From Failure to Failure? The Political Economy of Asset-Management Regulation and Supervision in the EU (2020–2026)

This paper investigates why the European Union has repeatedly failed to extend macroprudential regulation to investment funds and to integrate supervision of the asset management sector, despite the sector’s rapid expansion and rising political salience between 2020 and 2026. Building on the Advocacy Coalition Framework, the paper argues that both prudential policy and supervisory integration remain trapped within a nascent policy subsystem in which risk perceptions, regulatory objectives and institutional boundaries are contested by unstable and competing coalitions, allowing a status quo coalition to prevail and block reform. Market tensions in the post-2020 period, including the COVID investment fund panic and concerns over the rapid growth of private credit, revived long-standing calls by central banks and macroprudential authorities to address systemic risk in asset management. At the same time, the economic consequences of the pandemic and the war in Ukraine, alongside widening transatlantic growth gaps, contributed to a broader realisation among EU policymakers that Europe’s financial architecture may be structurally disadvantaged. This context reshaped the debate on supervisory integration. Initiatives associated with the Savings and Investment Union and high-level reports from Letta and Noyer framed integrated supervision as a response to capital outflows to the United States, the dominance of US asset managers in the Single Market and the EU’s difficulty in mobilising domestic savings. Yet regulation and supervision remained incommensurate with the sector’s growth. The paper shows that reform failed because the asset management sector constitutes a nascent policy subsystem in which core governance elements and actor preferences are not yet stabilised. Policymakers, regulators and market actors do not share a settled understanding of whether investment funds generate systemic risks, how far supervisory integration should go or what form EU intervention should take. This fluidity generated institutional rivalry: prudential authorities such as the ECB and ESRB pressed for macroprudential tools, while securities regulators and industry actors questioned their relevance for market-based finance. National competent authorities resisted relinquishing supervisory powers, and Member States disagreed on the desirability of integrated supervision. Further, as crisis memories faded and ambiguity persisted, a robust status quo coalition prevailed, composed of fund-domicile Member States, industry actors and national supervisors defending their mandates. These dynamics jointly obstructed progress in both prudential regulation and supervisory integration. The analysis relies on process tracing using thirty semi-structured interviews conducted between 2024 and 2026, complemented by EU consultations, press material, grey literature and policy papers from regulators, Member States and market actors. These sources were abductively coded, drawing on existing scholarship on EU financial regulation, and triangulated to reconstruct the 2020–2026 policy sequence and identify mechanisms underpinning policymaking failures. The paper contributes to scholarship on regulatory governance, geoeconomics and the political economy of financial regulation by showing how systemic risk debates, competitiveness concerns, institutional rivalry and evolving actor preferences interact within a nascent subsystem, ultimately reproducing regulatory and supervisory inaction.