Navigating the Deregulation Dilemma: Striking a Balance Between Simplification and Financial Stability

The concept of deregulation is gaining traction among global policymakers, who argue that reducing bureaucratic barriers can enhance competition. Since the financial crisis of 2008, financial institutions have been navigating a complex regulatory landscape aimed at ensuring stability and minimizing risks. However, recent trends indicate a shift towards a more streamlined regulatory environment, incorporating new focuses like ESG reporting, operational resilience, and artificial intelligence (AI).

The Call for Deregulation

According to a report by Corlytics, the current regulatory framework is evolving, prompting discussions around what some term a regulatory “Ozempic”—a swift reduction in regulations without sacrificing essential goals. This movement is evident in various regions, particularly in the United States and the European Union.

United States Initiatives

The Trump administration has been at the forefront of deregulatory initiatives. Since January 20, 2025, a “regulatory freeze” has halted all rulemaking across federal agencies, allowing for a comprehensive review by new agency heads. This freeze is part of a larger strategy that includes:

• A “10-to-1” deregulatory rule, requiring agencies to eliminate ten existing regulations for each new one proposed.
• Reassessing SEC proposals on climate-related disclosures.
• Modifications to the Basel III Endgame rules.

This aggressive approach signals a long-term shift in regulatory oversight, potentially transforming the landscape of financial regulation.

European Union’s Streamlining Efforts

Across the Atlantic, the European Union is also pursuing regulatory simplification. A report by former European Central Bank President Mario Draghi in September 2024 highlighted the need for enhanced competitiveness through streamlined regulations. The EU’s goals include:

• Simplifying, consolidating, and codifying legislation to avoid overlaps.
• Introducing the Omnibus Package in February 2025, which proposes amendments to key directives related to corporate sustainability.

This package aims to decrease the number of firms affected by the Corporate Sustainability Reporting Directive (CSRD) and to ease the requirements of the Corporate Sustainability Due Diligence Directive (CSDDD).

United Kingdom’s Approach to Deregulation

Similarly, the UK is embracing deregulation as part of its economic strategy. The Treasury’s policy released on March 17 aims to:

• Reduce regulatory complexity to stimulate economic growth.
• Cut down on regulatory reporting requirements imposed by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
• Dissolve the Payment Systems Regulator (PSR) by transferring its functions to the FCA.

Risks and Considerations

While deregulation may seem advantageous, it introduces significant risks that could outweigh the benefits. The reduction of regulations can create gaps that lead to:

• Increased ambiguity and complexity in compliance.
• Greater divergence in global regulatory standards as nations prioritize competitive advantages.

Moreover, changes affecting ESG and AI regulations carry broader societal implications that necessitate cautious navigation. A well-structured and considerate strategy is essential to ensure that deregulation efforts promote financial stability and societal welfare.

For further insights on regulatory trends, visit our regulatory trends page.