I'd dispute it causes the over-engineering. Engineering principles cause safety margins, and regulators enforce safety margins. As the industry decides it can live with reduced safety margins they get reduced. When they get too close to a risk window, they get raised.

I know the over-engineering term exists, but I think it's based on flawed logic. Not having margins results in under-engineering, which is significantly worse in almost all cases. Its not a symmetric world out there. Some things are worse than others.