Asset Management & Investment Funds: EU & International Developments – April 2025

ESMA’s draft RTS and guidelines for liquidity management tools for funds

ESMA published the draft Regulatory Technical Standards (RTS) and a final report on the guidelines on Liquidity Management Tools (LMTs). This follows an ESMA consultation.

In the draft RTS, ESMA sets out rules for the selection and calibration of LMTs by UCITS and AIFMs of open-ended AIFs for liquidity risk management and for mitigating financial stability risks. The draft RTS are made under identical mandates in Article 18(a)(3) of the UCITS Directive and Article 16(2)(g) of the AIFMD. The final draft RTS under the AIFMD are set out in Annex IV of the report and under the UCITS Directive in Annex V.

The draft guidelines provide guidance on how managers should select and calibrate LMTs in the light of their investment strategy, their liquidity profile and the redemption policy of the fund. They are made under mandates in Article 18(a)(4) of the UCITS Directive and Article 16(2)(h) of the AIFMD.

Publication of the RTS and guidelines is a further step in the implementation of the revised AIFMD and UCITS Directive and will facilitate the harmonisation and full availability of the LMTs defined in the Directives in all Member States. 

RTS. The draft RTS have been submitted to the European Commission for adoption. The European Commission must decide on whether to adopt the RTS within three months (extendable by one month). Following ESMA’s consultation, the draft RTS were amended to:

• introduce flexibility for redemption gates
• remove the provisions on the application of LMTs to share classes
• carve out the use of redemption in kind by an ETF as the activation of an LMT

Guidelines. ESMA will translate the guidelines after the adoption of the draft RTS by the European Commission. If the European Commission amends the draft RTS in a way that impact the guidelines, ESMA will adjust the guidelines to ensure consistency between the RTS and the guidelines. In the draft guidelines:

• the guideline on the merit of selecting at least one anti-dilution tool and at least one quantitative LMT has been retained the guidelines on governance principles, disclosure to investors and depositaries have been deleted
• ESMA recognise the manager’s responsibility on the selection, activation and calibration of LMTs

The guidelines will apply from the date of entry into force of the RTS. Funds existing before the entry into force of the RTS will have twelve months to comply with the guidelines. 

European Commission consultation on the Savings and Investments Union

The European Commission published a 92-page consultation as part of its work on the Savings and Investments Union (SIU) to learn about obstacles to financial market integration across the EU. Topics include:

• barriers in general to the integration and modernisation of trading and post-trading infrastructures, the distribution of funds across the EU and efficient cross-border operations of asset management
• scaling up of investment funds
• barriers linked to supervision
• simplification and burden reduction

The European Commission opened a specific channel for market participants to signal barriers that they experience.

The deadline for responses to the consultation is 10 June.

ESMA report on ESG related changes to fund names and their impact on investment flows.

ESMA published a TRV risk analysis report on environmental, social and governance (ESG) related changes to fund names and their impact on investment flows.

Building on a previous ESMA study on EU fund names, the report explores whether the simple decision of fund managers incorporating ESG or sustainability-related terms into their funds’ names leads to additional investor interest. It notes that, if so, this may incentivise potential greenwashing behaviours, undermine investor trust and hinder efforts to promote sustainability within EU financial markets.

ESMA’s report: 

• Analyses the evolution of ESG names among EU-domiciled UCITS and AIFs since 2009. Its results show that the proportion of funds with ESG-related names increased from less than 3% before 2015 to about 9% by mid-2024. This was primarily driven by UCITS funds, for which the proportion of funds with ESG-related names accounted for 15% by mid-2024. The report also notes that the terminology has evolved from a wide range of unique terms to more standardised terms such as ‘ESG’, now representing over 40% of all ESG-related words added post-2021 by UCITS and AIFs.
• Examines the impact of adding an ESG name on investor flows. Results indicate that adding an ESG term can significantly boost fund inflows, especially in the quarter immediately following the name change, with a sustained positive impact in subsequent quarters. Findings include that the impact varies depending on the specific ESG terms used, with environmental-related terms showing the most substantial effect on inflows, highlighting the importance of ensuring that name changes are reflected in portfolio investments.

ESMA’s reasons that its findings demonstrate the strong financial incentives for fund managers to consider adding ESG terms to the names of funds. They also highlight the importance of ESMA’s guidelines on funds’ names using ESG or sustainability-related terms to help protect investors by ensuring that, when a fund name includes ESG language, its portfolio investments are aligned with investors’ ESG preferences.

ESMA expects to incorporate the indicators developed in its report in its overall risk assessment framework and monitoring activities.

ESMA intends to progress its analysis in greater detail in future research, including whether and how funds adjust their portfolio to align with the use of ESG terms in their name.

ESMA Q&A on registered AIFMs and crypto-asset services.

ESMA published ESMA_QA_2397 which confirms that registered AIFMs, being exempt from authorisation under the AIFMD, may not provide crypto-asset services on the basis of a notification under Article 60(5) of the Markets in Crypto-Assets Regulation (MiCA).

European “stop the clock” initiative to delay CSRD and CSDDD 

The Omnibus I Directive (EU) 2025/794 amending Directives (EU) 2022/2464 and (EU) 2024/1760 as regards the dates from which member states are to apply certain corporate sustainability reporting and due diligence requirements entered into force on 17 April 2025.The Omnibus I Directive (known as the “stop the clock” initiative) postpones:

• by two years the entry into application of the Corporate Sustainability Reporting Directive requirements for large companies that have not yet started reporting, as well as listed SMEs 
• by one year the transposition deadline and the first phase of the application (covering the largest companies) of the Corporate Sustainability Due Diligence Directive to 26 July 2027
• by one year, the first phase of the Corporate Sustainability Due Diligence Directive's application to in-scope companies to 26 July 2028

The stop-the-clock proposal is part of the European Commission’s broader Omnibus simplification proposal aimed at legislative simplification to reduce bureaucracy. Member states must transpose the Omnibus I Directive into their national legislation by 31 December 2025. In Ireland, the Department of Enterprise, Trade and Employment indicated that the department will progress to quickly implement the directive.

