Europe Has The Regulation But America Has The Capital, Is The EU Losing The AI Finance Race?

Moody’s Ratings estimates that generative AI could boost labour productivity by around 1.5% annually across global economies, with advanced economies likely to see closer to 2% per year.

Those gains will not arrive equally, however, and within Europe, the evidence is mounting that the continent is positioned to capture a smaller share of them than its economic weight would suggest.

Between 2013 and 2024, cumulative private AI investment in the US exceeded roughly $470 billion while all EU member states combined attracted around $50 billion. Around 61% of global AI funding flows to US firms versus approximately 6% to European companies. That capital gap isn’t abstract: it translates directly into fewer AI-driven startups, less infrastructure and slower scaling, and many European AI founders have responded by incorporating or raising capital outside the EU entirely.

With UK FinTech Week approaching and European financial competitiveness firmly on the agenda, the debate over whether Europe’s regulatory-first approach is an asset or a structural disadvantage is getting harder to sidestep.

Is Europe’s Regulatory Complexity A ‘Silent Tax’ On Innovation?

Multiple financial sector executives and institutions describe years of regulatory complexity and rising capital requirements as a ‘silent tax’ on the European economy, one that reduces investment capacity and contributes to slower growth relative to global peers.

Reports by Mario Draghi, former ECB President, and Peter Wennink, former ASML CEO, have both argued that regulatory fragmentation, slow decision-making and underdeveloped capital market structures have materially weighed on Europe’s ability to fund frontier technology investment.

Surveys of large European organisations show that over half haven’t moved beyond AI pilots or narrow use cases, lagging behind US peers in integration and scale-up. The fragmentation across 27 member-state markets, differing supervisory approaches and uneven digital infrastructure all slow cross-border AI finance innovation in ways that simply don’t apply to the more unified US market.

Is The US Model Actually That Clean?

The EU AI Act is the world’s first comprehensive legal framework for artificial intelligence, designed to set high safety and transparency standards across high-risk systems, including many financial services applications. Proponents argue this creates long-term trust and responsible adoption, particularly in consumer-facing finance where the consequences of AI failures can be severe.

Artur Szablowski, Editor-in-Chief at Finonity, argues that Europe cannot regulate its way to competitiveness, arguing that the most likely outcome of the current trajectory is becoming the world’s most trusted market for other people’s AI products rather than a producer of its own.

But the US picture is more complicated than a simple ‘faster and freer’ narrative suggests. Without a unified federal framework, AI governance in the US is a patchwork of state-level initiatives and sector-specific rules that creates its own form of regulatory confusion. The answer for Europe isn’t deregulation but modernisation: faster approvals, greater access to capital and clearer rules that support rather than obstruct deployment.

The Clock Is Ticking, But It Hasn’t Run Out

The harder reading of the data is whether Europe’s regulatory model becomes an advantage or a liability when most of those building on it are not European. If 61% of global AI funding goes to US firms and European AI founders are relocating to access capital and lighter-touch environments, the trust architecture being built in the EU may end up serving as a compliance framework for American and Asian technology rather than a foundation for European champions.

Szablowski’s assessment of the timeline is pointed: Europe still has time, but the window is narrower than its policymakers appear to believe. The data backs that up. The capital gap is documented, the adoption lag is visible and the talent drain is measurable.

Europe has built the most thoughtful regulatory environment for AI in finance. Whether it also builds the most competitive one depends on whether the pace of policy reform can keep up with the pace of the technology it’s trying to govern.

We asked four experts across fintech, finance and AI strategy where they think this is heading.

Our Experts:

• Dan Herbatschek, CEO and Founder, Ramsey Theory
• Artur Szablowski, Editor-in-Chief, Finonity
• Craig Gravina, CTO, Semarchy
• Peri Kadaster, Chief Communications Officer, Nearform
• Rachel Reid, Global Co-Head of AI and Co-Lead of Global Cybersecurity and Data Privacy, Eversheds Sutherland

Dan Herbatschek, CEO and Founder, Ramsey Theory

“The United States is outpacing Europe not because it is smarter, but because it is faster and better capitalised. However, Europe’s regulatory approach is both an asset and a liability. The asset is that it protects consumers, ensures transparency and works to lower risk. The liability is that the layering of rules has created friction that often slows innovation and deployment cycles. Speed is key in AI-driven finance.

