1 Legal & Regulatory
1.1 UCITS and AIFMD Update
Directive (EU) 2024/927 amending AIFMD 2011/61/EU and the UCITS Directive 2009/65/EC relating to delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services, and loan origination by alternative investment funds ("AIFs") ("AIFMD II") has to be transposed into national law by EU member states by 16 April 2026. The changes introduced aim to strengthen investor protection; improve access to finance from sources other than banks; tackle greenwashing; and help complete the capital markets union by limiting national approaches when it comes to marketing AIFs. One of the major enhancements under AIFMD II is the introduction of a pan-European loan origination regime for AIFs.
On 8 July 2024, the European Securities and Markets Authority ("ESMA") published:
- A consultation paper on draft regulatory technical standards ("RTS") on liquidity management tools ("LMTs") under AIFMD II. They will apply to AIFMs managing openended AIFs and UCITS. In the draft RTS, among other things, ESMA defines the constituting elements of each LMT, such as calculation methodologies and activation mechanisms.
- A consultation paper on guidelines on LMTs of UCITS and open-ended AIFs. These 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.
The aim of the draft RTS and guidelines is to promote convergent application of the Directive (EU) 2024/927s for both UCITS and open-ended AIFs and make EU fund managers better equipped to manage the liquidity of their funds, in preparation for market stress situations. In addition, they clarify the functioning of specific LMTs, such as the use of side pockets, which is a practice that currently varies significantly across the EU.
ESMA highlights that the list of LMTs and their definitions are identical in AIFMD and the UCITS Directive. As the empowerments are also identical in both Directives, it is issuing a single consultation paper for both sets of draft RTS. However, ESMA will issue two different sets of draft RTS because the empowerments stem from two different sectoral legislations.
The consultations close on 8 October 2024. ESMA intends to publish final reports and draft RTS and guidelines to submit to the European Commission by 16 April 2025. ESMA will consult on draft RTS to determine the requirements that loan-originating AIFs must comply with to maintain an open-ended structure at a later stage.
1.2 Individual Accountability Framework – SEAR Update
In April 2024, the Central Bank of Ireland ("Central Bank") finalised guidance on all four aspects of the Individual Accountability Framework ("IAF") (SEAR, Fitness and Probity framework, Conduct Standards and the Administrative Sanctions Regime).
The Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1) (Senior Executive Accountability Regime)) Regulations 2024 brought the Senior Executive Accountability Regime ("SEAR") into force on 1 July 2024 (except for independent non-executive directors, who will be in scope from 1 July 2025). It requires in-scope firms to set out clearly where responsibility lies within the firm's senior management. It also imposes responsibility on persons carrying out pre-approval controlled function ("PCF") roles in those firms.
On 1 July 2024, the Central Bank published the Questions from Stakeholders to address some queries raised by stakeholders on the application of the IAF.
1.3 Luxembourg RCS – New Filing Obligations
On 6 September 2024, the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés de Luxembourg, the "RCS") announced new guidelines on filings with the RCS. From 12 November 2024, the RCS will transition from PDF forms to online forms. These new forms include additional requirements regarding the information to be provided on natural persons registered with the RCS and all natural persons registered with the RCS in any capacity (e.g. shareholder, partner, director, manager, agent, auditor) will have to provide their Luxembourg national identification number ("LNIN") (and create a LNIN to the extent they do not already have one).
For more information, please see Luxembourg RCS – New Filing Obligations.
1.4 ELTIF 2.0 On 10 January 2024, Regulation (EU) 2023/606 which revised the European Long-Term Investment Fund ("ELTIF") framework, came into effect across the EU. Commonly referred to as "ELTIF 2.0", it aims to make ELTIFs more attractive by removing certain regulatory obstacles. ELTIFs are EU AIFs managed by AIFMs that invest in long-term investments and can be distributed on a cross-border basis to both professional and retail investors.
