Europe’s financial problem isn’t a lack of rules. It comes from too much friction, and a large share of that drag is self-inflicted.
After 15 years of post-crisis repairs, the EU can point to two real gains: a more resilient system and stronger protection for investors and consumers. Yet alongside this, we’ve assembled a regulatory and supervisory apparatus that’s increasingly difficult to operate as a true single market. Rules pile up in layers, evolve via technical standards and guidance, then get interpreted differently across jurisdictions and finally they force firms into yet another round of internal overhauls.
The outcome is a quiet, compounding toll on capital formation, paid through larger compliance teams, duplicate reporting, slower approvals and business models that stay domestic because EU-wide scaling simply isn’t worth the effort.
That should trouble anyone thinking seriously about Europe’s growth model. A Savings and Investment Union won’t emerge from slogans alone. It requires a financial system that can move savings into productive investment at scale. And that, in turn, depends on regulation and supervision that are usable, predictable and aligned across borders.
This isn’t an argument for deregulation, as President Ursula von der Leyen put it plainly on 1 October 2025 in Copenhagen. It’s an argument for better design.
The real competitiveness gap isn’t standards, it’s usability
When policymakers discuss competitiveness in finance, the conversation often slips into a false binary. Either we maintain high standards, or we weaken them to keep up with other jurisdictions. Such framing misses the point.
In financial services, competitiveness largely comes down to whether the system can do three things effectively: 1) direct savings into investment with efficiency, 2) enable innovation and new entrants without opening loopholes, and 3) allow firms to scale across the single market without paying 27 times for the same idea. None of this requires weaker safeguards. It requires fewer moving parts and clearer accountability.
That’s why the Council’s December 2025 conclusions on simplifying EU financial services regulation matter. They signal an institutional acknowledgment that complexity has gone beyond what’s necessary and that both the existing stock and flow of rules need to be managed with greater discipline.
We keep adding when we should be replacing
The EU has become very effective at introducing new obligations and weak at phasing out old ones. Consolidation is rare, sunset clauses are uncommon, and we almost never force a real trade-off. When something new is added, something else should come out.
This habit of layering leads to a framework that grows harder each year to interpret, automate and supervise consistently. It also creates an innovation drag, as established players can absorb the fixed costs of complexity, while challengers struggle.
If the goal is to reduce friction, the EU needs to adopt discipline that sounds boring but would be transformative – new measures should clearly map what they override, merge or remove. If nothing is being replaced, then we’re not simplifying, we’re expanding.
Sequencing isn’t bureaucracy, it’s economics
Much of the burden doesn’t stem from the rule itself but from the timing. When key technical standards and guidance arrive late (or shift repeatedly), firms don’t just implement, they’re forced to rebuild. These rebuild cycles are costly, resource-heavy and often regressive, hitting smaller firms hardest.
And when identical rules are enforced differently across supervisors, cross-border groups respond in predictable ways. They duplicate structures, localise operations and avoid scaling across Europe.
That’s why ‘readiness gates’ are essential. If critical standards or supervisory clarifications aren’t finalised early enough for proper build-and-test cycles, application dates shouldn’t pretend otherwise. This is just basic execution logic.
It’s also telling that the ESAs themselves are calling for streamlining and more risk-based, proportionate processes. That is clear evidence that the current model is accumulating complexity faster than it can manage.
Supervision is market-shaping – so divergence is a competitiveness problem
Supervision doesn’t just enforce rules, it actively shapes markets. The speed of authorisations, model approvals, data requirements and enforcement intensity all affect whether firms invest, enter and grow. When these vary significantly across Member States, the result isn’t a true single market, it’s a shared rulebook with 27 different operating environments.
That’s why stronger convergence with accountability matters. Not just peer reviews that stop at diagnosis but concrete remediation, follow-up and transparency on whether gaps actually close.
Because EU markets differ in their level of integration, we also need a practical way to move past the ‘centralisation vs decentralisation’ debate. This means a supervisory efficiency test. Where activities are highly cross-border, standardised, and enforceable at EU level, fragmented supervision is inefficient. Where markets remain genuinely domestic, national oversight still makes sense.
The aim is to match oversight to market reality, function by function, rather than rely on a one-size-fits-all approach.
Data: stop collecting more and start collecting better
Europe’s reporting burden is often framed as a volume problem, with too many templates. But the deeper issue is reuse. Firms still generate similar data repeatedly, in different formats, for different authorities and purposes. That’s simply inefficient.
A serious simplification effort should focus on machine-readable standards, interoperable taxonomies and reporting built around clear supervisory use cases. The objective is straightforward – collect once, use many times, across authorities, sectors and borders.
One hard truth: Europe won’t get its SIU without reform
The Letta and Draghi reports reached the same conclusion: Europe’s fragmentation and slow execution have become strategic weaknesses and this includes finance.
If simplification continues to be treated as an occasional burden-reduction exercise, the system will keep drifting towards more layers, more divergence, higher fixed costs and less financing capacity.
So, the core argument is simple. Europe should stop measuring success by how much regulation it produces and start measuring it by whether the framework actually supports investment, scaling and supervision that works across borders. High standards are essential. But standards that can’t be used effectively end up stifling their own purpose.
We can have more finance with less friction. But only if we accept that simplification is a redesign of how Europe writes rules, maintains them and supervises them.
To read the full Task Force Report that this CEPS Expert Commentary is based on, please click here.