Luxembourg – home to a multi-trillion euro cross-border funds market, several banks and other financial institutions – remains uneasy about EU proposals to deepen capital market integration. It is the age-old debate about the benefits of harmonisation versus autonomy.

Arguments continue between Luxembourg and European Union policymakers about whether measures to forge a more unified capital market could see EU member states lose a measure of innovative freedom.

Senior figures at ALFI (Association of the Luxembourg Fund Industry) spoke to journalists recently – including WealthBriefing’s editor – about a debate that has rumbled on for months. 

The crux of the matter is that in December 2025, the European Commission released the Market Integration and Supervision Package (MISP)  aimed at deepening EU capital-market integration. The package targets barriers to cross-border activity – the EU wants to deepen and broaden capital markets to boost economic growth and savings. One reason for EU action is to encourage more citizens to put money into risk assets rather than holding so much in cash. As to this end, so policymakers hope, MISP will be involved in transferring select supervisory duties from national competent authorities (NCAs) to the European Securities and Markets Authority (ESMA). This move will materially expand ESMA's role, giving it a new executive board and enhanced enforcement powers.

According to Boston Consulting Group (15 June), European citizens have about €12 trillion of savings in cash. 

However, there are concerns about what could happen should ESMA annually review what policymakers deem to be “large EU groups of management companies and AIFMs,” to identify and correct divergent or duplicative supervisory practices, as proposed by the European Commission. (AIFMs are Alternative Investment Fund Companies.)

“There is still of a lot of education that has to be done,” Serge Weyland, ALFI chief executive, said at the media gathering. There is a danger that the tensions between the EU position and the need to protect jurisdictional autonomy and innovative freedom have become politicised, he said. 

One issue is that the drive for integration has put asset managers into the “same pot” as banks, Weyland said. 

Under the current Irish presidency of the European Union, which runs until the end of the year, Brussels appears keen to wrap the issue up by 2027, he said. 

As reported here in early April, figures in the funds industry attending an annual ALFI conference in Luxembourg – the largest single hub for cross-border UCITS funds – warned against the EU imposing a further layer of regulation over the continent’s financial markets.

The Market Integration and Supervision Package aims to remove existing barriers to single market integration and proposes changes to legislation affecting areas such as UCITs funds, the Alternative Investment Fund Managers Directive (AIFMD), the Markets in Financial Instruments Directive (MiFID) II, and others.

Areas up for review include streamlining fund passporting authorisation and eliminating national “gold-plating” which can restrict cross-border fund distribution. 

Global reach
Away from the EU regulatory concerns, Weyland and colleagues talked about the potential for Luxembourg’s UCITS and other fund structures by winning investment flows from countries such as Chile – which is changing pension rules so that less liquid asset classes can be included in funds – and India, among others.

The media briefing also heard discussion about Luxembourg having been chosen as the European headquarters for the new Defence, Security and Resilience Bank (DSRB). Luxembourg will be the European base of a new multilateral defence bank to be headquartered in Canada (Reuters, 26 June.) The bank aims to raise $135 billion to fund defence projects, particularly in countries that struggle to access cheaper finance.

Weyland was asked how the bank’s arrival would boost Luxembourg’s financial services. He responded by saying the question that made most sense was “how do we mobilise retail savings and pension savings?..That is where we continue to see the focus of this [funds] industry.”