If there is regulation, it should be about monopolies in general and not trying to micromanage hiring. Companies behave this way because they are in a position to do so. In a real competitive environment they wouldn’t. Poorly thought through band-aid rules don’t change that, in fact they would almost certainly favour the big monopolies with the worst hiring practices who have big HR departments that can handle and game compliance.
I don't think it's a non-competitive environment, but that the interests are out of alignment. The penalty for the manager who makes a bad hire is a lot worse than the manager who fails to make a hire.
And we also have the same problem that plagues modern life: the glut of choices leading people to think they can do better than they can. The pool is effectively infinite, there must be a better option somewhere. Companies don't hire. Dating has become very hard. Both lie behind very superficial screening gates that do not represent actual value.