To Tap Europe’s Rich Consumer Pool, Companies Must Navigate a Complex and Changing Regulatory Landscape

When former European Central Bank President Mario Draghi published his long awaited and far reaching report to the challenges facing Europe’s economy and its global competitiveness, he set off a debate that promised far-reaching reform of the Single European Market and a roll-back of its onerous regulations that were holding back European business.  

Just four months later, in January 2025, the European Commission presented its Competitive Compass, a roadmap to address Draghi’s concerns and boost economic growth built on an analysis of the report. The Compass was intended to drive the Commission’ work for the next five years. 

One year on and progress can only be described as patchy. New regulations are coming onto the rule books and the review of old ones is slow and, in some cases, unenthusiastic. In retrospect, this might have been anticipated as the Commission President Ursula von der Leyen and her team, charged with rolling back what many now judged as overzealous regulation, were largely responsible for implementing the regulations in the first place.  

This has placed reform-minded governments at odds with the Brussels-based directorates charged with implementing, executing and reforming the regulations.  

Rules on foreign investment and unfair state subsidies are a case in point.  

FSR Reform 

Germany’s wish list on reform of the Foreign Subsidies Regulation (FSR) seems to put Europe’s biggest member state on a collision course with the Commission, or at least the European Commission’s Directorate-General for Competition (DG COMP), that part of it responsible for its implementation. 

Germany has urged a fundamental overhaul of the EU’s Foreign Subsidies Regulation (FSR) which requires companies to provide details information not only about what subsidies they may have received from foreign governments, but subsidies key suppliers may have got, before they can access government contracts or complete acquisitions.  The German government warned the current regime captures too many cases, creating uncertainty and compliance costs for companies and that notification volumes have far exceeded expectations, while only a handful of cases have required in-depth scrutiny.  

The government called for replacing the FSR’s broad notification requirements for mergers and public procurement with a targeted call-in mechanism, coupled with significantly higher thresholds. The government also questioned the proportionality of the European Commission’s remedial powers under the FSR, urging that remedies be strictly limited to what is necessary to address identified distortions. 

German concerns are fueled by what many outside of DG COMP consider a mistargeted, onerous and inefficient instrument for ensuring a level playing field for European companies. While drawn up with Chinese investments in European companies in mind, the FSR has instead focused on United States, European and Middle East investors.    

In particular, the European Commission’s review of Abu Dhabi National Oil Company’s acquisition of German chemical company Covestro was seen as particularly problematic given the time taken for the review, the costs and uncertainty it involved and the limited conditions ultimately applied by the regulator.

Last year, the Commission launched a consultation on draft FSR Guidelines and is working on an FSR review of the implementation and enforcement of the Regulation due to be published by July 2026.  

But the views of those inside DG COMP are focused on review and not reform. 

 Last October, the official charged with a leading role in the FSR project since its inception, said “I doubt at this stage it would be right to limit the reach of the Regulation.” His comments were echoed by colleagues at an event the following month where he stated the Commission would review comments from third parties regarding the Regulation and “see whether there are any improvements we may want to suggest.”  

 None of which suggests the regulator is open to wholesale changes and, with the imminent publication of the draft guidelines, will provide an early test as to where European Commission President’s reforming priorities lay.  

Regulatory Thrusts 

One of the EU’s most high-profile regulatory thrusts relates to environmental and social due diligence. Laws such as the upcoming EU Deforestation Regulation place stringent traceability and documentation requirements on supply chains, obliging firms—particularly in sectors like fashion, agriculture and food—to prove that their products do not contribute to deforestation. Non-compliance can lead not only to fines but also to blocked shipments at EU borders.  

The Corporate Sustainability Due Diligence Directive (CSDDD), initially scheduled for 2026, has been postponed and scaled back, with new transposition deadlines extending to 2029. Nonetheless, businesses of a certain size will soon face mandatory obligations to assess and mitigate environmental and human rights risks throughout their global operations.  

Digital markets are another major regulatory frontier that has led to direct tensions between Washington and Brussels. The EU’s sweeping Artificial Intelligence (AI) Act, the first of its kind globally, imposes risk-based obligations on developers and deployers of AI systems—particularly those deemed “high-risk”—and bans systems considered to present unacceptable harms. Compliance with these rules challenges firms to align innovation with strict safety and governance frameworks.  

At the same time, updates to the Digital Services Act (DSA) and Digital Markets Act (DMA) affect platform operators by tightening transparency and competition rules, even as political negotiations shape final texts.  

The cumulative effect of these regulatory layers has tangible impacts on competitiveness. Studies indicate that a significant share of European companies view regulation as a barrier to long-term investment, especially in strategic sectors like manufacturing and digital infrastructure.  

In 2026, regulatory compliance in the EU remains onerous, and the pace of reform seems glacial. All this leads to business uncertainty, which provides a challenge to successfully navigate the regulatory jungle and successfully engage with Europe. For business, after all, there are still some 450 million of the world’s wealthiest customers to tap into.