“European AI fintech startups are trying to compete globally with the added burden of compliance weight on them and less access to capital. If this continues, Europe risks becoming an importer of AI rather than an innovation leader.

“The solution isn’t to eliminate regulation, but rather modernise it so there are faster approvals and access to more capital. Europe must find a way to both regulate AI innovation while actively being a leader in it.”

Artur Szablowski, Editor-in-Chief, Finonity

“It’s intellectually coherent and practically irrelevant if the companies building on that template are all American. The truth is – you cannot regulate your way to competitiveness. You can only regulate your way to being the world’s most trusted market for other people’s AI products.

“European fintech founders are not less talented. The point is they’re less capitalised, more constrained and operating inside a framework that was designed to manage risk rather than generate it. That’s a values choice, and I respect it. But it’s not a growth strategy.

“What would it take to close the gap? Fewer regulations. Simpler laws and faster public listings. Pension capital deployed into growth equity at scale. The Savings and Investments Union points in the right direction. The pace does not. Europe still has time. But not as much as its policymakers appear to believe.”

Craig Gravina, CTO, Semarchy

“Europe’s regulatory approach to AI in financial services is well-intentioned, but there is a real risk that caution becomes a competitive disadvantage if it is not matched by buy-in at the leadership level.

“Our latest research at Semarchy found a clear difference in how seriously AI is being prioritised from the top: 90% of US financial services leaders said AI strategy is a high priority for their organisation, compared with 78% in the UK and 67% in France. That gap matters because AI adoption is not just about access to technology or capital – it starts with executive commitment.

“We also saw a smaller but telling confidence gap in AI readiness, with 100% of US financial services leaders saying their organisation is AI ready, versus 96% in France. On paper, that percentage difference may seem marginal, but it reflects a broader difference in mindset. In the US, AI is increasingly being treated as a present-day commercial imperative. In parts of Europe, it is still too often approached as a future consideration shaped by compliance first.

“Regulation does have an important role in building trust, especially in finance. But if Europe wants to compete, it needs to pair responsible oversight with faster decision-making, stronger executive sponsorship and greater willingness to invest in the data foundations that make AI usable at scale.”

Peri Kadaster, Chief Communications Officer, Nearform

“The difference in enterprise adoption of AI between both sides of the Atlantic are stark. We’ve engaged on AI solutions and AI-native engineering capabilities with numerous North American companies since 2024, but UK and European organisations didn’t show the same level of demand until late 2025.

“While the US is home to several AI product leaders, it’s also a patchwork of state and federal regulatory systems. With a few exceptions, most US lawmakers have been slow to call for federal regulations on AI and related issues. This has led to state-specific initiatives, which in turn creates a confusing regulatory environment.

“Meanwhile the EU has been proactive in its AI legislation, incorporating elements like AI literacy requirements that may actually serve to promote innovation in the long run. Ironically, fintech startups and challenger banks have thrived in Europe, while the hurdles in the US are higher.

“Perhaps Europe can apply the best of both worlds to close the gap: enact regulations yes, but ensure they are clear and navigable. And most importantly, keep the user at the centre – developing new fintechs not for their own sake, but to truly identify new ways that AI can help consumers capture new sources of value. Financial services companies embracing AI-native engineering will ultimately win here.”

Rachel Reid, Global Co-Head of AI and Co-Lead of Global Cybersecurity and Data Privacy, Eversheds Sutherland

“Europe’s regulatory caution is doing what it’s meant to do: putting ethics, human rights and trust at the centre of AI adoption. The risk isn’t regulation itself, but imbalance. If Europe relies on rules alone, it can make it harder for startups to experiment and scale, especially against US rivals operating in a more growth-dynamic environment.

“Europe needs to treat regulation as a foundation for confidence and then build on it. For example, pairing the AI Act with incentives and ‘pathways to scale’, targeted investment, and practical mechanisms like regulatory sandboxes, certification schemes and knowledge centres so compliance becomes a runway for responsible experimentation rather than a brake.

“Closing the gap will take a coordinated strategy to unlock investment, scale skills programmes, and create clearer, more navigable frameworks, including more predictable legal frameworks around liability and use and ownership of data.”

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