Can you try using utf-8-hfs? (You might need to load ucs-normalize
first.)
It behaves like the original, as far as I can tell.
I tried setting it to nil. This made completion work. However, the letters are presented in decomposed form, so that pressing backspace first converts "å" to "a", a second backspace deletes the "a" -- this is not how we would like to present file names to users.