Asset Management & Investment Funds: EU & International Developments – October 2024

ESMA 2025 work programme

The European Securities and Markets Authority (ESMA) published its 2025 work programme, placing particular focus on strengthening EU capital markets, green and sustainable transition and digital and technology transitions. Enhanced cross-border cooperation among EU supervisors, including the launch of the first phase of the European Single Access Point (ESAP) in 2026 and the shortening of settlement cycles from T+2 to T+1 are also key areas.

In addition, ESMA is tasked with reviews of EMIR, MiFIR, MiFID, UCITS, AIFMD, and ELTIF Regulation, as well as work on MiCA, DORA, ESAP, Listing Act, EU Green Bonds, and ESG Ratings Regulations. Ongoing projects such as the Retail Investment Strategy will influence ESMA's future work, with deliverables depending on negotiations and political priorities of the Council, European Commission and Parliament.

ESMA’s priorities for the asset management sector relate to:

Asset management: under the revised AIFMD and UCITS Directives, ESMA will develop:

• RTS on the characteristics of LMTs
• guidelines on LMTs of UCITS and open-ended AIFs
• RTS to determine the requirements for open-ended loan originating AIFs
• a report on costs charged by UCITS and AIFMs.

ESMA will also continue its work on the peer review on depositary obligations and deliver technical advice on the review of UCITS eligible assets. The final report on the outcome of its CSA to assess disclosures and integration of sustainability risks in the investment fund sector is expected in early 2025.

Sustainable Finance: among the deliverables, ESMA will build on the substantial work conducted on greenwashing risks to clarify supervisory expectations, develop tools for supervisors and enhance ESG disclosures. It will build on CSAs conducted in 2023-2024 with a sustainability angle. It will develop guidance on sustainability claims to financial market participants and monitor the implementation of guidelines such as on fund names. Subject to adoption of revised RTS, ESMA will develop machine-readable templates for SFDR disclosures. ESMA and NCAs will continue work on the CSA on ESG disclosures under the Benchmarks Regulation, focused on benchmark administrators.

ESMA will publish its annual report on the extent of voluntary disclosure of principal adverse impact (PAI) in SFDR and may provide guidance and Q&As for sustainability disclosures under the SFDR. The EC’s assessment and potential review of SFDR may generate requests for advice.

Retail investor protection: ESMA will work to ensure effective protection of retail investors in the investment services, crowdfunding and crypto-asset space across the EU, focusing on risks posed by new and innovative products and services and alternative distribution channels. Specific outputs for 2025 include developing RTS on order execution policies (best execution) MiFID, CSAs on topics related to retail investors, CSA on MiFID II requirements on suitability/sustainability and a report on fees charged under the review of AIFMD and the UCITS Directive. In the context of the Retail Investment Strategy, ESMA will develop, depending on progress, work on key investor protection topics such as information on costs and charges, benchmarks, and other disclosures.

ESA 2025 Work Programme

The Joint Committee of the European Supervisory Authorities (ESAs, comprising the EBA, EIOPA and ESMA) published its 2025 work programme, outlining several key priorities. For the asset management sector these priorities include:

• Digital Operational Resilience Act (DORA): implementation of DORA including the implementation of the EU-wide oversight framework for ICT critical third-party providers (CTPPs) and framework for the reporting of major ICT-related incidents.
• Sustainable finance: delivering annual report under Article 18 SFDR regarding the extent and quality of PAI disclosures under the SFDR, Q&As and other Level 3 tools, possible regulatory technical standards on ESG rating disclosures, and contributing to the European Commission’s review of SFDR.  
• Consumer and investor protection: continued focus on the areas of consumer and investor protection, retail financial services, and retail investment products. This includes developing RTS based on proposed amendments to the PRIIPs Regulation in the Commission’s Retail Investment Strategy and financial education.
• Cross-sectoral risks: in the context of challenging macro-financial conditions, the ESAs will continue to monitor and assess cross-sectoral risks and vulnerabilities for financial stability.

Other areas of focus include financial conglomerates, accounting and auditing, and securitisation.

T+1: next steps

ESMA, the European Commission’s Directorate‑General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA), and Directorate-General for Market Infrastructure and Payments (ECB-DG MIP) issued a joint statement on the next steps in the transition to T+1. In the coming weeks, ESMA will also deliver its final report on shortening the cycle to the Council and the European Parliament. In order to accelerate this transition, ESMA is sharing preliminary findings. This follows a speech delivered by ESMA’s chair Verena Ross at a public hearing on shortening the settlement cycle in July 2024.

Preliminary findings

• Shortening the settlement cycle in the EU will change the way in which markets function, with impacts depending on the type of stakeholder, the category of transaction and the type of financial instrument.
• The elements assessed by ESMA to date suggest that the impacts of T+1 in terms of risk reduction, margin savings and the reduction of costs linked to the misalignment with other major jurisdictions globally, will bring important benefits for the EU Savings and Investments Union.
• Harmonisation, standardisation and modernisation will be needed and will require investment. The improved efficiency and resilience of post-trade processes that would be prompted by a potential move to T+1 will promote settlement efficiency in the EU.

Options

• Although settling securities transactions on T+1 in EU central securities depositories (CSDs) is already technically and legally possible, EU market participants have indicated a strong preference for amending the CSDR to mandate a harmonised shortening of the settlement cycle in the EU. This would require a legislative proposal from the European Commission, followed by a decision by the EU co-legislators.
• ESMA, in coordination with national competent authorities, DG FISMA and the ECB’s DG MIP have agreed to establish a governance structure, incorporating the EU financial industry, as soon as possible to oversee and support the technical preparations for a move to T+1.

ELTIF 2.0 regulatory technical standards

ELTIF Commission Delegated Regulation (EU) 2024/2759 was published on 25 October 2024 in the Official Journal of the European Union. It came into force on the day following publication.

Commission Delegated Regulation (EU) 2024/2759 of 19 July 2024 supplements Regulation (EU) 2015/760 (the ELTIF Regulation) with regulatory technical standards specifying:

• when derivatives will be used solely for hedging the risks inherent to other investments of the European long-term investment fund (ELTIF),
• the requirements for an ELTIF’s redemption policy and liquidity management tools,
• the circumstances for the matching of transfer requests of units or shares of the ELTIF,
• certain criteria for the disposal of ELTIF assets, and
• certain elements of the costs disclosure.

The published regulation has not changed (other than formatting) from the version adopted in July 2024 by the European Commission. You can read more about that here.