The challenge of simplifying financial regulation and supervision in Europe
The Centre for European Policy Studies (CEPS), a Brussels-based public policy think tank specialised in European Union affairs, has published the report “More finance, less friction”, which examines how to improve financial regulation and supervision in Europe to make them simpler, more coherent and more supportive of growth in an increasingly competitive global environment.
he report goes beyond diagnosis and sets out a clear reform agenda: from strengthening level 1 legislation through better defined objectives and clearer mandates, to advancing effective simplification of the regulatory framework based on a “replace rather than add” principle, supported by more robust impact assessments and systematic ex-post evaluations.
Key highlights:
- Regulatory complexity carries significant economic costs: Compliance costs are estimated at between 2% and 4% of financial institutions’ operating expenses and have increased five- to sixfold since the global financial crisis. These costs absorb resources that could otherwise support innovation, digitalisation and lending to the real economy. Complexity also affects authorities: more than 3,000 professionals are engaged in supervisory activities at the EU level, in addition to national resources, reflecting a layered model that increases costs without replacing existing structures.
- Complexity acts as a structural constraint on European growth: Regulatory and supervisory fragmentation hampers market integration, limits cross-border activity and reduces the capacity to channel savings into productive investment, a key factor in closing Europe’s investment gap.
- From rule accumulation to system redesign: The report calls for a shift from an approach based on accumulating rules to one focused on redesigning the system, with clearer, better-sequenced and less duplicative requirements that reduce costs without compromising financial stability.
- Towards a simpler framework: “replace rather than add”: A stronger regulatory discipline is needed to avoid layering new requirements on top of existing ones. Any new initiative should entail the review or removal of existing obligations, with the aim of achieving net simplification.
- More coherent and less fragmented supervision: Divergent supervisory practices across Member States generate uncertainty and additional costs. The report advocates stronger convergence, more predictable processes and a more proportionate, risk-based supervisory approach.
- Reducing barriers to cross-border activity: The persistence of national options and discretion continues to limit integration. Streamlining authorisations, reporting requirements and group-level decisions would improve capital allocation and enable greater scale for European institutions.
- From “more data” to “better data” in supervision: The report calls for rationalising reporting requirements and moving towards reusable, interoperable data frameworks, reducing administrative burdens while enhancing supervisory effectiveness.
- Balancing stability and competitiveness: The EU should preserve financial stability while avoiding unnecessary frictions. Embedding competitiveness as a complementary objective would help align regulation and supervision with economic growth and Europe’s global positioning.
Filter results
According to CEPS, regulatory and supervisory complexity acts as a structural constraint on integration, investment and market depth, with costs that weigh most heavily on smaller institutions, new entrants and cross-border business models.
According to the ECB, an efficient, secure and integrated payment system would strengthen the international role of the euro and deliver benefits such as lower financing costs, reduced exposure to exchange rate fluctuations and greater protection against sanctions.
According to the IEA one key debate in the EU on financial regulation simplification is whether to explicitly include competitiveness, efficiency or contribution to growth as objectives of the regulatory agencies, following the UK example.
According to IE University’s Center for the Governance of Change, deeper and more integrated financial markets would strengthen the euro’s global role. This requires, among other elements, resilient and interoperable payment systems and completing the banking union.
Partnerships between banks and private credit: The winners will be those that combine bank underwriting discipline, distribution, and customer access with private capital’s appetite for long-dated, illiquid risk, according to Oliver Wyman.
Lucrezia Reichlin (CEPR): A CBDC is not a prerequisite for monetary sovereignty. Confusing money with payments can risk misdiagnosing the problem and misaligning economic policy efforts.
According to the World Economic Forum´s Global Risk Report 2026, geoeconomic confrontation, mis- and disinformation and societal polarization make up the top three short-term risks, while environmental risks dominate in the long term.
According to the World Economic Forum, over the last few years AI has moved from experimentation to workflow integration, promising systemic gains in productivity while also raising critical questions around economic inclusion, values, trust and resilience.
According to AFME, a clearer, more coherent, and proportionate regulatory environment, without unnecessary layers and focuses on growth and competitiveness, is keyl to increase investor confidence, unlock private capital and deepen European capital markets
According to the Center for the Governance of Change at IE University, Europeans support technological progress if it reinforces security, inclusion, and social welfare; but resist it when change feels imposed, opaque, or misaligned with their values.
According to a recent report released by CEPS, European financial regulators should adopt competitiveness as a formal secondary objective, following the precedent established by the UK's Financial Services and Markets Act 2023.
According to the OECD. SMEs and start-ups that grow rapidly contribute significantly to job creation, economic growth and competitiveness. Indeed, SMEs that grow by one-third over a three-year period, contribute about as much to job creation as large firms.