The EU commission has published a proposal to move surveillance of funds to European agency ESMA Maison Moderne

The EU commission has published a proposal to move surveillance of funds to European agency ESMA Maison Moderne

The press release of the European commission states that the proposal includes:

  • “Capital market data: ESMA will authorise and supervise the EU's critical benchmarks and endorse non-EU benchmarks for use in the EU. This will improve the reliability and harmonisation of supervision of benchmarks, which are the indices or indicators used to price financial instruments and financial contracts or to measure the performance of an investment fund.
  • Capital market entry: In a bid to streamline procedures for companies to tap into EU capital markets and attract investment from across the EU, ESMA will now be in charge of approving certain EU prospectuses and all non-EU prospectuses drawn up under EU rules. Prospectuses are documents that contain the information an investor needs before making a decision whether to invest in a company.
  • Capital market actors: ESMA will authorise and supervise certain investment funds with an EU label with the aim of creating a genuine single market for these funds (European Venture Capital Funds, European Social Entrepreneurship Funds and European Long-Term Investment Funds).
  • Market abuse cases: ESMA will have a greater role in coordinating market abuse investigations. It will have the right to act where certain orders, transactions or behaviours give rise to well-founded suspicion and have cross-border implications or effects for the integrity of financial markets or financial stability in the EU.”

This would mean that Luxembourg’s CSSF supervision of cross-border funds would end.

Finance minister Pierre Gramegna informed the parliamentary committee on the proposals on the same day of 20 September. The proposal raised concerns among Luxembourg politicians.

Paperjam reported that Franz Fayot (LSAP MP) said: “one of the strengths of the Luxembourg fund industry is the reactivity of the regulator,” as well as short timeframes for the approval of prospectuses (time to market), low costs and efficient supervision.

He argued that the commission proposal questions the mechanism of delegation, meaning that a fund can be established in one country and its management delegated to a third country. This would mean that Luxembourg’s cross-border funds would be put in jeopardy.

Regulation on single market

Because the proposal is a regulation concerning the single market, the Luxembourg government may be outvoted, as only a qualified majority is necessary for the proposal to be adopted. As the UK prepares to leave the EU, Luxembourg may only count on Ireland as an ally, and they would not get the required votes to block the proposal.

CSV MP Laurent Mosar said that the proposal had taken everyone, both the parliamentary committee and the government, by surprise. He feared that “the funds would not all go to Paris, but that they would leave the EU.”