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EC to Deliver Key Commitments in 2020 Capital Markets Union Action Plan


On 25 November 2021, the European Commission (the EC) adopted a package of legislative proposals with an aim to deliver on several key commitments in the 2020 Capital Markets Union (CMU) action plan. The measures cover the Alternative Investment Fund Managers Directive (AIFMD), European long-term investment funds (ELTIF), the European Single Access Point (ESAP) and the Markets in Financial Instruments Regulation II (MiFID II). Here we examine each of those areas covered by the measures in more detail.



The objective of the ELTIF review is to review how best to increase the uptake of ELTIFs among retail investors. Targeted amendments to fund rules, a broadening of the scope of eligible assets and investments, and more flexible fund rules, including fund-of-fund strategies are the changes reviewed. The removal of the €10,000 minimum investment threshold currently in place, removal of a maximum 10% aggregate threshold requirements and alignment of the suitability assessment with MiFID II rules are reviewed with a view to opening ELTIFs for retail investors. Further the review aims to ease selected fund rules for ELTIFs distributed solely to “professional investors”.



AIFMD is the framework underpinning the last five years of growth in the European Alternative Investment Fund (AIF) market and after five years it is apt time for a review. The EC’s AIFMD review aims to introduce new requirements for alternative investment fund managers that perform loan granting activities, ensuring the availability of liquidity management tools in exceptional circumstances, and postponing the concept of a depositary passport. Substance requirements are detailed in the review, as are new requirements in case of delegation, such as where managers delegate more portfolio or risk management functions outside of the EU than they retain.The legislative proposal aims to align the requirements between the AIFMD and the UCITS Directive. As a result the EC proposed key amendments impacting both the AIFMD and the UCITS Directive. In summary the aim of the proposed amendments is to ensure that AIFMs and UCITS managers have substance (the necessary human and technical resources). Second the proposal sets out to ensure that delegation arrangements adhere to the same standards across the EU. The EC aims to harmonise and regulate the regime for both AIFMS and UCITS to create a common EU standard. Of note is the EC’s encouragement with regards to the proper use of harmonised liquidity management tools (LMTs). The proposal introduces LMTs made available by Member States in their jurisdictions including suspension of redemptions and subscriptions, gates, notice periods, redemption fees, swing pricing, anti-dilution levy, redemptions in kind, and side-pockets. ESMA will develop the draft RTS to provide definitions and specifications on the harmonised set of LMTs. In addition to the suspension of redemptions, open-ended AIFs and UCITS will choose at least one other LMT from the predefined set of LMTs. AIFMs and UCITS managers will also have to notify the competent authorities of the activation or deactivation of LMTs.A major change for UCITS and AIFMS will be in the streamlining of reporting obligations. The EC aims to improve data collection and remove any inefficient reporting duplications. ESMA will develop the draft RTS and draft implementing technical standards (ITS) to replace the current supervisory reporting template as laid down in Annex IV of the AIFMD and supplemented by the AIFMR. With a view to better harmonisation, the UCITS Directive will also be amended to introduce a periodic supervisory reporting obligation for UCITS managers.



The establishment of a central data portal, or European Single Access Point (ESAP) is comparable to the EDGAR system in the US and is closely linked to the EC’s focus on climate change and sustainable finance. The registry is intended for financial and sustainability-related data about corporates and EU investment products. According to the EC, ESAP will give companies more visibility vis-à-vis investors. All data will be available in a data-extractable format. Small and medium-sized companies will be able to post information voluntarily on the ESAP. ESAP is planned to be operational from 2024. ESAP will improve the availability of data for fund companies and provide a cost-effective way for fund’s to get data to fulfil their reporting obligations.



The aim of the EC review of MiFID II is to remove the main obstacles to the creation of a consolidated tape, enhance transparency and increase competitiveness of EU markets in the global landscape. The introduction of an EU-wide consolidated tape for shares, bonds, exchange-traded funds (ETFs) and derivatives is the main focus. The consolidated tape is a centralised database that will provide easy access to consolidated market data to all investors, large and small (asset managers, pension funds, retail investors), and to financial intermediaries, such as brokers. To create a consolidated tape all data contributors will be mandated to contribute their data. A harmonised data standard will be introduced to ensure that the data is usable and comparable. Interesting for the tape on shares the consolidated tape will share its revenue with the data contributors to compensate for their loss of revenue. The EU consolidated tape will provide investors with information on whether they obtained the best price for selling or buying securities and improve competition between trading venues.



Notably some aspects of the AIFMD review are equally relevant for the activities of UCITS. It is a widely known intention of the EC to mainstream the numerous reporting regimes applicable to AIFs and to reduce duplication. A challenge that did not form part of the review is the exchange of data between public authorities, particularly central banks and in order to reduce duplication of effort by market participants with multi-jurisdictional reporting requirements this data management issue will require attention.The review did not prescribe new rules specifically and it is likely that the EC may accept that generally liquidity management tools evolve in line with market practices and depend on the individual characteristics of the funds under management.In the main the CMU 2.0 meets the measures noted in the CMU action plan from September 2020. Of note is that the latest review did not mention adequacy monitoring, this had been noted as a focus of one of the measures on the Commission’s CMU action plan from September 2020.