1. AIFMD AND UCITS DEVELOPMENTS
1.1 ESMA's technical advice to the European Commission (the "Commission") on the Commission Directive 2007/16/EC on UCITS Eligible Assets ("EAD") (This is a further update to section 1.1 of the quarterly report covering the second quarter of 2024)
On 26 June 2025, ESMA published its technicaladvice to the Commission on the review of the UCITS EAD, following ESMA's Call for Evidence ("CfE") and a comprehensive survey and data collection exercise carried out with national competent authorities ("NCAs").
The report assesses EAD implementation across member states and makes proposals aimed at ensuring regulatory clarity as well as uniformity across jurisdictions. A central element of the technical advice is the application of a look-through approach as a fundamental criterion for determining the eligibility of asset classes i.e. for at least 90% of a UCITS portfolio.
Allowing a certain degree of flexibility with a view to improving risk diversification and generating returns from uncorrelated asset classes, ESMA's advice proposes that the 10% limit under Article 50(2)(a) of the Directive 2009/65/EC, as amended (the "UCITS Directive") (known as the 'trash ratio') be extended to all eligible asset classes listed in the UCITS Directive, including financial derivative instruments and units or shares of open-ended alternative investment funds ("AIFs"). ESMA would permit in this limit indirect exposures to otherwise ineligible assets up to subject to regulatory safeguards.
ESMA highlights the importance of ensuring adequate disclosures to investors for all exposures, especially those within the trash ratio, ensuring that retail investors are able to understand the benefits and risks associated with the envisaged investments and how those risks are managed.
ESMA sees merit in not presuming the liquidity and negotiability of listed instruments which should be assessed ex-ante and on an ongoing basis.
To ensure an orderly transition, ESMA's proposals provide for granting sufficiently long transitional periods to allow relevant UCITS management company to adapt their portfolios (e.g. where UCITS have indirect exposures beyond 10% to alternative assets), where needed.
Noting currently divergent NCA positions and market practices on UCITS eligibility of relevant asset classes and to promote convergence in practice as well as to reduce technical complexities for firms, ESMA invites the Commission to use directly applicable EU regulations in the UCITS space as opposed to the current legislative approach of using minimum harmonisation directives.
ESMA's proposed legislative updates to the EAD and UCITS Directive are included in Annex VI of the final report. The Commission will now commence its review of ESMA's proposals to ascertain whether any proposed amendments are required to the EAD and/or the UCITS Directive.
Walkers' Asset Management & Investment Funds group have published an advisory providing a detailed overview of the technical advice and next steps.
1.2 Department of Finance ("DoF") feedback statement on exercise of AIFMD II national discretions (This is a further update to section 1.2 of the quarterly report covering the fourth quarter of 2024)
On 8 May 2025, the DoF published the outcome of its consultation on its exercise of AIFMD II national discretions in the form of its public consultation feedback statement and an associated regulatory impact analysis.
The feedback statement confirms the decisions taken in relation to the national discretions and paves the way for the necessary legislation to transpose AIFMD II into Irish law by 16 April 2026.
Ireland was required to decide on four national discretions provided by the Directive:
- Discretion 1: Ancillary activities and non-core services for AIFMs
Ireland will exercise this discretion in full, allowing external AIFMs to provide additional ancillary activities (including administration of benchmarks and credit servicing) and non-core services for third parties, subject to conflict of interest management.
- Discretion 2: Prohibition on loan origination to consumers
Ireland will exercise this discretion in full, prohibiting all AIFs (regardless of domicile) from granting loans to Irish consumers. This maintains the status quo and addresses consumer protection and reputational concerns.
- Discretion 3: Appointment of depositaries in other member states
Ireland will not exercise this discretion. The Central Bank will not permit Irish-domiciled AIFs to appoint depositaries established outside Ireland, as the domestic market is well-served (25 depositaries, €5.3 trillion in assets under custody).
- Discretion 4: Ancillary and non-core services for UCITS management companies
Ireland will exercise this discretion in full, allowing UCITS management companies to provide additional ancillary and non-core services (including reception and transmission of orders, administration of benchmarks, and certain third-party services), aligning them with AIFMs.
Next steps: DoF officials, with technical assistance provided by the Central Bank, will draft and implement the necessary legislation to transpose AIFMD II into Irish law by the deadline, ensuring timely and efficient implementation.
Walkers' Asset Management & Investment Funds team have published an advisory on the outcome of the consultation.
1.3 ESMA publishes proposed rules on AIFMD II LMTs (This is a further update to section 2.3 of the quarterly report covering the third quarter of 2024)
On 15 April 2025, ESMA published its draft Regulatory Technical Standards ("RTS") to determine the characteristics of Liquidity Management Tools ("LMTs") and a final report on the guidelines on the selection and calibration of LMTs (the "Guidelines").
