Luxembourg, which hosts more than a quarter of all assets held in European investment funds, has raised a red flag over fresh European Commission plans to create a single supervisor for financial services. The country warned on Tuesday that such a move would result in “unnecessary bureaucracy” and undermine a supervisory system that has served Europe well.
Speaking at an industry conference in Luxembourg, finance minister Gilles Roth said the grand duchy would support greater convergence between national financial regulators, but firmly rejected the idea of a centralised EU supervisory authority.
“We need to maintain the European decentralised supervisory system and avoid unnecessary bureaucracy,” Roth said. He described Luxembourg as the “voice of reason” in this debate and emphasised the need to “deal with the real issues that hold back European capital markets.”
Commission pushes for integration
The proposal for a single EU financial supervisor was unveiled last week as part of the European Commission’s broader Savings and Investment Union (SIU) initiative. The new supervisor’s mandate would extend beyond banks to also cover asset management, insurance, pensions, and fund distribution.
Efficient and consistent supervision across the bloc is one of four central goals of the SIU proposal. The Commission plans to release a detailed Market Infrastructure Package in the fourth quarter of 2025. It will propose stronger convergence tools and a reallocation of supervisory responsibilities between national and EU levels to ensure that “all financial market participants receive similar treatment, irrespective of their location in the EU.”
Unlike the Capital Markets Union package of a decade ago, which has seen uneven progress, the SIU blueprint has so far received broad support from EU member states. Many capitals have welcomed the focus on improving supervisory efficiency as a way to boost Europe’s global competitiveness.
Alfi echoes Luxembourg’s concerns
Luxembourg’s financial sector lobby quickly rallied behind the government’s position.
“Pushing for more centralised supervision is not the solution,” said Jean-Marc Goy, chair of the Association of the Luxembourg Fund Industry (Alfi), following Roth’s remarks.
Alfi chief executive Serge Weyland warned against discarding the strengths of certain national authorities, especially those with deep technical expertise in their domestic markets.
“The French are very good at overseeing fund management. CSSF has developed a wealth of knowledge in supervising products. We should build on that knowledge and expertise,” Weyland said.
He added that the current structure—based on supervisory colleges of national competent authorities (NCAs)—“has proven to be very efficient.” These NCAs, such as CSSF, the Netherlands’ AFM, and Belgium’s FSMA, carry final supervisory responsibility, with some cooperation under the umbrella of Paris-based ESMA, the European Securities and Markets Authority.
“Let’s not fix something that is not broken,” Weyland continued. “That would actually deter us from really looking at the bigger picture and the important reforms that are needed—pensions, European savings and investment accounts. That is also a huge opportunity for our industry.”
Unlike major European investment centres like France and Luxembourg, national supervisors in many other EU member states, especially in the south of Europe, often lack the capacity and expertise required to efficiently supervise investment products and practices managed out of their country. Malta and Cyprus for example are widely known as jurisdictions with weak financial supervision.
A familiar playbook?
The proposal would not be the first time the EU has sought to centralise financial oversight. In response to the 2008 financial crisis, the bloc created the Single Supervisory Mechanism, assigning the European Central Bank supervisory powers over the 120 largest banks in the eurozone.
A similar extension into non-bank financial supervision is now on the table, but national authorities such as Luxembourg’s CSSF are not eager to cede control. They argue that effective supervision depends on local knowledge and established frameworks that already function well.
Some specialists have suggested the banking supervision model could also work for the investment sector, enabling international heavyweight firms like Blackrock and Amundi to interact with just one single supervisor when it comes to operating in the EU’s single market.
Mobilising capital for Europe’s future
Beyond supervision, the SIU aims to channel more household savings into capital markets, thereby increasing funding for companies and reducing Europe’s reliance on bank financing. A key part of the strategy is to eliminate regulatory barriers to cross-border activity in asset management and fund distribution.
Weyland concluded with a forward-looking note on the opportunity at hand. “If we get these reforms right—on pensions, savings, and retail investment—it could mobilise as much as 10 trillion euros in the next few years. That’s money badly needed for the triple transition in Europe.”