On 19 July 2024, the European Commission adopted a Delegated Regulation with RTS supplementing ELTIF Regulation (EU) 2015/760 specifying when derivatives will be used solely for hedging the risks inherent to other investments of the ELTIF, the requirements for an ELTIF's redemption policy and LMTs, 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. Among other things, it:
- Sets out circumstances in which the use of financial derivative instruments for hedging purposes is considered as solely serving the purpose of hedging the risks inherent to the investments of an ELTIF.
- Contains criteria for ELTIF managers to determine a minimum holding period.
- Sets out the requirements to be fulfilled by an ELTIF in relation to its redemption policy and LMTs, as well as the criteria to determine the percentage of liquid assets.
- Specifies the minimum content requirements to the full or partial matching of transfer requests of units or shares of an ELTIF by exiting and new investors.
The adoption of the RTS now begins a three-month scrutiny period for co-legislators, which is expected to end in mid-October 2024 (unless extended), allowing for the RTS to enter into force in Q4 2024.
For more information see ELTIF 2.0 - European Commission Adopts RTS Delegated Regulation.
On 29 July 2024, the Commission de Surveillance du Secteur Financier ("CSSF") updated its ELTIF application questionnaire to simplify the procedures for requesting the authorisation of an ELTIF in a new or an existing UCI Part II, SIF or SICAR.
1.5 Sustainable Finance Update
On 24 July 2024, ESMA published an opinion on the functioning of the EU sustainable finance framework. It acknowledges that the framework is well developed and includes safeguards against greenwashing. However, it considers that, in the longer-term, the framework could further mature and evolve. The recommendations include the following:
- Consumer and industry testing should be carried out before implementing policy solutions to ensure their feasibility and appropriateness for retail investors.
- The EU taxonomy should be completed for all activities that can substantially contribute to environmental sustainability and include a social taxonomy. It should become the sole, common reference point for assessing sustainability and should be included in all sustainable finance legislation.
- A definition of "transition investments" should be incorporated into the framework.
- All financial products should disclose some minimum basic sustainability information, covering environmental and social characteristics.
- A product categorisation system should be introduced covering sustainability and transition, based on clear eligibility criteria and binding transparency obligations.
- ESG data products should be brought into the regulatory perimeter and the consistency of ESG metrics should be improved.
On 25 July 2024, the Joint Committee of the European Supervisory Authorities ("ESAs") published updated Q&As on the Sustainable Finance Disclosure Regulation (EU) 2019/2088 ("SFDR") and the SFDR Delegated Regulation (EU) 2022/1288 on content and presentation of information. Several new answers have been added including:
- Establishing a website to comply with Article 10 of SFDR.
- The calculation of principal adverse impact ("PAI") indicators being performed on a pass/fail basis.
- How to calculate the share of sustainable investment that qualifies as environmentally sustainable and its disclosure.
- A table showing how the calculations of sustainable investment can be done either at the economic activity or the investment level for financial products.
- Whether sustainable investment can be made by investing in another product, such as a UCITS fund.
On 21 August 2024, ESMA published translations of its guidelines on funds' names using ESG or sustainability-related terms, for more detail see Process Clarification for Changes to UCITS and AIFs due to ESMA's Fund Names Guidelines below.
On 30 September 2024, ESMA published its annual work programme for 2025 in which it states it will intensify its focus on implementing the sustainable finance legal and supervisory framework, combating greenwashing and promoting transparency in sustainable investments.
1.6 Process Clarification for Changes to UCITS and AIFs due to ESMA's Fund Names Guidelines
On 21 August 2024, ESMA published on its website the official translations of its guidelines on funds' names using ESG or sustainability-related terms ("Guidelines"). They aim to protect investors against unsubstantiated or exaggerated sustainability claims in fund names and provide asset managers with clear and measurable criteria to assess their ability to use ESG or sustainability-related terms in fund names. They apply from 21 November 2024 and national competent authorities ("NCAs") must notify ESMA by 21 October 2024 whether they comply, do not comply but intend to comply or do not intend to comply with the guidelines.
The Guidelines will apply immediately for any new funds created on or after the application date. However, there is a transitional period for funds existing before the application date until 21 May 2025.
