At the end of each month, the SAFE Regulatory Radar highlights a selection of important news and developments on financial regulation at the national and EU level.
Commission published Communication on banking sector competitiveness and measures to support growth
On 17 July 2026, the European Commission published a Communication on the Competitiveness of the Banking Sector and the Single Market in Banking, accompanied by a Staff Working Document. The Commission frames a competitive banking sector as a precondition for financing economic growth in the EU, innovation, and strategic priorities. The communication takes stock of developments in the EU banking sector since the global financial crisis and sets out the Commission's assessment of the remaining challenges in the EU’s single market in banking.
The Commission finds that EU banks have become considerably more resilient and profitable over the past 15 years, having absorbed rather than amplified recent shocks, including the COVID-19 pandemic, the energy crisis following Russia's full-scale invasion of Ukraine, and the 2023 banking turmoil in the United States and Switzerland. At the same time, the Commission identifies three remaining challenges in the banking market and outlines which policy measures it plans to propose.
- Fragmentation of the banking sector along national lines: despite integration in the interbank market, cross-border banking activities remain limited. Requiring banks to comply with prudential requirements at both the consolidated and subsidiary level along with the lack of a European-wide deposit insurance scheme (EDIS) limits the efficient allocation of capital and liquidity and acts as a barrier to mergers. The commission will propose reforms to facilitate cross-border allocation and draft a new EDIS proposal. Moreover, the commission plans on addressing national gold-plating and divergent implementation of EU rules at the national level.
- Insufficient consideration of EU specificities in the transposition of international standards: The Commission reaffirms its commitment to implementing international standards while recognizing the importance of a level playing field if other jurisdictions do not fully implement the Basel framework. It will review the implementation of various standards with a clear focus on proportionality. So far, all rules have applied to banks regardless of their size or complexity. The Commission will propose a CRR regime for smaller and less complex banks.
- Undue complexity in parts of the regulatory framework: Overlapping requirements, reporting duplication, and reliance on soft-law instruments add unnecessary burdens to banks. The Commission plans to simplify the current rulebook, clarify the distinction between binding requirements and non-binding guidance, and streamline reporting obligations. It will revise the MREL (Minimum Requirement for Own Funds and Eligible Liabilities) framework and propose the simplification of macroprudential buffers.
The Commission notes that these measures will require balancing competing objectives, between resilience and risk-taking, and between harmonization and national discretion, while preserving safeguards for financial stability in host Member States. Concrete legislative proposals building on the Communication are expected in the first quarter of 2027. The Commission has invited feedback from stakeholders by 16 September 2026.
This echoes the diagnosis from SAFEs analysis on how European banks have developed in terms of international competitiveness. The authors attribute the valuation gap between European and US banks to the fact that European banks remain constrained by fragmented national markets, regulatory inconsistencies, and limited cross border consolidation, which in turn limits their ability to grow in the future.
Commission adopts revised European Sustainability Reporting Standards and voluntary reporting standards for smaller companies
On 3 July, the European Commission adopted two delegated regulations which revise the mandatory and voluntary corporate sustainability reporting frameworks after amendments to the Corporate Sustainability Reporting Directive (CSRD) changed the scope and firms affected by mandatory reporting requirements in March 2026.
Amendments to the European Sustainability Reporting Standards (ESRS) redefine sustainability data which must be reported leading to a reduction in datapoints, a prioritization of quantitative over qualitative reporting, a clear distinction between mandatory and voluntary reporting, as well as consistency with other EU regulation and interoperability with global reporting standards. Supplements to the Accounting Directive (2013/34/EU), meanwhile, establish reporting standards for voluntary use for companies which are (no longer) subject to mandatory reporting.
The revised ESRS largely follows the same structure as the 2023, even though large parts have been rewritten and reordered. The number of disclosure requirements (DRs), too, stays about the same and the changes in DRs are often due to aggregation of existing DRs and the omission of anticipated financial effects as specific DRs (for water and marine resources, biodiversity, the circular economy, and pollution). Contrasting the reduction in DRs, climate change reporting now requires specific disclosure on climate-related risks, scenario analysis, and climate resilience.
