As the European Union looks to boost its competitiveness and make its capital markets a more attractive place to do business, FIA argues that attention should also turn to how financial sector rules are made.
The trade association says some of the legal uncertainties and compliance burdens facing market participants stem from the process through which EU financial rules are developed, negotiated and implemented. Firms can, for example, find themselves subject to legislation before the detailed technical rules needed to implement those requirements have been finalised.
A new FIA paper, A Pathway to Smarter Regulation in Financial Services, sets out 21 recommendations intended to make EU rulemaking processes more transparent, coherent and predictable. Drafted in partnership with law firm Norton Rose Fulbright, the recommendations range from practical changes to legislative drafting and implementation to longer-term proposals concerning the powers of European supervisory authorities.
The argument is not that the EU’s regulatory objectives should be weakened, nor that fixing the process is straightforward. FIA acknowledges the practical and constitutional constraints EU policymakers face and focuses much of the paper on changes that could be made without wholesale legislative change.
The recommendations come as EU policymakers place a greater focus on competitiveness, growth and regulatory simplification. FIA’s argument is that the mechanics of rulemaking should form part of that wider debate.
“The EU is right to focus on competitiveness and growth, and part of that discussion should be about how rules are designed,” said Jacqueline Mesa, FIA’s COO and senior vice president of global policy. “For example, in highly complex and technical areas, Level 1 legislation should be more outcomes- and principles-based, rather than overly prescriptive, giving the European supervisory authorities greater flexibility when developing detailed technical requirements.”
“Much of what we are proposing does not require rewriting the EU rulebook,” Mesa added. “These are practical changes to how rules are developed, sequenced and implemented that would make regulation more predictable and effective without weakening its objectives.”
Mitja Siraj, FIA’s vice president of legal in Europe, said too much detail at Level 1 can both constrain the European supervisory authorities’ discretion and create broader problems.
“The concern is that Level 1 legislation is often too prescriptive, limiting the ESAs’ flexibility to develop appropriate technical requirements,” Siraj said. “Setting out too much detail at Level 1, particularly in highly complex and technical areas, can also create legal uncertainty and increase the risk that requirements quickly become outdated or prove unworkable in practice.”
Siraj noted, however, that there is a tension between calls for more principles-based regulation and market participants’ desire for greater certainty where requirements are open to interpretation.
For FIA, the question is not simply how much detail regulation contains, but where that detail should sit and how much discretion technical regulators should have in developing it.
Sequencing and scope
Another challenge identified by FIA concerns timing. EU financial legislation commonly involves Level 1 rules that establish the legislative framework, followed by Level 2 measures that provide more detailed requirements. Firms can currently be expected to comply with a Level 1 requirement while still waiting for the relevant Level 2 detail, which the paper says can result in duplicated implementation work, additional costs and uncertainty. FIA argues that requirements dependent on those technical specifications should apply only once the Level 2 measures are in place, with appropriate timelines for both finalising the technical rules and implementing them.
There is recognition among policymakers that this is a problem, according to Jean Pierre Salendres, FIA’s senior director of EU policy.
“This can be seen in the Council’s December 2025 conclusions on simplifying financial services regulation. Policymakers understand the difficulties created when Level 1 requirements apply before the necessary Level 2 technical rules are in place. Firms need the complete regulatory framework and sufficient time to implement it properly,” he said.
The paper also identifies questions around the scope and application of some requirements as another source of legal uncertainty for market participants.
Siraj pointed to EMIR as an example, saying FIA has often encountered the issue when non-EU clearing firms, such as US futures commission merchants, seek to establish whether particular requirements apply to them.
“These are not necessarily questions about how to comply,” he said. “Rather, firms are often asking: should I? Am I in scope? Am I not in scope?”
Transparency
FIA is also calling for greater transparency in Council, Parliament and trilogue negotiations, including earlier publication of key negotiating documents and compromise texts.
It argues that earlier disclosure would give market participants more opportunity to identify technical problems and unintended consequences before negotiating positions become settled.
FIA also wants decision makers to explain their reasoning when tabling legislative amendments, something Siraj said would make it easier for market participants to establish what proposed drafting changes are intended to achieve.
The paper also calls for technical consistency reviews before Level 1 legislation is finally adopted to identify potential conflicts, inconsistencies, or overlaps with existing rules.
Salendres said decisions made during the negotiating process can leave unresolved issues that complicate implementation. He pointed to EMIR 3’s Active Account Requirement as an example.
“The Active Account Requirement is a good example, where important questions around the interpretation and application of the Level 1 requirements had to be addressed during implementation. A technical consistency check before final adoption could identify these issues earlier, when they are much easier to fix.”
Other recommendations include more consistent definitions, simpler cross-referencing and more rigorous cost-benefit analysis as legislative proposals evolve.
Most of the proposals are intended to work within the EU’s existing institutional structure, including through stronger application of commitments under the 2016 Interinstitutional Agreement on Better Law-Making.
Supervisory powers
The more ambitious question is whether the balance of rulemaking authority should eventually change.
Over the longer term, FIA says the EU should consider whether the European Securities and Markets Authority and other European supervisory authorities should have greater powers, including the ability to issue legally binding no-action relief in defined circumstances.
Under the current framework, ESMA can ask national competent authorities to deprioritise enforcement on a particular issue, but this does not change the underlying legal obligation or provide regulated firms with legal certainty that action will not be taken against them.
Siraj said it was worth considering whether authorities closer to markets and supervision should play a greater role in developing some of the EU’s more technical financial rules. He pointed to the greater rulemaking powers of agencies in the US and UK as models worth examining.
The paper acknowledges that such a shift would require further analysis, including from a constitutional and balance-of-power perspective, and presents greater regulatory powers as a longer-term question rather than an immediate solution.
The competitiveness question
FIA’s paper ultimately argues that the benefits of better rulemaking would extend across the financial system.
Policymakers would benefit from stronger stakeholder engagement and feedback before legislation takes effect, while market participants would benefit from greater regulatory predictability, clearer compliance pathways and reduced duplicative implementation costs. A more coherent rulebook could also make supervision and enforcement easier for regulatory authorities.
For FIA, those benefits feed into the wider debate over how the EU can strengthen its competitiveness and attract investment to its capital markets.
Siraj said improving the rulemaking process would be one part of the EU’s broader reform agenda, describing it as “an important piece in the bigger picture.”
