European regulators remain unhappy with the way search engines—such as Yahoo (NSDQ: YHOO), Google (NSDQ: GOOG) and MSN—hang on to customer data, and are planning to impose tougher limits on the amount of time they can hold the information, according to the FT.com.

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Regulators fear that the practice of keeping information on a person’s web searches and on their cookies could be used to identify people, or to create profiles of their private preferences. The EU has been debating the issue for a year now, and will reveal next week what restrictions it will set on search engines.

Germany’s federal data protection commissioner and chairman of the Article 29 working party that advises the EU on privacy policy Peter Schaar told the FT that the search engines were keeping data too long. Both Google and Microsoft (NSDQ: MSFT) keep search data for 18 months, while Yahoo said it would keep it for 13 months. Schaar says 18 months is still too long, but Google apparently has made it known that 18 months is its “final offer.”

Schaar: “We are not in a bazaar. We are legislators, and at the end there must be a lawful situation. This process is not at an end. We have to continue discussions with the providers.”

Search engines have argued they need to keep the data to possibly help combat terrorism. In November, the EU made noises about a potential crackdown on targeted advertising.