ARTICLE
4 July 2025

Europe: ESMA Issues Technical Advice To The Commission For Its Review Of The UCITS Eligible Assets Directive (EAD)

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K&L Gates LLP

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ESMA finally published its long-awaited technical advice for the review of the EAD, which proposes changes to the existing UCITS framework (the Report).
Ireland Technology

ESMA finally published its long-awaited technical advice for the review of the EAD, which proposes changes to the existing UCITS framework (the Report).

ESMA's key proposals include:

  • Application of a "look-through" approach to at least 90% of a UCITS portfolio, to ensure that all the underlying assets are backed by or linked to eligible assets as set out in Article 50(1) of the UCITS Directive (Eligible Assets).
  • 10% of a UCITS portfolio may be indirectly exposed to non-Eligible Assets under a revised trash bucket rule, however, all securities must adhere to the amended requirements of the EAD, which include being liquid, and the only exception under this rule is that the underlying assets may consist of non-Eligible Assets.
  • Clarifications as to what constitutes a Transferable Security and removal of any presumptions of liquidity.
  • Financial Indices must be diversified and will be subjected to the look-through approach outlined above.

The Report also includes a UCITS eligibility table on the implications of the proposed look-through approach in relation to various asset classes. Under the table, loans, catastrophe bonds, crypto assets, SPACs and various delta-one instruments, would be deemed ineligible on a look-through basis, but a UCITS could potentially invest up to 10% indirectly these assets under the revised "trash bucket" rule, subject to a favourable review of their liquidity, valuation and risk management, etc, which must be assessed on a case by case basis.

Next Steps

The European Commission will decide whether or not to take account of ESMA's proposals as it reviews the EAD. In the meantime, UCITS managers can consider ESMA's proposals against their current portfolios to assess what, if any, changes may be required in the future, but no action is required to be taken at this time and a lengthy implementation timeframe was suggested by ESMA in its proposals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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