Luxembourg government, industry prepare to fight greater ESMA powers
The Luxembourg Finance Ministry told the Wort there was "no specific need or urgency to fundamentally review" the supervision of insurance and fund industries.
"Centralising key supervisory tasks in the hands of a central authority having no experience in this area would not solve any existing problem of market fragmentation but on the contrary will jeopardise an important segment of European capital markets," a spokesman for the ministry said.
The plan would add "complexities" and "impediments" that would drive investors outside the European Union (EU) and deprive the European economy of additional sources of financing, according to the ministry.
"While the proposed changes would have profound consequences for the competitiveness of the EU as a whole, the impact would be most felt in financial centres that are specialised in cross-border activities," the spokesman said.
The Luxembourg government did not submit a response to the initial Commission consultation in May on increasing European supervisory authorities' powers.
However, the Finance Ministry spokesman said the issues now being raised did not feature in the original consultation.
Luxembourg's concerns with the specific proposal were first raised with European Commissioner Valdis Dombrovskis at a meeting of finance ministers in Tallinn in September and in a subsequent letter to European Commission president Jean-Claude Juncker.
Yet the proposal was adopted by the Commission shortly afterward and must now win the support of the European Parliament and Council to become law.
The Luxembourg government and industry will "deploy best efforts" to engage with decision-makers in both institutions, the Finance Ministry said.
"We know several member states share the same concerns," its spokesman said.
"However, as the draft has only been published recently, more may join as they analyse its contents. Changes to the text are still possible."
Luxembourg's fund industry association is also planning to raise its concerns with European lawmakers and has set up an internal task force, including members of the industry, to tackle the issue.
The Association of the Luxembourg Fund Industry (ALFI) plans to submit its views to the European Commission during an eight-week period for feedback, which will then feed into the legislative debate.
Camille Thommes, director general at ALFI, told the Wort the proposal would give ESMA the power to validate delegation models to countries outside the EU – often used by funds in Luxembourg to outsource portfolio management back to a home country – and add a layer of complexity and cost for fund managers.
"It will add an additional bureaucratic layer because the national authorities will still look into the file, look into the prospectus and documentation and will make an initial assessment," he said.
"And then, on top of that, you have to reach out to ESMA and submit a file and see if they are approving and sharing the views."
This could affect the speed at which fund managers can bring new products to market and impact the competitiveness of European products, like retail UCITS funds.
"It might also discourage foreign players that have in the recent past decided to launch, for example, a UCITS product and sell them back to countries outside the European Union," Thommes said.
However, a spokeswoman for the European Commission said the proposal formed part of the plan to create a capital markets union with more integrated supervision at the EU level.
"This is a positive thing -- it leads to more convergence, fewer costs and obstacles for financial firms that wish to expand within the EU, and more choice for consumers," she said. "It also reduces the risk of regulatory arbitrage."
The bulk of the proposals have been discussed for years, including strengthening ESMA's direct supervisory powers, while the proposals on delegation are intended to limit the creation of "letterbox entities".
"The Commission is not proposing to change in any way the substance of the rules on authorisation, delegation or outsourcing," she said.