On 27 September 2024, the Central Bank issued a document clarifying the filing procedure for UCITS and AIFs to comply with upcoming pre-contractual documentation update requirements relating to changes resulting from the Guidelines. It has established a streamlined filing process for UCITS and AIFs seeking a change of name and for updates to fund prospectuses, supplements and SFDR annexes based on the Guidelines. It has also confirmed what documents are required to be filed and the relevant mailbox to be used. UCITS management companies and AIFMs will be required to certify compliance with the Guidelines through an attestation that must be submitted to the Central Bank with the request to change name of the UCITS or AIF.
Filings must be made during the transitional period (21 November 2024 to 21 May 2025) for existing in-scope funds.
The Central Bank also published the process changes for UCITS mergers, AIF amalgamations and applications for clearance of investment managers and non-EU AIFMs.
1.7 AML/CTF Developments
EU
On 4 July 2024, the European Banking Authority ("EBA") published a final report on guidelines on information requirements in relation to transfers of funds and certain cryptoassets transfers under the Wire and Cryptoasset Transfer Regulation (EU) 2023/1113 ("WCTR") (which applies from 30 December 2024). These guidelines replace existing guidelines on the measures payment service providers should take under the revised Wire Transfer Regulation (EU) 2015/847 to detect missing or incomplete information on the payer or the payee and apply from 30 December 2024.
The new EU anti-money laundering ("AML") and counter-terrorist financing ("CTF") regime is being implemented on a phased basis and is expected to be fully operational by 2028. It comprises four elements: the WCTR; the AML Regulation (EU) 2024/1624; the Sixth Money Laundering Directive (EU) 2024/1640 ("MLD6"); and the Regulation establishing the new Anti-Money Laundering Authority ("AMLA") (EU) 2024/1620. The AML Regulation and MLD6 both entered into force on 9 July 2024. The AMLA Regulation came into force on 25 June 2024.
On 10 July 2024, the Financial Action Task Force ("FATF") published a targeted update on the implementation of its standards on virtual assets ("VAs") (also known as cryptoassets) and virtual asset service providers ("VASPs") (also known as cryptoasset service providers ("CASPs")).
The update relates to FATF recommendation 15 (R.15) and the related interpretative note (INR.15), as well as recommendation 16 (R.16) (known as the travel rule) and the related interpretative note (INR.16).
Based on 130 FATF mutual evaluations and follow-up reports since the revised R.15 and INR.15 were adopted in 2019, the FATF found that 75% of jurisdictions are either only partially compliant or not compliant with these requirements. Jurisdictions continue to struggle with the implementation of the fundamental requirements of R.15, particularly undertaking a risk assessment and conducting supervisory inspections.
The FATF has also found that jurisdictions have not made sufficient progress implementing the travel rule, which is a key AML/CTF measure.
The slow progress in regulating the VA sector is a serious concern for the FATF. Despite this, the update does acknowledge positive developments in the VA sector reported by the private sector, such as increases in VA transaction volume using travel rule compliance tools and in VASPs considering travel rule obligations in their operations.
On 30 September 2024, the EBA published its work programme for 2025 which includes developing consumer orientated mandates and ensuring a smooth transition to the new AML/CTF framework.
Luxembourg
On 5 September 2024, the CSSF updated CSSF circular 19/732 on the prevention of money laundering and terrorist financing to clarify that the identification and verification of the ultimate beneficial owner(s) ("UBOs") must be conducted using a risk-based approach when legal persons or arrangements are involved.
For more information, please see Luxembourg Update: CSSF provides Clarification on UBO Identification and Verification.
On 7 October 2024, the CSSF published an updated FAQ on the AML/CFT Summary Report RC ("SRRC") on compliance with AML/CFT obligations in accordance with CSSF circular 24/854 to reflect two new FAQs on (i) the applicability of the circular to Luxembourg investment funds who are initially managed by foreign investment fund managers ("IFMs") but who appoint a Luxembourg IFM prior to the submission date of the SRRC; and (ii) the requirement to submit the SRRC for entities removed from the CSSF supervision list before the submission date. In both instances, no SRRC will be required.
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