EU's Competitiveness Compass: Opportunity for the Financial Sector?
06 February 2025
On 29 January 2025, the European Commission announced the launch of its new 'Competitiveness Compass'. This strategic framework zeroes in on economic growth and innovation, decarbonisation and security.
Our briefing note shines a spotlight on the core areas and key actions of the Competitiveness Compass, and provides an analysis of the potential impact of this initiative on the financial services sector.
The Three Core Areas
The Competitiveness Compass is focussed on three core areas in order to boost the EU's competitive standing: innovation, decarbonisation and competitiveness, and increased security and resilience.
- Lower barriers to the Single Market: the Commission will roll out 'AI Gigafactories' and 'Apply AI' initiatives, focusing on advanced materials, quantum, biotech, robotics and space technologies;
- Joint Roadmap for Decarbonisation and Competitiveness: the forthcoming Clean Industrial Deal will promote a competitiveness-driven approach to decarbonisation, making the EU an attractive location for manufacturing and fostering clean tech and circular business models. The Affordable Energy Action Plan is designed to lower energy prices and costs, while the Industrial Decarbonisation Accelerator Act will expedite permitting for transitioning sectors; and
- Reducing Dependencies and Enhancing Security: the Compass will introduce Clean Trade and Investment Partnerships to secure global supplies of raw materials, clean energy, sustainable transport fuels and clean tech. Additionally, a review of Public Procurement rules will enable a European preference for critical sectors and technologies within the internal market.
Five key actions are identified to achieve these aims:
- Simplification: the upcoming Omnibus Proposal is designed to simplify sustainability reporting, due diligence and taxonomy;
- Lowering barriers to the Single Market: as above, the 'AI Gigafactories' and 'Apply AI' initiatives, coupled with an EU Start-up and Scale-up Strategy and a proposed 28th legal regime, will streamline the governance framework, eliminate intra-EU barriers and prevent new ones from emerging;
- Financing Competitiveness: the Commission will introduce a European Savings and Investments Union to develop new savings and investment products, alongside a revamped EU budget;
- Promoting skills and quality jobs: the Commission will launch an initiative to establish a Union of Skills, focusing on investment, adult and lifelong learning, the creation of future-proof skills and etc.; and
- Better coordination of policies at EU and national level: mainly, in the next Multiannual Financial Framework, a Competitiveness Fund will replace multiple existing EU financial instruments with similar objectives, providing financial support for the implementation of actions under the Competitiveness Coordination Tool.
What does this mean in practice?
Potential deregulation in the financial sector
Building on the Omnibus Directive proposal which aims to reduce the burden posed by EU sustainability regulations, the Commission plans to significantly expand this principle, across the entire regulatory environment, aiming to reduce the regulatory obligations on firms by 25% via a series of further Omnibus Directives.
The Commission also aims to make business easier for thousands of small mid-cap companies, through the introduction of a new "medium-sized firm" definition. The 'Competitiveness Compass' targets an increased reduction of at least 35% for SMEs.
Firms should consider engaging with their regulators and policy makers to highlight areas of highly burdensome regulation.
New financial saving and investment products
The Commission believes that the EU currently lacks an efficient capital market to convert savings into investments. To address this, the Commission will introduce a European Savings and Investments Union. This initiative aims to create new savings and investment products, provide incentives for risk capital, and ensure seamless investment flows across the EU.
We expect to see further integration of market infrastructure and regulations renewed or reformed to facilitate cross-border investments and common investment products.
Certain EU Member States are also pushing for further consolidation of supervisory powers at the EU-level, setting the scene for a possible increase in power and scope for the European Supervisory Authorities.
Authors: Anjali Naik, Solicitor Apprentice; Henry Glasford, Associate
