Regulatory Simplification in the EU banking sector

October 2025

Competitiveness drive

Promoting competitiveness and reducing regulatory burdens have risen to the top of the European policy agenda. Following the influential reports by Enrico Letta on deepening the EU single market (April 2024) and Mario Draghi on EU competitiveness (Sept 2024), President von der Leyen has made competitiveness central to her programme for the new European Commission. In her “Political Guidelines” and “Competitiveness Compass”, von der Leyen proposed a series of ambitious reforms to reduce regulatory burdens on European businesses and deepen the EU Single Market. These have taken legislative form in the four ‘Omnibus’ bills on corporate sustainability reporting, EU investment programmes, the Common Agricultural Policy, and administrative requirements for SMEs, that are currently being debated by European legislators.

In the financial sector, calls for a reduction in regulatory burdens have been given additional impetus by developments beyond the EU. In the US, the Federal Reserve first withdrew draft rules to implement the Basel III Fundamental Review of the Trading Book (FRTB) in September 2024. Treasury Secretary Bessent subsequently announced that the US would not ‘outsource’ rule-making to international bodies but would borrow from the Basel standards to construct a regulatory framework “in the interests of the United States”. Meanwhile UK regulators announced that a simpler and more flexible version of the FRTB would be introduced, with some elements postponed by one year 2028.

Faced with this shifting international landscape, the EC announced it would once again delay EU implementation of the FRTB, to 2027. It has also received calls for a wider simplification of EU financial regulation, most notably in the February 2025 “Governors letter on simplification” from the central banks of Germany, France, Italy and Spain. In light of this, the EC communicated that it will conduct a wider review of EU banking rules, reporting in 2026.

ECB Task Force

The ECB has also joined this simplification effort. In May Vice-President Luis de Guindos confirmed the establishment of a High-Level Task Force on Simplification. The task force is led by de Guindos and comprises the central bank governors of France, Germany, Italy, Estonia and Finland, plus Sharon Donnery from the ECB Supervisory Board. It thus brings together the views of both the sides of the ECB and of the national central banks, with the aim of forging a common Eurosystem position. The task force is due to finalise its recommendations by the end of the year: these will then be signed off by the ECB Governing Council.

The ECB has not publicly set out the task force’s terms of reference or disclosed its internal structure or work programme. But we expect that its workstreams would include:

• Capital stack rationalisation,
• SREP processes,
• Supervisory decision-making,
• Reporting requirements.

In recent months ECB leaders have repeatedly rejected wholesale deregulation as a means to promote growth. On the contrary, ECB Supervisory Board Chair Claudia Buch has argued (for example in a June speech) that overall regulatory standards – and thus the resilience of the banking sector – must be maintained. Rules and supervisory practice can be simplified, she said, but not relaxed.

One area where Buch indicated openness to more substantive reform was the structure of bank capital requirements. The existing ‘capital stack’, Buch noted, is highly complex, comprising 9 different layers of minimum requirements and buffers, some fixed, others variable and set by different national or European authorities. Both Buch and Donnery identified this as a potential area for simplification. Over the summer, the ECB task force reportedly received proposals from the German authorities to merge capital buffers, allow only CET 1 instruments to be counted as regulatory capital, and separate ‘going concern’ capital from ‘gone concern’ resolution requirements.

Implementing these or similar reforms would require amendments to the Capital Requirements Regulation and other EU law. At this stage it is not clear how far the ECB task force is willing to go in recommending legislative change: The ECB and other European officials admit that the risk of reopening legislation agreed after long and difficult negotiations among EU legislators would be very difficult. It may well be, therefore, that the ECB task force’s recommendations are primarily in areas where simplification would affect future regulation or does not require legislative change, such as internal supervisory processes and reporting requirements.

Market consensus on possible simplifications

European banks have also been very active over the past few months, carrying out work at the level of international and national federations, as well as at an individual level, to promote the debate on simplification. Although many of these efforts have not yet been made public, there is a certain consensus among banks on specific areas that need to be simplified to increase competitiveness and avoid fragmentation. ESG and the implementation of the Basel III reform are clear examples, where the industry has broadly welcomed the steps already taken by the EC.

Banks have also pointed to other areas that could merit review, including overlaps in supervisory responsibilities and the proliferation of secondary and tertiary regulatory instruments. It remains to be seen to what extent such topics will be taken up by the ECB’s simplification task force.

Conclusions and way forward

Significant efforts to simplify and streamline EU financial regulation are thus under way. That the ECB has joined this debate adds important momentum to the discussion.  Achieving consensus on measures that would meaningfully reduce complexity while preserving financial stability, however, is likely to prove challenging. We recommend that the ECB and other European officials be more ambitious in their thinking about how current regulations could be simplified without undermining financial stability.

Banks, meanwhile, should continue to engage with the EU institutions and provide evidence of concrete examples where current regulation and/or supervision add costs without improving resilience, for example where risks are double-counted in current capital requirements or where reporting requirements are duplicative or unnecessarily burdensome. Banks should also highlight where regulatory discrepancies within the EU or between the EU and other jurisdictions threaten to fragment financial markets or create an uneven playing field to the detriment of EU competitiveness. In a global financial system, Europe cannot create rules in a vacuum.