Europe’s sprawling financial rulebook is increasingly acting as a drag on investment and growth, according to a new set of recommendations from the Centre for European Policy Studies (CEPS), which argue that simplification, not deregulation, is essential to restoring the bloc’s competitiveness in global capital markets.
The CEPS analysis and accompanying task force report conclude that, after more than a decade of post-crisis reforms, the EU has achieved stronger financial stability and investor protection. But those gains have come with a tradeoff: a complex, layered regulatory system that is harder to navigate, slower to adapt and increasingly misaligned across member states.
That complexity is now emerging as a structural constraint on Europe’s ability to raise capital efficiently, direct investment to productive uses and scale businesses across borders—core objectives of the EU’s broader push to strengthen its competitiveness and deepen its recently proposed Savings and Investment Union.
“The EU’s financial problem isn’t a lack of rules,” the CEPS expert commentary states. “It comes from too much friction,” with regulatory layering, divergent national implementation and repeated compliance cycles creating what amounts to a “levy on investment.”
At the center of the critique is the way EU financial regulation is designed and maintained. Over time, the bloc’s multi-tiered rulemaking framework—intended to balance political oversight with technical flexibility—has evolved into a system characterized by “complexity without agility.” Detailed requirements are increasingly embedded across multiple regulatory levels, while new obligations are added without removing outdated ones.
The result is a cumulative burden on firms, particularly smaller institutions and new entrants, which must contend with high fixed compliance costs, duplicative reporting and repeated “rebuild cycles” as technical standards are updated or clarified late in the implementation process. These dynamics discourage cross-border expansion and reinforce a tendency for firms to operate within national silos rather than scale across the EU single market, per CEPS.
For investors and startups, the implications are significant. The CEPS report frames regulatory friction as a key reason why Europe struggles to mobilize savings into productive investment at scale, especially compared with more integrated capital markets in the United States.
To address these challenges, CEPS proposes a shift in regulatory philosophy focused on usability, predictability and alignment across jurisdictions. The goal is not to weaken safeguards but to streamline how rules are produced, sequenced and enforced.
One core recommendation is a “replace rather than add” approach to rulemaking. New regulations should explicitly identify and eliminate overlapping or obsolete requirements, reducing the accumulation of layers that currently make the system difficult to interpret and implement.
The report also calls for stronger discipline in the sequencing of regulatory measures. Delays or changes in technical standards often force firms into costly system overhauls. Introducing “readiness gates”—ensuring key implementation details are finalized before compliance deadlines—would allow firms to build systems more efficiently and reduce unnecessary rework.
Supervisory convergence is another priority. While EU rules are formally harmonized, differences in national enforcement practices—ranging from approval timelines to data requirements—create what CEPS describes as “27 different operating environments.” This fragmentation undermines the single market and deters cross-border investment.
To counter this, the report advocates a more operational approach to convergence, including measurable remediation plans, clearer accountability and, where appropriate, more centralized supervision for highly integrated activities. It also introduces the concept of a “supervisory efficiency test” to determine when EU-level oversight would be more effective than national supervision.
Ultimately, the report positions regulatory simplification as a prerequisite for achieving the EU’s strategic economic goals. Without reform, the current trajectory, involving more rules, more divergence and higher costs, risks limiting Europe’s capacity to attract capital, foster innovation and support high-growth companies.
As CEPS frames it, the EU must move toward a system that not only maintains high standards but also enables capital to flow, firms to scale and markets to function seamlessly across borders.
