1 Legal & Regulatory
1.1 UCITS and AIFMD Update
EU
Directive (EU) 2024/927 amending AIFMD 2011/61/EU and the UCITS Directive 2009/65/EC relating to delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services, and loan origination by alternative investment funds ("AIFs") ("AIFMD II") has to be transposed into national law by EU member states by 16 April 2026. The changes introduced aim to strengthen investor protection; improve access to finance from sources other than banks; tackle greenwashing; and help complete the capital markets union by limiting national approaches when it comes to marketing AIFs. One of the major changes introduced by AIFMD II is the introduction of a pan-European loan origination regime for AIFs.
On 14 November 2024 the European Securities and Markets Authority ("ESMA") launched a data collection exercise together with the national competent authorities ("NCAs"), on costs linked to investments in AIFs and UCITS. It is a two-stage data collection involving both manufacturers and distributors of investment funds:
- Information requested from manufacturers will provide an indication on the different costs charged for the management of the investment funds.
- Information requested from distributors, i.e. investment firms, independent financial advisors, neo-brokers, will inform on the fees paid directly by investors to distributors.
A report based on this data will be submitted to the European Parliament, the Council and the European Commission in October 2025.
Ireland
On 1 November 2024, the Central Bank of Ireland ("Central Bank") published the 41st edition of the UCITS Q&A revising QA ID 1012, ID 1016, and ID 1088 to encompass changes enabling the exchange traded fund ("ETF") naming requirement at the share class level.
On 1 November 2024, the Central Bank also updated its streamlined filing process to reflect implementation of ESMA's guidelines on funds' names using ESG or sustainability-related terms. These guidelines apply from 21 November 2024 and for funds in existence prior to this date, a transitional period of six months applies until 21 May 2025. This will result to an ability, in addition to changes to fund names, to incorporate minor changes to disclosure in the offering documentation and pre-contractual documentation made solely for the purpose of bringing the fund into compliance with the guideline requirements.
Luxembourg
On 19 December 2024, the Commission de Surveillance du Secteur Financier ("CSSF") updated its FAQ on the Luxembourg law of 17 December 2010 relating to undertakings for collective investment to reflect a new FAQ 12(1) on portfolio transparency requirements for actively managed UCITS ETFs. Historically, active UCITS ETFs were required to disclose their portfolio holdings daily. However, this information may now only be published once a month, with a maximum delay of one month to protect proprietary strategies and prevent replication by other market participants. In accordance with the ESMA ETF guidelines, each UCITS ETF should disclose its portfolio transparency policy in its prospectus. This disclosure should include details on where information on the portfolio can be obtained as well as the frequency and any applicable time lag of the publication of the portfolio.
AIFMD II Consultations
Ireland
The Department of Finance on 22 November 2024 opened a public consultation (until 17 January 2025) on the exercise of the national discretions in AIFMD II to be taken into consideration when deciding how to transpose it into Irish law. The matters subject to national discretion cover:
- extending the list of ancillary activities and services that may be provided by an external AIFM and by a UCITS management company.
- prohibiting AIFs that originate loans from granting loans to consumers in Ireland.
- permitting the national competent authority to allow the appointment of a depositary established in another member state, on receipt of a reasoned request from an AIFM and subject to strict conditions.
EU
On 12 December 2024, ESMA published a consultation on draft regulatory technical standards ("RTS") on open-ended loan-originating alternative investment funds ("LO AIFs") under AIFMD II.
LO AIFs are closed-ended by default. Article 16(2a) of AIFMD II provides that an AIFM must ensure that the LO AIF it manages is closed-ended. However, by way of derogation to this requirement, a LO AIF may be open-ended provided the AIFM that manages it can demonstrate to the competent authorities of its home member state that the AIF's liquidity risk management system is compatible with its investment strategy and redemption policy. Article 16(2f) mandates ESMA to develop draft RTS to determine the requirements with which LO AIFs are required to comply to maintain an openended structure. These must include a sound liquidity management system, the availability of liquid assets and stress testing, and an appropriate redemption policy having regard to the liquidity profile of LO AIFs. They must also take account of the underlying loan exposures, the average repayment time of the loans and the overall granularity and composition of the LO AIFs portfolios.
The consultation closes on 12 March 2025. ESMA expects to publish a final report and submit the final draft RTS to the European Commission by Q3-Q4 2025.
For more information see AIFMD 2.0 – ESMA consults on open-ended loan originating AIFs
1.2 ELTIF
2.0 EU
On 10 January 2024, Regulation (EU) 2023/606 which revised the European Long-Term Investment Fund ("ELTIF") framework, came into effect across the EU. Commonly referred to as "ELTIF 2.0" it aims to make ELTIFs more attractive by removing certain regulatory obstacles. ELTIFs are EU AIFs managed by AIFMs that invest in long-term investments and can be distributed on a cross-border basis to both professional and retail investors.
On 26 October 2024, the ELTIF 2.0 delegated regulation RTS entered into force and marks the final major milestone on full implementation of ELTIF 2.0. It covers the requirements for an appropriate redemption policy and liquidity management tools and the circumstances for the matching of transfer requests of units or shares of the ELTIF. For more information see ELTIF 2.0 – RTS Delegated Regulation Enters into Force
Ireland
On 1 November 2024, the Central Bank updated its ELTIF application form to reflect the entry into force of ELTIF 2.0 delegated regulation RTS to include open-ended ELTIFs with limited liquidity. Information relating to the authorisation process for ELTIFs was also updated.
Luxembourg
On 25 October 2024, the CSSF confirmed its ELTIF application form has been updated to reflect the provisions of the ELTIF 2.0 delegated regulation RTS. It also confirmed that existing Luxembourgdomiciled ELTIFs that do not benefit from the grandfathering clause must make the necessary amendments to comply with the ELTIF 2.0 delegated regulation RTS as soon as possible and notify all resulting significant changes to the CSSF.
