Just like Hurricane Sandy, which battered into the eastern seaboard of the U.S. last week, market participants on the other side of the Atlantic are being buffeted from side to side by chill winds, this time in the form of seemingly endless new regulations.

Market participants in Europe are facing an alphabet soup of new financial regulations to contend with ranging from AIFMD, Emir and MAD to MiFID II and Ucits, as well as capital adequacy regimes such as Solvency II and Basel III.

“Uncertainty around regulation is keeping many people from making firm plans and investment in business until things become clearer,” Kee-Meng Tan, managing director and head of agency broker Knight Capital’s trading group in Europe, told Markets Media.

Politicians in Europe continue to be hell-bent on making the financial services sector pay for the global financial crisis, as well as looking to clamp down on perceived dangers such as high-frequency trading and dark pools, although many in the industry believe that this approach will only make the global downturn last longer.

Some market users, though, feel that at least the regulators, such as the European Securities and Markets Authority, are acting as a kind of counter-balance against the politicians.

“Regulators are much more attuned to how markets work,” said Tan. “The stuff coming out of Esma shows this. Some politicians, on the other hand, are not. And it’s good politics to beat up the financial services sector.

“The financial transaction tax, the HFT limitations, the killing of dark pools and removal of organized trading facilities from equity products, for example are all politically motivated.

“The equity market is the easiest scapegoat as it is the most visible and easiest to understand.”

It is feared that these new regulations, once implemented, will hit equity markets hard by widening spreads and making liquidity disappear en masse.

“Some of the proposals relating to, for example, minimum resting times and market making obligations under all conditions all add, not reduce, risk,” said Tan.

“They are really messing about with one segment of the financial services sector that functioned perfectly well throughout the financial crisis. I cannot say this for the debt or derivatives markets.”

Market participants believe that these overheads are beginning to stifle the industry, at a time when many are struggling to register a profit.

“The financial services sector is at breaking point,” said Richard Goold, executive director at U.K. consultancy Moorhouse and head of its financial services sector.

“While there is no doubting the need to tighten the rules governing the industry, the tidal wave of legislation facing organizations is more than they can cope with. They are effectively paralyzed; struggling to meet regulatory requirements to avoid fines or penalties, unable to further develop their business and failing to deliver the best service or function.

“Organizations have to accept that further legislation and more regulation will happen.”

Although, the banking industry has not covered itself in glory in recent times, notably with scandals such as Libor and trading snafus involving the IPOs of Facebook and Bats, as well as Knight’s own well-documented mishap.

“The financial services industry has not done itself any favors,” said Tan at Knight Capital. “It has to start to work win back the trust of the general investing public.”