Besides the reduction in datapoints and the greater consistency with EU legislation and interoperability with global standards such as the ISSB standards, the revised ESRS reduces its scope by altering its core element, the materiality analysis and the consequent anticipated financial aspects.
The revised ESRS permits a top-down materiality assessment, allowing companies to screen out topics at the level of business model, sector, or value chain instead of assessing every conceivable impact, risk, and opportunity individually. It also removes separate anticipated financial effects requirements from all environmental standards, except climate change, and allows a broader reliance on estimates and information available, rather than developing exhaustive and often text-based data sets for potentially material effects.
While sustainability reporting will become more standardized and data-driven, entities will have greater discretion on what they are going to report. The revised ESRS are mandatory for financial reporting in financial years beginning on or after 1 January 2027.
Voluntary Standard:
Following the Omnibus I amendments to the Accounting Directive, only entities with more than 1,000 employees and a net turnover of more than 450,000,000 euros are required to report sustainability information, as defined in the ESRS. The newly adopted Voluntary Standard builds on and formalizes the voluntary sustainability reporting standard for small and medium-sized undertakings (VSME standard) which was developed by the European Financial Reporting Advisory Group (EFRAG) and endorsed by the European Commission in 2025 and serves a double function.
- First, it shall encourage smaller companies to report sustainability information with a view to improvements in performance, resilience, competitiveness, and company reputation.
- Second, the Voluntary Standard limits the information smaller entities must provide to larger entities with mandatory reporting along the value chain, effectively capping the “trickle-down-effect" of value chain reporting (“value-chain-cap").
While the Voluntary Standard covers the same issues as the ESRS and aims for consistency, proportionality is applied to consider capacities of smaller business entities. As a result, both the basic and the comprehensive modules of the Voluntary Standard do not mandate companies to provide more than basic information.
Instead of a materiality analysis, the Voluntary Standard introduces an “if applicable principle”: Unlike under the ESRS, companies are not required to assess, as part of a materiality analysis, whether reporting is required for each individual topic or to justify the omission of disclosures. Instead, they are only required to provide the disclosures explicitly specified by the standard for their respective type of company. Environmental reporting is largely compliance-based, limiting disclosure to operational data which is already reported to supervisory authorities or very basic (e.g. total water consumption or the existence of production sites in biodiversity-sensitive areas). Consequently, only very concrete exposure (production sites, emissions), events (accidents, corruptions convictions) or voluntary management actions are reported.
As the value chain cap has now legal status and other entities cannot ask for additional information along the value-chain, companies with less than 1,000 employees are now largely free of reporting obligations.
The delegated acts enter into force in financial years beginning on or after 1 January 2027.
Updates
- On 23 July, the EU adopted the 21st package of sanctions against Russia. The package expands the lists of Russian and third-party country banks which are subject to a transaction ban as well as instituting certain bans for crypto services and platforms.
- On 7 July, the European Systemic Risk Board issued a warning about the risk frontier Artificial Intelligence units may pose to the financial system which was endorsed by the joint European Supervisory Authorities.
- On 1 July, the European Banking Authority published a peer review of compliance with bank disclosure under the Capital Requirements Regulation and the Bank Recovery and Resolution Directive. It finds that most national competent authorities have integrated these requirements into their supervisory framework but calls for greater consistency.
- On 9 July, the European Securities and Market Authority published the third annual market report on EU carbon markets. It shows the central role of financial intermediaries for the market and confirms its growing impact despite high price volatility caused by political uncertainty in early 2025.
- On 20 July, ESMA published a follow-up report on cross-border investment services supervision which tracks the progress by National Competent Authorities in the Netherlands, Germany, Czechia, Luxembourg, Cyprus, and Malta since 2022.
- On 29 July, the International Sustainable Standards Board published proposed amendments to the greenhouse gas emissions disclosure.
Public consultations
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Vincent Lindner and Claudia Schaffranka are Heads of the SAFE Policy Center.
