The Association for Financial Markets in Europe (AFME) has published a new report entitled “AFME priorities for banking regulation for the new EU legislative cycle.”

The financial system is critical to the functioning of the EU economy and banks play a key role in supporting it. In a context where Europe is facing urgent and transformational challenges, financial markets need to upgrade their ability to meet generational investment needs.

As stressed by prominent voices in recent weeks, promoting financial stability and the resilience of banks should not mean setting aside the need to ensure the competitiveness of the financial sector.

Several factors contribute to the reduced competitiveness of banks. In this paper we identify some of the issues that deserve consideration in the coming months. Longer term themes are also covered in this paper.

With the implementation of the Basel III standards and following more than 15 years of comprehensive regulatory reform, the EU’s banking regulatory framework finds itself at an inflection point. Increasingly stricter prudential requirements cannot be considered the solution to every problem. A more risk sensitive approach is necessary, where a stocktake of the framework leads to targeted changes focused on achieving EU common goals related to the financing needs of the EU’s consumers, corporates and overall global competitive standing.

The rise of geopolitical tensions and jurisdictional fragmentations make this an economic imperative. The new EU policy cycle provides an opportunity to assess the current regulatory framework to align it with the EU’s broader strategic objectives. This should be done with the objective of enabling all banks operating in the EU to remain competitive in an increasingly fragmented global landscape.