Frankfurt Competence Centre for German and Global Regulation calls on the EU to reform financial regulation

The Frankfurt Competence Centre for German and Global Regulation (FCCR) has published a working paper calling EU policy-makers to reform financial regulation and to align it more closely with the EU’s strategic objectives of economic growth and global competitiveness. Overregulation, regulatory fragmentation, and complexity are increasingly acting as brakes on financial sector development and investment in the real economy.

The authors – Prof Dr h.c. mult. Roland Koch and Prof Dr Thomas Weck – identify regulatory inefficiencies across all levels of the Lamfalussy process and call for a fundamental rebalancing between prudential objectives and proportionality. While financial stability remains a core concern, the EU must now also explicitly factor in competitiveness and innovation, particularly in the context of the green and digital transitions.

Drawing on concrete examples – including capital requirements, the Retail Investment Strategy, the CSRD and SFDR frameworks, the Financial Data Access proposal (FiDA), and the DORA regime – the authors develop a seven-point plan for reform:

1. Ensure full compliance with the Better Regulation Guidelines, especially in impact assessments.
2. Respect the boundaries of institutional competences, avoiding de facto legislation via supervisory guidance.
3. Use principle-based Level 1 legislation for prioritisation and greater regulatory flexibility, allowing for proportionate implementation in the individual case.
4. Address global issues through coordinated global action, to reduce fragmentation and duplicative compliance burdens.
5. Develop enabling regulation to support innovation, especially in digital finance and AI.
6. Introduce competitiveness as a secondary regulatory objective for the ESAs.
7. Create a framework to adapt supervision to market changes, e.g., using EU-style equivalents of U.S. no-action letters.

The authors urge the European Commission, Council, and Parliament – as well as national authorities – to integrate these recommendations into the next legislative cycle and at all stages of the Lamfalussy process.

“Smart financial market regulation can be a cornerstone for strengthening European competitiveness. But to achieve this, it must be adapted to the market and focus not only on risks but also on chances.” said Roland Koch, Director of the FCCR.

The full paper is available at: News – Frankfurt Competence Centre for German and Global Regulation