European risk, national supervision

The problem is not an absence of supervisors. An Irish fund answers to the Central Bank of Ireland, a Luxembourg manager to the CSSF, ESMA promotes supervisory convergence and the ESRB monitors systemic risk. The problem emerges when the vehicle, manager, investor and threatened market fall under different countries. Each authority may then see an accurate slice of the case without any one of them necessarily holding both the complete map and the power to act on every link. The UK liability-driven investment crisis of 2022 made that fragmentation visible.

This article concludes the “€12 trillion in transit” series. The first instalment separated domicile, manager, investor, currency and issuer. The second followed portfolios into US assets. The third described how a shock could return through liquidity and banks. This final instalment asks which authority can see the whole chain.

The fund, its manager and the market do not answer to the same authority

European regulation provides a common foundation, but authorisation and day-to-day supervision of funds and managers remain largely national. The Undertakings for Collective Investment in Transferable Securities framework, or UCITS, covers funds marketed mainly to retail investors. The Alternative Investment Fund Managers Directive, or AIFMD, applies principally to alternative fund managers and governs their reporting, leverage and European passport. In both frameworks, the competent authorities in the home country retain the central operational role.

The European Securities and Markets Authority, or ESMA, is therefore not the equivalent of the European Central Bank for significant banks. It develops standards, centralises some data, runs peer reviews, settles certain disagreements and promotes convergence. It directly supervises specific infrastructures and categories of firms, but not all European funds or their managers. The European Systemic Risk Board, or ESRB, adds the macroprudential view: it looks for collective behaviour capable of amplifying a shock. It can issue warnings and recommendations without becoming the vehicle’s day-to-day supervisor.

The European Commission’s legislative proposal of 4 December 2025 describes this limitation itself. It argues that the current frameworks do not enable ESMA to address every divergence in national practices or every disagreement over cross-border fund and manager operations effectively. This is an institutional finding, not evidence that national authorities do no work.

The LDI precedent separated risk, domicile and intervention

After the UK “mini-budget”, the 30-year gilt yield rose by 140 basis points in four trading days, from 21 to 26 September 2022. The Bank of England says this move was more than twice the previous record observed since 2000. Falling bond prices triggered collateral calls on the repo financing and derivatives used by liability-driven investment, or LDI, strategies.

The central bank estimates that margin and collateral calls on LDI funds and pension schemes exceeded £70 billion. From 23 September to 14 October, LDI funds sold about £23 billion of gilts and pension schemes about £14 billion. Those figures do not cover every cash need, which was also met through other asset sales and existing buffers.

Domicile complicated the response. The Central Bank of Ireland estimates that Irish-authorised funds accounted for 30% of net gilt sales by LDI funds and their investors during the crisis. This share measures neither the whole gilt market nor all EU-domiciled funds. It nevertheless shows that a national European supervisor oversaw a significant portion of the vehicles amplifying stress in the United Kingdom.

The Bank of England had to buy gilts temporarily to break the feedback loop between prices, collateral calls and forced sales. Irish and Luxembourg authorities subsequently coordinated their requirements with ESMA. Since July 2024, the GBP LDI funds concerned must withstand a rise of at least 300 basis points in yields before their net asset value becomes negative. ESMA endorsed the national measures under Article 25 of AIFMD and called on other relevant authorities to adopt similar measures.

The case also shows that cooperation can work. Its weakness was timing: the common permanent response was codified after the event, while market intervention had to be decided within days.

Regulatory labels sometimes obscure common risks

Fragmentation is not only geographical. It begins in the data. An ESRB study published on 4 May 2026 examines alternative funds reported as “other” or “none” under AIFMD. “Other” accounted for €3.6 trillion, or 50% of the net asset value of EU-domiciled alternative investment funds in the fourth quarter of 2024. “None” added €306 billion, or 4%.

The authors group more than 10,000 funds holding €3.7 trillion in assets using 70 exposures and eight regions. They identify 12 economically interpretable cohorts, including GBP LDI, European private credit and US private assets. These cohorts explain 16 percentage points more of the variance in returns than traditional AIFMD classifications.

The paper is an ESRB authors’ study, not an official decision by its General Board. It nevertheless documents two verifiable limitations. Funds resembling funds of funds or private equity funds appear in the residual category despite the existence of dedicated AIFMD types. More importantly, most cohorts are dispersed across several countries, so a national authority may see only part of a European risk.