ESMA’s assessment of the risks posed by the use of leverage in the fund sector

ESMA published its annual risk assessment of leveraged alternative investment funds (AIFs) and its first analysis on risks in UCITS using the absolute Value-at-Risk (VaR) approach.

Both articles represent ESMA’s work to identify highly leveraged funds in the EU investment sector and assess their potential systemic relevance.

While most EU investment funds make limited use of leverage, a subset of AIFs are substantially leveraged, and a group UCITS using the absolute VaR approach has very high levels of gross leverage.

• Risk assessment of leveraged AIFs shows that hedge funds display the highest levels of leverage, even though they represent a small part of the EU fund industry. The real estate (RE) funds are under pressure in some jurisdictions due to the combination of declining real estate prices and outflows from some funds, but in general the RE fund sector has been resilient at EU level. The assessment of GBP liability-driven investment funds, which gain leveraged exposures to the UK government bond market, shows that imposing limits to the interest rate risk they can take successfully increased the resilience of the sector, and even resulted in a decline of leverage for some funds.
• In a new analysis, ESMA reports that UCITS using the absolute VaR approach to manage their risk profile account for around 8% of the UCITS universe. These funds follow a heterogeneous range of investment strategies and can increase their exposures using derivatives. Within this group, a subset of funds shows risk profiles and characteristics more commonly associated with hedge funds, such as complex derivative exposures with high levels of gross leverage and heightened sensitivity to market conditions. These funds tend to be exposed to risks related to liquidity imbalances and complexity, and some have higher risks than hedge funds. While this subset is small (2% of the UCITS segment), they have a larger volume of assets than EU hedge funds. The diversity of strategies and relatively fragmented manager base in the VaR UCITS segment reflects a dynamic market but also underscores the importance of close supervisory attention to ensure risks are properly understood and managed.
• ESMA notes that its analysis of the UCITS universe is a starting point to a more systematic exploration of the risks that extensive use of synthetic leverage can pose. Supervisory insights play an important role, and, in the future, granular fund portfolio data could enable national authorities and ESMA to undertake targeted analysis in this field.

ESMA report on MiFID II research provisions amendments

ESMA published a final report with technical advice to the European Commission on amendments to the MiFID II research provisions in the context of changes introduced by the Listing Act. These focus on the payment for research and execution services. Annex IV of the report sets out a mark-up showing the proposed amendments to Article 13 of the MiFID II Delegated Directive, including requirements to align it with the new payment option offered under the Listing Act, which allows joint payments for execution services and research irrespective of the market capitalisation of the issuers covered by the research.

ESMA consulted on draft advice to the Commission in October 2024.

ESMA draft MiFID II RTS on firms’ order execution policies 

ESMA published its Final Report on the rules explaining how investment firms should establish their order execution policies and assess their effectiveness.

The RTS includes requirements on: 

• the establishment of an investment firm’s order execution policy; this includes the classification of financial instruments in which firms execute client orders and the selection of venues for the order execution policy
• the investment firm’s procedures and criteria to monitor and regularly assess the effectiveness of its order execution arrangements and order execution policy
• the investment firm’s execution of client orders through own account dealing
• how an investment firm should deal with specific client instructions

The report has been sent to the European Commission. ESMA will provide further advice and technical guidance in this area, if requested by the European Commission. Further information on the MiFID II/MiFIR review and the upcoming consultations and reports can be found here.

ESMA consults on amendments to RTS on clearing thresholds under EMIR

ESMA published a consultation paper on amendments to the RTS set out in Commission Delegated Regulation (EU) 149/2013 on clearing thresholds under EMIR.

The deadline for comments is 16 June 2025. According to the accompanying press release, ESMA will publish a final report and submit draft RTS to the European Commission by the end of 2025.

ESMA analysis of AI in EU investment funds and IOSCO consultation on AI in capital markets

ESMA published a report on the impact of artificial intelligence (AI) and its recent advancements in the EU investment management industry.

The report studies the operational use of AI by fund managers, i.e. the extent to which the adoption of AI tools by asset manages plays a role in the investment process. The report also assesses the portfolio allocation of AI-related companies by EU investment funds.

The International Organisation of Securities Commissions (IOSCO) published a consultation, produced by its Fintech Task Force, on AI use cases, risks and challenges in capital markets.

IOSCO’s last report was published in September 2021. Comments were invited until 11 April 2025.

ESMA consults on simplified insider list formats under the Listing Act

ESMA launched a consultation paper proposing changes to the format for drawing up and updating insider lists, as part of the Listing Act amendments to the Market Abuse Regulation (MAR).

The Listing Act mandates ESMA to review the implementing technical standards (ITS) on insider lists to extend the simplified format - currently used by issuers on small and medium enterprises (SME) growth market - to all issuers.

The proposed changes aim at reducing the administrative burden on issuers required to draw up and maintain insider lists under MAR. 

Next Steps

The consultation will remain open until 3 June 2025. Based on the feedback received, ESMA will finalise the ITS and submit them to the European Commission in Q4 2025.

For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.