Global policymakers push for simplification, but at what cost could that be?

Words such as “simplification” and “deregulation” have made their way into regulators’ vocabulary recently. Often tied up with rhetoric around increasing competitiveness, the basic premise is that firms are overburdened by red tape and that steps need to be taken to simplify the regulatory environment. The years since the 2008 financial crash have seen an unprecedented wave of regulation impacting financial institutions to the point that we have a highly regulated environment aimed at managing risk and preserving financial stability. The regulatory scope continues to expand to cover a wider remit encompassing ESG reporting, operational resilience and AI. Policymakers are reaching for a kind of regulatory Ozempic with the intention of slimming down frameworks quickly without losing core functions.

Regulatory freeze

Leading the charge, the Trump administration is pushing ahead with deregulatory measures with a flurry of executive orders. A “regulatory freeze” was imposed from 20 January 2025, which halted all rulemaking and new regulations across federal agencies, until they are reviewed and approved by agency heads appointed by President Trump [1]. This was followed up with the 10-to-1 deregulatory initiative, so that whenever an agency promulgates a new rule, regulation or guidance, it must identify at least 10 existing rules, regulation, or guidance documents to be repealed [2]. 
This expands the first Trump administration’s requirement for agencies to eliminate two rules for every new rule issued. However, even before the new administration, there was a backlash against some of the new regulatory measures being introduced with the SEC being required to roll back its climate-related financial disclosure proposals and reconsideration of the Basel III Endgame rules. This push to deregulate shows no sign of abating and is likely to have a long-term impact on the US agencies and rules.

Simplification of regulation in the EU

The EU has also turned its attention to the simplification of regulation. In September 2024 Mario Draghi published his report on the future of European competitiveness which galvanized the European push towards simplification [3]. The Political Guidelines for the next European Commission 2024 – 2029 [4] set “speed, coherence and simplification” as key political priorities and propose to “simplify, consolidate and codify legislation to eliminate any overlaps and contradictions while maintaining high standards for the Commission”. Valdis Dombrovskis has been appointed Commissioner for Economy and Productivity, Implementation and Simplification, charged with overseeing these measures. In a concrete step towards these targets, on 26 February the Commission unveiled an Omnibus Package which proposes significant changes to the EU’s Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD) and the Taxonomy Regulation [5].  They substantially reduce the number of companies falling with the scope of CSRD and simplify the due diligence requirements under the CSDDD. It also proposed to delay the application date of the CSRD. Over the past few years the EU has positioned itself as a global benchmark in ESG regulation and sustainable finance and the progression of these proposals is not likely to be plain sailing.

There is parallel push to deregulation and simplification in the UK. On 17 March, the Treasury published a policy paper on a “New approach to ensure regulators and regulations support growth” [6].  It sets out three actions:

  • Action 1: Tackle complexity and the burden of regulation;
  • Action 2: Reduce uncertainty across our regulatory system; and
  • Action 3: Challenge and shift excessive risk aversion in the system.

The Annex to the paper lists key regulator pledges. The FCA has specific pledges, for example: providing 50% more dedicated supervisors to early and high growth firms, to help them navigate the regulatory system and support their growth; and extending pre-application support to all wholesale payments, and crypto firms. However, of particular note is a pledge for the FCA and PRA to reduce regulatory reporting requirements for firms. In another key development, the UK government announced its decision to abolish the Payment Systems Regulator (PSR) in March as part of its drive to reduce regulatory burdens and stimulate economic growth [7].  Its responsibilities will be transferred to the FCA. Another example of deregulation are the plans to liberalise the bank ring-fencing regime, which was introduced after the financial crisis.  It requires banks with core deposits over certain thresholds to separate their retail banking services from non-retail activities.  It aims to protect retail banking from the impact of turbulence in the global financial markets.

Deregulate with caution

Whilst deregulation may be music to the ears of compliance teams as they relish the prospect of fewer reporting requirements and less documentation, it should be approached with caution.  Any benefits from a lighter burden may be outweighed by lack of clarity as regulatory gaps appear. Increasing global regulatory divergence, as national competitive interests come to the fore, can be problematic for firms increasing rather than decreasing complexity. Any changes and transitional measures will need to be managed and implemented internally.

Ozempic comes with health warnings as should any attempt to deregulate or simplify regulation.  Financial stability is of utmost importance in the global financial market.  Any excess regulatory weight needs to be shed in a controlled and measured way – there are no quick fixes. The regulation of ESG and AI have consequences and impacts on society that go far beyond the financial markets and any deregulation should be approached with caution. A maintenance programme should be put in place going forward to ensure that regulation is proportionate and necessary. Deregulation must not become a race to the bottom.

Susie MacKenzie, Head of Legal and Regulatory Analytics

[1] Regulatory Freeze Pending Review – The White House

[2] Fact Sheet: President Donald J. Trump Launches Massive 10-to-1 Deregulation Initiative – The White House

[3] The Draghi report on EU competitiveness

[4] Political Guidelines 2024-2029 | European Commission

[5] Commission proposes to cut red tape and simplify business environment – European Commission

[6] New approach to ensure regulators and regulation support growth (HTML) – GOV.UK

[7] Regulator axed as red tape is slashed to boost growth – GOV.UK