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ESMA speech on a macro prudential framework for NBFI, UCITS and T+1
Verena Ross, chairperson of the European Securities and Markets Authority (ESMA), spoke at EFAMA’s investment management forum. She highlighted the significant changes in the political landscape, including a new European Parliament, a new European Commission, and a new US President, and their impact on ESMA and market players.
Ms Ross’ speech focused on three main topics:
Ms Ross’ introduction also referenced sustainable finance remaining high on ESMA's agenda and noted that ESMA will continue to support the European Commission's efforts to streamline the EU framework. Highlighting trust, Ms Ross referenced the fund name guidelines and that ESMA will be monitoring the application of the guidelines carefully.
Financial stability
Ms Ross emphasised the importance of financial stability, particularly in light of the European Commission's consultation on the macroprudential framework for non-bank financial intermediation (NBFI). Key asset management regulations are set to implement the latest global standards provided by FSB and IOSCO, including UCITS, AIFMD, and the ELTIF framework will make a broad set of liquidity management tools (LMTs) available to fund managers in normal and stressed market conditions and will address liquidity mismatches in open-ended funds. She stressed the need for enhanced supervision and the use of LMTs and liquidity stress tests to monitor and mitigate liquidity risks. With respect to ELTIFs, Ms Ross noted that notice periods for redemptions were not retained. ESMA believes this could be a source of future systemic risks and a future review of ELTIF should consider allowing notice periods.
The future of UCITS
Ms Ross highlighted the European Commission's request for ESMA to review and update the rules on asset eligibility under the Eligible Assets Directive. Ms Ross emphasised the need for greater EU harmonisation and a common view on asset eligibility to ensure the UCITS framework remains relevant and beneficial for retail investors.
Transition to T+1 settlement cycle
Ms Ross shared ESMA's assessment of the transition to a T+1 settlement cycle in the EU, recommending that the transition take place in the last quarter of 2027, with 11 October 2027 as the optimal date. She outlined the benefits of a shorter settlement cycle, including lower margin requirements and reduced costs from misalignment with global jurisdictions. However, she acknowledged the challenges, such as the need for legal adjustments, harmonisation, standardisation, and investment in technology and processes. Ms Ross emphasised the importance of a robust governance structure and collaboration with industry stakeholders to ensure a successful transition.
ESMA and NCAs are collecting data on costs linked to investments in AIFs and UCITS
ESMA has launched a data collection exercise together with the national competent authorities (NCAs), on costs linked to investments in AIFs and UCITS.
ESMA with the NCAs has designed a two-stage data collection involving both manufacturers and distributors of investment funds.
This initiative contributes to shedding light on pricing practices in a key part of the EU financial markets, information that has until now not been accessible to retail investors and supervisory authorities. Greater transparency will allow investors to know more about the features of the products that are offered to them and will further support the development of a competitive market for UCITS and AIFs.
The data collection follows the Level 1 mandate received from the European Commission under the UCITSD/AIFMD review.
A report based on these data will be submitted to the European Parliament, the Council and the European Commission in October 2025. This will also be part of an enhanced 2025 ESMA market report on costs and performance of EU retail investment products.
ESMA response to the EU Commission consultation on Non-Bank Financial Intermediation (NBFI)
ESMA issued its response to the European Commission consultation on assessing the adequacy of macroprudential policies for NBFI. In its response to the consultation, ESMA makes key proposals in several areas, as summarised in its press release.
Liquidity management
ESMA recognises the progress made with the revised UCITS and AIFMD regimes, particularly the provisions on LMTs. ESMA still considers that there is a need to address some remaining issues concerning liquidity mismatches in open-ended funds (OEFs). In particular, competent authorities could require funds that invest in assets that are not liquid to be structured as closed-ended funds. This is why ESMA fully supports the Recommendation of the Financial Stability Board related to the classification of OEFs based on asset liquidity and calls for appropriate efforts to ensure the convergent and consistent application of these recommendations in the EU.
Money Market Fund Regulation (MMF) review
ESMA reiterates its position on the necessity to complete the reform of the MMF Regulation, considering the vulnerabilities identified in its opinion.
Supervision and data
ESMA proposes to progress towards data driven supervision, first by harmonising the framework to analyse risks posed by investment funds (especially regarding liquidity risks), and second by developing an EU system-wide stress test across NBFI and the banking sector. These proposals imply having comprehensive and good quality data to assess financial stability risks. Supervisors also need enhanced data sharing, ensuring that ESMA and other authorities have all required information and avoiding unnecessary burden on reporting market participants.
Coordination
ESMA suggests enhancing coordination between competent authorities by the creation of a formal reciprocation mechanism for leverage limits under the AIFMD. This mechanism would make national measures more effective by guarding against the potential for regulatory fragmentation or arbitrage across the EU. In addition, ESMA calls for the EC to consider granting ESMA the formal power to request the implementation of stricter macroprudential requirements by one or multiple national competent authorities, in order to address risks at EU-level.
For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.