European competitiveness will not thrive in an overgrown thicket of regulation – the EU must remain committed to regulatory simplification

This Saturday marks Europe Day, a commemoration of the Schuman Declaration, which laid the foundations for European cooperation and the European Union in the form we know today. In a symbolic sense, it can be considered the Union’s birthday.

Anniversaries offer a chance to reflect on past choices and to consider what lies ahead. Integration has strengthened stability across the economic area, and the single market has provided fertile ground for prosperity. However, no human achievement is permanent. The current economic and geopolitical environment is placing severe strain on the EU’s security and competitiveness.

There is certainly no shortage of challenges. Sluggish growth and weak productivity have created a vicious spiral that must be broken, and at the same time, there is a pressing need to reinforce security and defence, advance the climate transition and create better conditions for growth and digital innovation. It is clear that public funding alone will not be enough. Private capital must be mobilised, which requires the involvement of the financial sector. This, in turn, requires that the sector has sufficiently robust operating conditions.

As of late, the decline of competitiveness and the sheer volume of regulation have received more and more attention in European economic debate, which is a step in the right direction. The Competitiveness Compass published by the European Commission in 2025 sets out a clear framework and goals for enhancing the EU’s competitiveness. This year, the Commission also launched a broad consultation on the EU banking sector’s competitiveness. The aim is not to fine-tune individual rules but to clarify the regulatory environment and strengthen competitiveness in a way that supports growth, investment and the green transition. The Commission will be using the consultation responses to prepare an action plan in summer 2026.

Over the years, the European regulatory framework for the financial sector has expanded and grown increasingly complex in a way that stifles competition and increases administrative burden. The Finnish financial sector does not think new regulation should be the default response to every problem. Clarifying existing rules, improving implementation and rationalising supervision are often enough. Additional regulation must be avoided if the same aims can be achieved through a softer approach.

Financial sector regulation consists of national and EU legislation, supplemented by delegated and implementing regulations. A third layer is formed by the increasingly detailed recommendations and guidelines that supervisory authorities issue as interpretations of the higher-level texts.

With regulation pouring in from all three levels, the page count of a single regulatory package can easily reach several thousand. Such a massive amount of legal text is so difficult to manage that it only further complicates operations and increases costs; in practice, merely keeping up with the regulatory framework has become a full-time job. The aim should be to permanently reduce the amount of key texts on the second level, as they are one of the main reasons for the significant increase in regulatory obligations.

In addition, the boundaries of supervisors’ regulatory powers must be clearly marked: non-binding recommendations and soft law instruments must not turn into de facto binding requirements. The mandate of financial supervisors must also be balanced so that competitiveness and economic growth are integrated as complementary goals alongside stability and investor protection. Focusing solely on risks inevitably narrows the perspective. And while such an approach may help identify risks, it can easily overlook the broader impact that regulation and supervision have on competitiveness, economic growth and access to financing.

Nevertheless, we also have good reason to highlight the positive sides and strengths of the Union, especially on Europe Day. The Commission’s work on savings and investments accounts (SIA), for example, is a positive indication of a new approach to regulation. The recommendation is based on well-established national models, which supports the functioning of markets in the Member States without introducing unnecessary additional EU-level regulation.

The financial data access (FIDA) proposal should be evaluated against the same criteria. If the proposal increases complexity and creates additional regulatory layers on top of existing digital frameworks without delivering clear efficiency gains, another review is necessary. If necessary, the FIDA proposal must be withdrawn altogether if it threatens to undermine competitiveness or shift control over data use away from European actors.

The EU must be capable of renewal if it is to increase growth and investment without stifling them with regulation. Lately, we have seen encouraging glimmers of light at the end of the tunnel, but this only makes it all the more important to stay on the chosen track. The commitment to streamline regulation should be reinforced and translated into concrete policy measures. The financial sector has significant potential to spur on European prosperity – as long as this potential is not unduly constrained by excessive regulation.