The Small Mid-Caps label: Smart fix or more red tape?

Brussels has rolled out a new label for businesses: SMCs, or “small mid-caps.” The idea is simple: make life easier for companies that are too big to count as SMEs but too small to handle the full weight of EU rules. At first glance, this looks like a step in the right direction towards simplification. But is it real relief --- or just another layer in an already crowded regulatory landscape?

The new category will cover about 38,000 companies across the Union. That may sound impressive, but in the context of 26 million SMEs in Europe, it is a very small fraction.

On paper, lighter rules should allow them to invest and innovate. In reality, the benefit may be limited if definitions are too narrow or applied unevenly across Member States. A company in Italy with 300 employees can face a completely different environment than a company of the same size in Sweden, simply because tax regimes, labour markets, or industrial structures differ. That is why thresholds should be based on solid data and tailored to real conditions — not just one-size-fits-all numbers.

The deeper problem is that Europe keeps fixing rules after they are written. We already have a guiding principle for this: “Think Small First.” Regulations should be designed from the perspective of the smallest companies, not imposed top-down and then patched with exceptions. If this principle were consistently applied, categories like “SMCs” would not be needed in the first place.

Take data protection as an example. Extending GDPR record-keeping exemptions sounds like progress, but it does not address the real challenge. The problem is uncertainty. What exactly counts as “high-risk” processing? Depending on where you ask, you get different answers. Unless that confusion is resolved, businesses will continue to spend resources on lawyers instead of growth, no matter how many exemptions Brussels grants them.

Capital markets face a similar dilemma. Simplified prospectus and disclosure rules could help mid-sized firms raise funds, but there is a risk. If investors feel information is missing, they will price in extra risk. That means higher borrowing costs, not lower ones. Simplification must never undermine trust — transparency is what keeps Europe’s capital markets credible.

Then there is the push for “digital by default.” In principle, it makes sense to move beyond paper. But not everyone is ready, or able, to go fully digital. Think of product manuals for older consumers, or households with poor or limited connectivity. A six-month window to request paper copies is simply not practical, neither clear. Who is responsible—the retailer or the manufacturer? What happens if the request is late, or if products have a long lifespan? Such half-measures risk creating more uncertainty and new burdens and inconsistencies across the Single Market.

Another sensitive issue is the idea of introducing “common specifications” as a shortcut when standardisation takes too long. Used carefully, they can help. But if they become the default, they risk undermining the European Standardisation System, which is built on inclusiveness, transparency, and international alignment. Standards may take longer to agree, but they ensure legitimacy and global competitiveness. Common specifications should remain the exception, not the rule.

Looking at the bigger picture, two major reports in recent years — by Mario Draghi and Enrico Letta — have already highlighted the same structural problem: companies that grown out of the SME status face a steep “cliff-edge”. The new SMC label may smooth that edge a little, but it is not enough to change the underlying terrain.

If Europe truly wants to strengthen its business environment, it needs to apply “Think Small First” consistently. That means design proportionate, predictable rules from the start, reflecting the diversity of our businesses and stop multiplying categories, exemptions and exceptions that tinker at the edges while leaving the weight of ill-suited rules intact.

The idea of SMCs sends the right signal – but until regulation itself is redesigned at its core, Europe’s firms, large and small, will still remain trapped under a system that was never written with them in mind.

By Katrina Zarina, rapporteur of INT/1095 Omnibus on small mid-caps