By Adam Farkas, Chief Executive Officer, Association for Financial Markets in Europe (AFME)
The European Commission’s (EC’s) recently launched initiative to cut and simplify regulation across the European Union (EU)—as part of its broader competitiveness agenda—is both timely and necessary. Yet for Europe’s banking and financial sector, the challenge runs far deeper than trimming a few redundant rules. Over the past decade and a half, the EU’s financial framework has grown into a dense thicket of regulations, directives, delegated acts, regulatory and supervisory guidelines, and supervisory expectations—often overlapping, sometimes contradictory, and increasingly burdensome.
What began as a justified response to past crises has hardened into structural excess. If the Commission’s new focus on regulatory simplification is to have a real impact, it must move beyond symbolic gestures and tackle the systemic complexity that now hobbles European finance.
The cumulative weight on competitiveness
Europe’s financial-services sector is now burdened by excessive regulation. To use an example, as of mid-last year, more than a quarter of all EU delegated acts across policy areas concerned financial services—more than agriculture and environment combined. And that figure excludes the myriad EU directives, regulations, national laws and supervisory expectations layered on top. The sheer volume has become unmanageable.
The EU’s rule-making system for banking and financial services—originally developed in response to the Global Financial Crisis (GFC) and the subsequent Sovereign Debt Crisis—is now undermining the sector’s competitiveness compared with other jurisdictions. While the Commission’s agenda rightly places competitiveness and simplification at its core, it remains unclear how, or whether, this will translate into tangible results for financial services. Even when reforms are agreed in principle, EU-wide decision-making risks moving too slowly compared with the agility of single jurisdictions.
The result: European banks are less nimble and competitive, continually navigating overlapping obligations, duplicated reporting requirements and shifting supervisory expectations.
The result: European banks are less nimble and competitive, continually 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 combined impact.
Simplification is not simple
The scale of the problem is amplified by the fact that no one has fully quantified the costs of this complexity. Thousands of pages of laws, hundreds of delegated acts and layers of supervisory guidance interact in unpredictable ways—diverting time, capital, and human resources from supporting clients and the real economy. The result is an industry burdened far beyond what is needed to ensure a stable and well-functioning financial system.
Simplification, however, is not impossible—and the very difficulty of the task underscores its urgency. Achieving meaningful change requires sustained effort, rigorous assessment and recognition that Europe’s regulatory ecosystem is interconnected. The cumulative weight of that ecosystem affects every corner of financial services—and, ultimately, the wider economy.
Quick wins within reach
There are achievable steps the EU could take now to lighten the load.
For instance, larger banks are subject to at least eight different kinds of own funds requirements—so-called capital “stacks”. Each stack comprises distinct components, which sometimes cover the same risk or are established by different authorities with varying objectives. Some of this reflects deliberate post-crisis reform design; other elements stem from political compromise or national preference. Because these requirements originate from different legislative sources, simplification becomes far more complex in a multi-jurisdictional system such as the EU’s. Still, as the saying goes in Brussels policymaking circles: “Where there’s a will, there’s a way.” Meaningful streamlining can be achieved without lowering prudential standards.
The EU could also consider pausing non-essential rulemaking to avoid adding yet more layers of complexity. Proposals such as the Financial Data Access Regulation (FiDA) and the Retail Investment Strategy (RIS) could be paused or re-evaluated to allow reflection. Intellectual and political capital could then be redirected toward how Europe should respond to genuine game changers—such as digital assets and market infrastructure—which have the potential to transform capital markets for investors and businesses alike. Without decisive action, Europe risks falling further behind on the global stage.
A bold reset is needed
Ultimately, simplification must go further. The EU needs a coordinated stocktake of its entire financial-services rulebook: cutting outdated mandates, removing redundant guidance and dismantling structural barriers that prevent banks from operating efficiently at scale.
The Commission’s recent decision to deprioritise 115 forthcoming Level 2 mandates, alongside similar bottom-up efforts by the European Banking Authority (EBA), is a step in the right direction, but it is only the beginning. All institutions involved in the rule-making process must coordinate their efforts, simplify both existing and future regulations, and consult closely with the industry, particularly since firms are the primary addressees of these rules.
Supervisory processes, too, should become more transparent and genuinely risk-based, with proportionality applied consistently. The Single Supervisory Mechanism’s (SSM’s) simplification initiative could mark real progress, but only if its ambitions are high, its outcomes practical and its supervisory culture evolves accordingly.
The courage to simplify
The European Commission’s drive to reduce regulatory burdens offers an opportunity Europe cannot afford to squander. But piecemeal reform will not suffice. Simplification must be comprehensive, coordinated and grounded in a clear understanding of how rules interact and accumulate.
Europe’s banks and markets need clarity, consistency and room to compete—not another patchwork of partial fixes. After years of accretion, the time has come for a genuine review of the rulebook: one that safeguards stability while restoring Europe’s financial dynamism.
The Commission has opened the door. It must now have the courage to walk through it.
Adam Farkas has been the Chief Executive Officer of the Association for Financial Markets in Europe (AFME) since February 2020 and is responsible for shaping its overall strategy. Adam also served as the Chief Executive Officer of the Global Financial Markets Association (GFMA) from 2022 to 2025. Before joining the AFME, Adam was the Executive Director of the European Banking Authority (EBA) from April 2011 until the end of January 2020.