The rules aim to promote convergent application of the directives for both UCITS and open-ended AIFs and to better equip EU fund managers to manage the liquidity of their funds, in preparation for stressed market situations. The draft RTS will also clarify the functioning of LMTs, such as the use of side pockets for which rules currently vary across the EU.
Following a public consultation, ESMA has responded to feedback and introduced the following changes to the original rules contained in the consultation:
- introducing flexibility in the methodology for the activation (AIFs only) and the application of redemption gates;
- removing the provisions on the application of LMTs to share classes; and
- disapplication of the rule on the pro-rata approach in the case of redemptions in kind to ETFs. Accordingly, when authorised participants/market makers use redemptions in kind for the purpose of the creation/redemption of shares of ETFs, this should not qualify as an LMT.
The Guidelines covering (i) governance and/or organisational obligations, (ii) additional disclosure to investors and (iii) the verification steps to be taken by depositaries over the LMT procedures of FMCs, have each been removed from the Guidelines. Other guidelines were removed which had imposed more restrictive obligations on the selection, activation and calibration of LMTs than in the Level 1 text, as well as some streamlining to avoid any overlaps between the Level 1 / 2 measures.
Next steps: The draft RTS have been submitted to the Commission for adoption. The Commission will make their decision on whether to adopt the RTS within three months. The Commission may extend that period by one month.
Should the Commission amend the draft RTS in a way that impact the Guidelines, ESMA will in turn adjust the Guidelines to ensure full consistency between the RTS and the Guidelines. The Guidelines will then apply upon the application date of the RTS. FMCs of in-scope funds existing before the date of application of the Guidelines would be grandfathered for twelve months from the application date of the RTS.
This publication is a key step in the implementation of AIFMD II and will facilitate the harmonisation and full availability of the LMTs defined in the relevant directive in all EU member states. Walkers' Asset Management & Investment Funds group have published a practical timeline 'AIFMD II: timeline to implementation' showcasing key milestones over the coming period including the timing of ESMA's remaining key deliverables on Level 2 and 3 measures underpinning AIFMD II.
1.4 Central Bank of Ireland (the "Central Bank") UCITS Q&A (42nd edition) (This is a further update to section 3.1(b) of the quarterly report covering the fourth quarter of 2024)
On 17 April 2025, the Central Bank published the 42nd edition of its UCITS Q&A.
This latest edition revises Q&A ID 1012 to encompass changes to certain ETF portfolio transparency requirements by providing for the ability to establish semi-transparent ETFs. The Q&A delivers on one of the recommendations of the Department of Finance Funds Sector 2030 report to facilitate Irishdomiciled active ETFs. The Q&A provides that an ETF can now disclose its portfolio holdings as at the end of each calendar quarter within 30 business days of the end of that quarter.
Accordingly, ID 1012 provides that periodic disclosure of portfolio holdings of the ETF/ETF share class is permitted, subject to the responsible person ensuring the following:
- appropriate information is disclosed on a daily basis to facilitate an effective arbitrage mechanism with documented procedures to address circumstances where the arbitrage mechanism is impaired;
- the prospectus discloses this type of information;
- this information is made available on a non-discriminatory basis to authorised participants and market makers;
- there is a documented procedure for investors to request portfolio information; and,
- the portfolio holdings as at the end of each calendar quarter are disclosed publicly within 30 business-days of the end of the quarter.
Walkers' Asset Management & Investment Funds group have published an advisory on the significance of this new policy position for the ETF sector.
1.5 Review of delegation practices of Irish authorised fund management companies ("FMCs")
On 30 May 2025, the Central Bank launched a questionnaire review of qualitative and quantitative aspects of FMC delegation practices. The questionnaire seeks detailed information on governance structures, delegation of portfolio and risk management, oversight arrangements, and compliance with UCITS and AIFMD regulations.
The questionnaire follows the delegation review of Irish authorised FMCs completed by the Central Bank in 2024, which primarily used quantitative metrics to measure levels of delegation. This review seeks to supplement the 2024 exercise in order to gain a more holistic understanding of both the qualitative and quantitative aspects of delegation in the Funds Sector. The reference date for quantitative data is 30 April 2025.
The Central Bank also provided guidance notes to assist with the completion of the delegated practices questionnaire by FMCs. The Central Bank requests that management of the FMC have visibility of the final questionnaire response and are satisfied with its content prior to submission. The Central Bank expects its communication should be promptly shared with the board of the FMC.
Each recipient FMC was required to complete the questionnaire and submit the final document via the Central Bank's portal return by 30 June 2025.
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