Plan to boost powers of EU finance watchdogs set to be put on hold

European Union finance ministers are set to put on hold a plan to strengthen the bloc's financial watchdogs, as some states led by Luxembourg oppose ceding their national powers to supervise money managers, according to EU officials and documents.

The reform, proposed by the EU executive commission in 2017, was backed by EU lawmakers last week. A leading lawmaker said it would help prevent London-based investment funds exploiting sweeteners in some EU states after Britain leaves the bloc.

But at a monthly meeting on Jan. 22, ministers are expected to put most of the plan up for further discussion, while moving ahead only with a part that involves limited reform of bank supervision against money laundering, a priority for the bloc.

The reform needs approval by EU governments and lawmakers before European elections in May, or it risks being derailed.

Two EU officials said Luxembourg led the group of countries opposed to wider reform. The tiny state wedged between France and Germany has the euro zone's largest investment fund industry, with nearly 4.5 trillion euros ($5.1 trillion) of assets, European Central Bank data show.

The draft rules would increase the EU markets regulator's grip over money managers, especially those from non-EU countries, like Britain after Brexit.

Many asset managers in Luxembourg have headquarters in London and would face stricter supervision if the new rules were adopted.

At meetings of EU diplomats last week and on Wednesday, Luxembourg pushed for further talks. It was backed by other states, including Britain, Sweden, Cyprus and Denmark.

France, Italy and Spain wanted a quick adoption of the reform. Germany, the largest state in the 28-nation EU, kept a more neutral position, officials said.

After the meetings, the Romanian presidency of the EU supported Luxembourg's line to extend negotiations on the overall reform, an EU document showed.

The ministers are expected to approve the part of the reform giving the EU banking watchdog more powers to investigate money laundering at lenders when national authorities fail to act. EU governments supported such a move in December.

Lawmakers will have to support splitting the package of reforms to allow only part of it to be adopted.

($1 = 0.8773 euros) (Reporting by Francesco Guarascio Editing by Edmund Blair)

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