By Nadish Lad, Global Head of Product and Strategic Business at Volante Technologies
Across Europe’s financial services sector, leaders consistently discuss regulatory compliance as the primary obstacle to innovation. But scratch beneath the surface, and the evidence paints a more nuanced picture. Whilst regulatory pressures undoubtedly create challenges, recent industry research reveals they may not be the primary obstacle many assume them to be.
The data reveals that whilst 39% of financial institutions cite regulatory compliance as a key challenge, skills gaps and legacy systems rank even higher as barriers to progress. This exposes a critical disconnect between perception and reality in the financial services sector.
Rather than regulatory frameworks themselves being the culprit, the real issue appears to lie in how organisations handle compliance. Antiquated systems, siloed departments, and sluggish internal processes turn routine regulatory requirements into major operational headaches. What should be straightforward compliance tasks become unnecessarily daunting challenges.
The real culprits revealed
Not all compliance challenges are created equal. There’s a crucial difference between genuine regulatory requirements and internal process failures masquerading as compliance issues. Real regulatory blockers are specific legal requirements that directly prevent certain business activities. Self-imposed constraints, however, stem from inflexible systems, overly cautious cultures, or poorly designed processes that make compliance far more complicated than it needs to be.
Financial institutions need to audit their operational bottlenecks honestly. When a new product launch gets delayed, ask the hard question: does regulation explicitly forbid it, or does the compliance team simply lack the tools to evaluate it quickly? Most often, it’s the latter. By clearly mapping regulatory requirements against internal capabilities, firms can identify where the real problems lie.
Why compliance isn’t the villain
Compliance has gained an unfair reputation as an innovation killer. While it is true that new requirements add workload, compliance has become a catch-all excuse to justify delays in upgrading infrastructure or pursuing new strategies. Blaming regulation often masks a reluctance to confront the scale of change required internally, or a lack of consensus within organisations about how to prioritise investment.
The reality is that well-designed compliance should enable innovation, not block it. Good regulatory processes provide clear boundaries within which firms can operate confidently. When compliance becomes a barrier, it’s usually because the underlying infrastructure was never built to handle regulatory requirements efficiently.
Modernisation is the missing piece
Real competitive advantage stems from internal transformation rather than external finger-pointing. Over a quarter of European banks (27%) still depend on legacy systems for payment services — antiquated platforms riddled with custom code patches that transform routine regulatory updates into major engineering projects.
Institutions embracing modern cloud technology discover a different reality altogether. Modern systems allow regulatory requirements to be met more easily through simple adjustments rather than costly rebuilds. These systems also unlock enhanced product innovation, seamless fintech partnerships, and superior customer experiences that legacy infrastructure struggle to support.
Building for adaptability
The smartest financial institutions have learned to view regulatory change as an opportunity rather than an obstacle. Each new compliance requirement becomes a business case for better infrastructure, improved processes, and stronger organisational capabilities. Instead of patching old systems to meet new rules, these firms use regulatory deadlines as catalysts for comprehensive upgrades.
This approach requires building flexibility into core systems from the ground up. Technology should be designed to anticipate and accommodate regulatory change, not just react to it. This means choosing modular platforms that can be reconfigured quickly, implementing real-time monitoring and reporting, and treating compliance teams as strategic partners. When regulation drives improvement rather than paralysis, firms find they can meet compliance requirements whilst simultaneously delivering better customer experiences and greater operational efficiency.
Embracing regulatory reality
Regulation serves a vital purpose: protecting consumers, maintaining market stability, and ensuring competitive fairness. The real question is how effectively European financial institutions respond to these necessary requirements.
European institutions stand at a crossroads. They can persist with internal blame-shifting, or they can tackle the structural weaknesses that make compliance unnecessarily burdensome. Success demands investment in contemporary infrastructure, reimagining regulatory requirements as innovation drivers, and building systems designed for flexibility. The institutions that will lead Europe’s financial future are those that abandon excuses and commit to meaningful operational transformation.
