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ESMA calls for evidence on UCITS EAD Review

Document date: 7 May 2024

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Summary: The European Securities and Markets Authority (ESMA) has launched a call for evidence on the review of the Undertakings for Collective Investment in Transferable Securities (UCITS) Eligible Assets Directive (EAD). The review aims to ensure the EAD remains effective and efficient in promoting a single market for UCITS funds.

Background on UCITS EAD

UCITS, or Undertakings for Collective Investment in Transferable Securities, represent a harmonised regulatory framework within the European Union, designed to ensure investor protection and market efficiency. The EAD is a crucial component, setting out the criteria for exemptions applicable to UCITS, thereby influencing how these investment funds operate.


Purpose of the call for evidence

ESMA's review aims to collect insights and data from market participants, regulatory bodies, and other stakeholders to assess the current effectiveness of the EAD. This initiative is driven by the need to address emerging challenges and opportunities in the financial sector, particularly in the context of digital finance and new investment vehicles.


Key findings:

  • Scope of the Review: The review will focus on the EAD's scope, definitions, and requirements for eligible assets. This suggests that ESMA is seeking to clarify and refine the EAD's boundaries to ensure it remains effective in promoting a single market for UCITS funds.

  • Eligible Assets: The review will examine the EAD's requirements for eligible assets, which are the investments UCITS funds can make. This is crucial, as the EAD's scope and definitions will impact the types of assets UCITS funds can invest in, which in turn affects the funds' risk profiles and potential returns.

  • Single Market: The review aims to promote a single market for UCITS funds by ensuring the EAD remains effective in facilitating cross-border investment. This is essential for maintaining investor confidence and promoting a level playing field across the EU.

  • Stakeholder Feedback: ESMA is seeking feedback from stakeholders, including UCITS fund managers, investors, and other market participants. This suggests that ESMA is committed to a collaborative approach and recognizes the importance of stakeholder input in shaping the future of the UCITS regime.

  • Timeline: The review is expected to conclude with a report outlining the findings and recommendations. The timeline for the review is not specified, but it is likely to take several months to complete.


Legal analysis of the UCITS EAD review

Several critical points emerge from ESMA's call for evidence:

  • Compliance: UCITS fund managers and other market participants should review the EAD and ensure compliance with its requirements. The review may lead to changes in the EAD, which could impact the types of assets UCITS funds can invest in and the risk profiles of these funds.

  • Investor Protection: The review aims to promote a single market for UCITS funds, which will help protect investors by ensuring a level playing field across the EU. This is particularly important for retail investors, who rely on UCITS funds as a means of accessing the capital markets.

  • Regulatory Clarity: The review will provide regulatory clarity for UCITS fund managers and other market participants. This will help reduce regulatory uncertainty and facilitate compliance with the EAD.

  • Innovation: The review may lead to changes in the EAD that could facilitate innovation in the UCITS regime. This could include the introduction of new eligible assets or the relaxation of certain requirements to promote more innovative investment strategies.

Why it is important:

The ESMA's call for evidence on the UCITS EAD review represents a proactive approach to regulatory evolution in response to market changes. For legal professionals in digital finance, this review is an opportunity to influence the future regulatory landscape, ensuring it supports innovation while safeguarding investors.

The deadline for ESMA's technical advice is October 31, 2024.[1]


Next steps:

ESMA will analyse the feedback received and publish a report outlining the findings and recommendations.

The European Commission will consider the report and any necessary changes to the EAD.


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[1] Page 15 of the document

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