The Association of the Luxembourg Fund Industry (ALFI) has criticised EU plans that would see the European Securities and Markets Authority's (ESMA) powers expanded, enabling it to continue to regulate UK asset managers after Brexit and add "an extra layer of regulation".
The initial proposals, which form part of a European Commission review aiming to strengthen European supervisory authorities (ESAs), would also reduce the influence of national regulators and see ESMA take direct supervision of some investment funds.
Under the proposals, ESMA would have regulatory authority over asset managers with funds domiciled within the EU, and asset managers would be forced to submit authorisation requests to ESMA when opting to delegate or outsource part of their activities to non-EU jurisdictions.
ALFI said in a statement that while the links between the European Commission's proposal on the review of European ESAs and the Brexit negotiations are "in principle separate", they "can't be denied".
The trade body's chair Denise Voss said the proposals would see UK asset managers with European funds continue to be regulated by ESMA post-Brexit, adding "this would introduce an extra layer of regulation, additional costs and delays in time to market".
She added: "ALFI does not see any benefits of these proposals for the end investor" and "close oversight of market participants and products by [national regulators] guarantees the best and most efficient level of investor and market protection".
"Delegation is a tried and tested practice in the fund industry for 30 years, and there is no evidence of a market failure resulting from delegation."
CEO of consultancy MJ Hudson Matthew Hudson agreed the proposals "appear to be politically motivated" and related to Brexit.
However, he added, "the law of unintended consequences is that its largest impact will be on non-EU managers outside of the UK - and especially the US".
'Great deal of uncertainty'
MJ Hudson is an example of firms already feeling the consequences of the proposals as the AIFMD-compliant consultancy, which launched its Luxembourg office last year to act as a regulatory umbrella for other managers and was forced to double the size of its staff in order to comply in advance with the changes.
"The impact of switching off that delegation is significant for managers with EU funds," Hudson added.
Financial regulation partner at Dechert Monica Gogna said UK asset managers potentially face what amounts to "double regulation" post-Brexit, both from ESMA and the Financial Conduct Authority, but "further clarity on what the proposals mean for ESMA's power is required".
"For now, there is a great deal of uncertainty about what ESMA's ESA review and proposals would mean for firms and NCAs, and one that should be watched with a great deal of attention," she added.
Consultation on the proposals closed at the end of January and European authorities are currently in the process of assessing feedback.