The study also finds that Ireland and Luxembourg manage the vast majority of private equity and private credit funds in its extended sample. That concentration helps the two financial centres build supervisory expertise. It also concentrates information about illiquid and opaque exposures in two jurisdictions while investors and potential losses may sit elsewhere.

A small number of groups have a pan-European footprint

Fund-by-fund supervision can also miss group structure. An analysis by ECB researchers published in February 2026 identifies roughly 10 to 15 asset management groups ranking highly by size, cross-border activity and interconnectedness. They account for about €6.3 trillion in the dataset and domicile a large share of their funds in Ireland and Luxembourg.

That figure has a material limitation. The commercial Lipper dataset covered only about 60% of the euro-area fund sector in October 2025, representing €13 trillion against €21.5 trillion in ECB statistics. It mainly covers UCITS and underrepresents alternative funds. The “10 to 15” are therefore neither a definitive regulatory list nor a comprehensive risk measure. They show that a small core of groups already has a European footprint comparable in reach to centrally monitored banking groups.

Size is not enough, however. Many modest funds holding the same assets may sell together. European oversight of large groups would not replace the analysis of cohorts, liquidity and leverage described in the third instalment.

The proposed reform does not yet create a single fund supervisor

The Commission’s December 2025 package proposes that ESMA identify the largest asset management groups by net asset value and cross-border activity, then conduct a review with national authorities at least annually. The text would also strengthen ESMA’s ability to address supervisory divergence and, in some cases, suspend a cross-border activity.

The scope is deliberately limited. The proposal states that the review concerns managers’ operations, not the authorisation or direct supervision of the funds they manage. In July 2026, the Council was still examining whether to retain the annual review, its scope and frequency, and supervisory colleges as an alternative. This is a proposal under negotiation, not a power already in force.

The ECB goes further on macroprudential policy. Its May 2026 Financial Stability Review supports reciprocity mechanisms and complementary European “top-up” powers that would let ESMA strengthen a national measure with the authorities concerned and after consulting the ESRB. It also calls for faster cross-border access to granular data and tools addressing liquidity mismatch in open-ended funds.

Four building blocks would reduce the blind spot

A proportionate architecture does not require transferring every routine check to Paris. Four functions do, however, need to operate at the scale of the risk.

1. Comparable and accessible data. Exposures, leverage, liquidity, investors and delegation chains must be linkable beyond the first vehicle and shared rapidly between authorities.
2. Cohort-based monitoring. Legal classifications need to be complemented by groups of comparable exposures and behaviours, without treating an algorithm as regulatory truth.
3. Operational reciprocity. A measure adopted in one domicile should be reproducible elsewhere before funds can move around it. The Irish and Luxembourg LDI buffer offers a useful precedent.
4. A consolidated view of large groups. ESMA-coordinated colleges or more integrated oversight could bring together supervisors of managers, banks and insurers tied to the same group.

Two questions remain open. No threshold for making an asset management group systemic has been settled. More importantly, entity supervision alone cannot solve collective selling by thousands of independent funds. Reform therefore needs to cover both the largest firms and the common activities that transmit stress.

The series ends on this distinction. Europe does not domicile €12 trillion without rules or supervisors. It applies common law through mainly national authorities to vehicles connecting global investors, asset management groups and markets. The system can supervise the parts. Its challenge is to see the movement of the whole early enough.

Sources

1. Bank of England, Financial Stability Report, December 2022: yield shock, collateral calls, gilt sales and intervention.
2. Central Bank of Ireland, framework for LDI funds: share of sales, coordination and minimum buffer.
3. ESMA, opinion on restrictions for GBP LDI funds, 29 April 2024: AIFMD Article 25 and the 300-basis-point measure.
4. ESRB, “No labels, no problem”, Occasional Paper No 30, 4 May 2026: AIFMD classifications, cohorts, geographical concentration and methodological limitations.
5. ECB, “Why we need an EU perspective in the supervision of large asset managers”, 13 February 2026: group concentration and Lipper coverage limitations.
6. European Commission, proposal COM(2025) 942: proposed role for ESMA and direct fund supervision remaining national.
7. ECB, Financial Stability Review, May 2026: data sharing, reciprocity and top-up powers. This is not investment advice.