The banking sector has a crucial role in supporting economic growth – financing businesses, mobilising private savings, and channelling capital toward long-term investments – while bridging the gap between the high level of private savings and the financing needs of companies, infrastructure, and strategic transitions. To achieve these objectives and fully realise their benefits, the EU should adopt a comprehensive approach that mobilises private savings, strengthens capital markets, reduces regulatory fragmentation, and ensures an internationally consistent framework – while facilitating the efficient flow of capital and financial services both within the EU and with trusted third countries.
SFC Recommendations at a glance:
- Adjusting MiFID II client categorisation rules: Targeted MiFID II reforms would help mobilise the significant pool of private savings currently held in deposits by EU households. Tailoring access to a wider range of investment products for experienced retail clients would deepen capital markets and increase capital available to EU firms. This would directly strengthen the Savings and Investments Union (SIU) and accelerate the EU's green and digital transitions.
- Supporting the contribution of third-country banks to EU growth: Reducing barriers to cross-border financial services from trusted non-EU institutions would bring additional capital and expertise into the EU economy. A harmonised framework allowing qualified third-country banks to serve EU clients would ensure a level playing field while expanding access to high-quality financial services. This would help channel significant volumes of client assets towards EU strategic priorities.
- Reducing regulatory fragmentation within the EU: Gold-plating at national level and divergent supervisory practices impose duplicative processes and higher compliance costs on banks operating cross-border. Greater harmonisation and more convergent supervisory practices would enhance legal certainty and improve capital allocation across the Single Market. Limiting national discretion in implementation should remain a core priority.
- Simplifying the prudential framework: The EU prudential framework has grown excessively complex, with an expanding reliance on Level 2 measures substantially increasing the regulatory burden on banks. Streamlining reporting obligations and refocusing Level 2 measures on genuinely technical aspects would reduce costs while maintaining strong prudential safeguards.
- Ensuring international alignment and consistency: Divergent Basel III implementation across jurisdictions risks creating an uneven playing field and regulatory fragmentation. Targeted refinements – notably on unrated corporate exposures and the Fundamental Review of the Trading Book (FRTB) – deserve consideration at international level. Basel standards should remain the common minimum denominator across jurisdictions, ensuring prudential frameworks stay proportionate, coherent, and globally consistent.
- Introducing tax incentives for capital markets investment: Current tax frameworks do not sufficiently encourage households to channel savings into productive long-term investment. Targeted fiscal incentives – such as exemptions on investment income and simplified reporting – would increase market liquidity and support corporate growth. Existing financial transaction taxes (FTTs) should also be reconsidered, as they raise costs without delivering expected tax revenues.
- Providing proportionate requirements for smaller banks: Smaller banks face a disproportionately high regulatory burden relative to their size and risk profile. Requirements should be calibrated to the nature and scale of each institution, with simplified approaches to reporting, disclosure, and stress testing.
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