What Lies Ahead for EU Regulation?

In an opinion article published in the International Banker last month, Santiago Fernández de Lis, Global Head of Regulation at BBVA, highlighted an apparent tension between those who believe EU regulation should promote growth and those who believe regulators should remain focused on maintaining stability.

In a recent report entitled "The Future of European Competitiveness," former European Central Bank (ECB) President Mario Draghi called for regulators to reduce red tape and simplify regulations to support financial sector competitiveness and innovation. And in her mission letter to the new Commissioner for Financial Services, European Commission President Ursula von der Leyen laid out her expectation for the Commissioner to take actions aimed at “ensuring the competitiveness of the financial sector and harnessing sustainable finance.”

However, in a recent hearing before the European Parliament, Claudia Buch, Chair of the Supervisory Board of the ECB, emphasized that the central bank has a mandate to "keep the banking system and individual banks sound and safe." As such, she argued, "we do not have a competitiveness or competition mandate." These positions seem to be diametrically opposed, Fernández de Lis observed.

Fernández de Lis noted the differing approaches between the EU and the UK. The UK's Financial Services and Markets Act 2023 explicitly prioritized competitiveness, reflecting a proactive stance to maintain London's role as a global financial center. By contrast, the EU has seemed reluctant to include competitiveness explicitly in regulatory mandates. This risks allowing overly restrictive policies and complex regulatory frameworks to persist, Fernández de Lis warned.

"The EU should start by at least discussing whether and how to introduce explicit objectives of competitiveness and/or efficiency in the mandates of regulatory and supervisory agencies," he argued. "Making explicit an objective that so far has been implicit does not contradict the focuses of the mandates of independent agencies required for their democratic accountability."