Reconciling calls to harmonise European capital market and investment rules with a desire not to upset national innovation is a tension that the EU is very familiar with. In Luxembourg last week, some of these arguments were on show at an annual conference, attended by WealthBriefing.

Tensions between Luxembourg and European Union policymakers in Brussels show few signs of abating amid arguments about whether the bloc should take over the job of supervising financial markets from national authorities.

At the ALFI (Association of the Luxembourg Fund Industry) Global Asset Management Conference in Luxembourg last week, funds industry figures in the European jurisdiction – 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.

At the heart of the matter is that in December 2025, the European Commission released the Market Integration and Supervision Package (MISP) to deepen 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 cause for EU action is to encourage more citizens to put money into risk assets. (See arguments from the ALFI conference in March last year.) To this end, so policymakers hope, MISP involves 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.

And that transfer of power vexes politicians and business figures in Luxembourg.

An expansion of ESMA’s supervisory remit “risks adding another layer of complexity at exactly the wrong moment,” Gilles Roth, finance minister in Luxembourg, told the annual conference. “Europe needs deeper capital markets…Europe needs reform that produces tangible results for individuals and businesses. Europe does not need more complexity for the sake of being busy,” Roth said. “Europe does not need more gold-plating.”

It is important for European policymakers to avoid duplicative rules for the bloc, Roth continued. 

Luxembourg’s financial services industry is concerned, as this publication was able to judge it, that innovating the jurisdiction’s UCITS and alternative investment funds (AIFs) market could be hampered by centralised EU regulation. The total number of assets under management (AuM) of investment funds domiciled in Luxembourg, including UCITS and AIFs (Alternative Investment Funds), amounted to €8.287.54 trillion ($9.622 trillion), as of January this year, rising 10.21 per cent from a year earlier. 

Luxembourg and Ireland dominate the European market for UCITS and AIFs, which in total had €23.4 trillion of assets at the end of 2024 (source: EFAMA). Other figures add to Luxembourg’s importance: In 2024, Luxembourg (12,983), Brazil (12,801), the US (12,487), China (11,283), and Canada (6,445) reported the largest numbers of open-ended funds, for example, together accounting for most of the global total (source: IOSCO).

In a conversation between ALFI director-general Serge Weyland and Evert van Walsum, ESMA’s head of investor protection and sustainable finance department, Van Walsum said it wasn’t ESMA’s goal to take away the task of product approvals from local regulatory authorities. There has been an issue with regulatory processes varying considerably across the 27-member EU bloc, he said.

Weyland said it was going to be difficult to agree on an ideal common template for products across the bloc. “I wonder,” he said to van Walsum, “if you are trying to align managers where there are already a lot of standards…this is an attempt to reinvent the wheel without a lot of benefit.” 

Van Walsum said it was not ESMA’s intention to add to costs and stifle innovation.

Asked from the audience if talk of regulatory harmonisation is at odds with calls from some – such as in the US – to avoid the EU in frustration at European regulations, van Walsum said “deregulation does not necessarily lead to good outcomes in the long term.”

The ALFI position
In a 25-page position paper, issued on 27 March, ALFI said it supports the European Commission's goal to deepen Europe's Capital Markets Union, for example, by boosting retail investor involvement and cutting regulatory fragmentation and helping cross-border capital flows. 

However, ALFI said it worries that aspects of MISP – such as calls for ESMA annual reviews and ESMA having power to take corrective measures towards national competent authorities (NCAs) and market participants – could undermine capital market progress. 

"The [MISP] package reopens a large number of pieces of legislation – which, in itself, will entail high initial implementation and significant ongoing costs for years to come – whilst the industry is still implementing AIFMD II and UCITS VI," ALFI said, referring to updates to alternative investment and UCITS regulations. "In the current context of acute geopolitical tensions, widespread global deregulation and persistent stagnation in the EU economy, policy efforts should instead focus on deepening the internal market, accelerating innovation and mobilising private investment. The creation of a burdensome supervisory structure that delays time-to-market would be counterproductive," it continued. "Additional layers and centralisation are unlikely to close Europe’s investment gap or enhance the attractiveness of European undertakings and structural economic challenges cannot be solved through institutional  engineering."

The whole world
Luxembourg-based UCITS funds are important not just for Europe but the wider world, Laurent van Burik, head of unit enforcement, regulation and international investment fund unit, at the CSSF, Luxembourg’s regulator, told the conference. “The [UCITS] product is well understood by regulators in these third [non-EU] countries…it is important that changes don’t upset that,” he said.

It is important to strike the right balance between controlling costs and investor protection, van Burik said.

“We fail to see a future UCITS space that would justify a single regulatory framework, and we are better off using the framework we have,” van Burik said.

Chile
Outside the regulatory arguments, presentations from Chilean financial services figures and public policy figures were an important segment of the conference. They talked about moves to free up restrictions on Chileans’ investments in pensions and other funds – and how the Luxembourg UCITS/other funds market provides a set of solutions.

In a press conference, WealthBriefing asked Felipe Díaz Toro, managing partner of EDN Abogados and head of the investment funds practice, how Chile’s wealth management sector is positioned under the new, pro-market government of Jose Antonio Kast. 

“In 2018 we saw money leaving Latin America and now…after some changes the expectation is that some of that will come back but we have not yet really seen that,” Toro said. Family offices in Chile are still investing into Europe, for example. 

“Latin America is gaining momentum, and we see more and more Europeans viewing entry into Latin America via vehicles such as UCITS in Luxembourg,” he added.