1.3 Ireland Funds Sector 2030 Review Report
Following a review of the Irish funds industry and wide engagement with industry participants, the Irish Minister for Finance, Jack Chambers on 22 October 2024 published the final Report of the Funds Sector 2030. This review was initiated to ensure that Ireland maintains its leading position as a domicile for asset management and funds servicing and focused on three interlinked themes: open markets, resilient markets, and developing markets.
The report makes 42 specific recommendations across nine areas (legal structures and products; Ireland's regulatory and supervisory regime; harnessing technology; enabling more retail investment; structured finance; providing stability and certainty in investment in property; supporting the green transition; engagement and promotion; and skills and access to talent). These include enhancing the regulatory framework, promoting technological innovation, increasing retail investment participation, and improving the attractiveness of existing fund structures. Reforms to the taxation of funds (Irish, EU and OECD funds) are suggested to abolish the eight year deemed disposal rules and align the Irish tax rates with that applicable to other forms of investments, such that a lower rate would apply. In addition, there was a recommendation that Irish dividend withholding tax exemptions be extended to payments to investment limited partnerships to improve Ireland's attractiveness as a private equity fund domicile.
The report also emphasises the importance of collaboration between industry, government, and regulators to navigate future challenges and opportunities.
For more information please see Ireland Funds Sector 2030 Review: Strategic Recommendations for Future Growth and Innovation
1.4 Sustainable Finance Update
On 30 October 2024, the European Supervisory Authorities ("ESAs") (that is, ESMA, EIOPA and the European Banking Authority ("EBA") published a final report on principal adverse impact ("PAI") disclosures under the Sustainable Finance Disclosure Regulation (EU) 2019/2088 ("SFDR"). It refers to PAI disclosures published by 30 June 2023, regarding the reference period from 1 January 2022 to 31 December 2022. The ESAs have assessed both entity and product-level PAI disclosures.
Overall, the ESAs noted positive progress on several elements compared to previous years. Improvements on the location of the PAI disclosures (which are becoming more accessible to retail investors), and on the level and quality of the information disclosed are noted. Also, improvements were identified in product PAI disclosures, although the share of products disclosing PAI information remains quite low. However, the level of compliance with SFDR provisions (at both level 1 and level 2) is not yet fully satisfactory. The report includes recommendations to NCAs and to the European Commission.
On 8 November 2024, a European Commission notice on the interpretation and implementation of certain legal provisions of the Disclosures Delegated Act EU) 2021/2178 made under Article 8 of the Taxonomy Regulation (EU) 2020/852 on the reporting of Taxonomy-eligible and Taxonomy-aligned economic activities and assets was published in the Official Journal of the EU ("OJ"). It:
- Covers the reporting obligations of large financial undertakings and financial undertakings admitted to trading on EU markets relating to how they finance, invest in, or insure taxonomyaligned activities.
- Clarifies the scope of entities subject to the reporting obligations, the taxonomy assessment of specific exposures such as to retail clients, local authorities and exposures to individual undertakings and groups.
- Considers the rules on the verification and evidence of compliance with the EU taxonomy, and targeted questions related to credit institutions, insurance undertakings and asset managers.
The replies to the FAQs in the notice clarify the rules in the applicable legislation.
On 13 November 2024, the European Commission published frequently asked questions to give guidance on sustainability reporting requirements under the Corporate Sustainability Reporting Directive (EU) 2022/2464 ("CSRD"). It also addresses certain provisions of SFDR. It confirms that financial market participants may assume that if an investee undertaking subject to the CSRD reports an indicator as non-material, it does not contribute to the corresponding indicator of PAIs in the context of SFDR disclosures.
On 29 November 2024, the European Commission published a draft Notice on the interpretation and implementation of certain provisions of the Taxonomy Environmental Delegated Act (EU) 2023/2486, the Taxonomy Climate Delegated Act (EU) 2021/2139 and the Taxonomy Disclosures Delegated Act (EU) 2021/2178. It contains FAQs that provide technical clarifications on the technical screening criteria ("TSC") in the Taxonomy Climate Delegated Act and the Taxonomy Environmental Delegated Act. The FAQs also cover the disclosure obligations for the non-climate environmental objectives contained in the Taxonomy Disclosures Delegated Act.
On 12 December 2024, Regulation (EU) 2024/3005 on the transparency and integrity of environmental, social and governance ("ESG") rating activities was published in the OJ. It introduces a regulatory regime for ESG rating providers operating in the EU. It enters into force on 2 January 2025 and will apply from 2 July 2026.
On 13 December 2024, ESMA published Q&As relating to its guidelines on funds' names using ESG or sustainability-related terms. Among other things, they clarify:
- Investment restrictions relating to the exclusion of companies do not apply to investments in European green bonds. For other green bonds, fund managers can use a look-through approach to assess whether the activities financed are relevant for the exclusions.
- Investment funds may not be meaningfully investing in sustainable investments if they contain less than 50% of sustainable investments.
Since November 2024, the guidelines have applied to UCITS management companies and AIFMs and are intended to ensure that investors are protected against unsubstantiated or exaggerated sustainability claims in fund names.
On 17 December 2024, the EU Platform on Sustainable Finance published a report on the categorisation of products under SFDR. It strongly supports establishing a categorisation scheme and outlines recommendations for the European Commission to implement as part of the SFDR review process.
The Platform recommends a categorisation scheme that is grounded in the sustainability strategy of a financial product and that aligns with an investor's values or impact objectives (which are identified using sustainability preferences).
To view the full article click here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
