors call for a broad discussion on regulatory reform and urge the European Union to act on the proposed solutions to create a more efficient, transparent, and competitive financial system for the future.
Download the Full Report
For an in-depth look at the findings and proposed solutions, download the full "Less is More" report here.
An executive summary is available here.