Simplifying operations for UCITS management companies and AIFMs

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The EU Commission has published legislative measures to reduce operational barriers affecting cross-border groups in particular, with a view to simplifying operations of asset managers, both large and more specialised, and with the ultimate aim of achieving a truly single EU market for asset managers.

On 4 December 2024, the EU Commission published a package of legislative measures aimed at addressing market fragmentation and unnecessary regulatory burdens, particularly for asset managers operating in group structures across multiple Member States. To achieve its objective of creating a truly single EU market for asset managers, the EU Commission has chosen to reopen Directive 2009/65/EC, known as the UCITS Directive, and Directive 2011/61/EU, known as the AIFMD, despite both Directives having been recently reviewed and amended, with Member State implementation still ongoing.

To this end, the EU Commission proposes several amendments to both the UCITS Directive and the AIFMD.

Harmonisation of authorisation procedures

The proposed amendments clarify the scope and timing of notifications for material changes to the conditions of initial authorisation of UCITS. UCITS will be required to notify their home Member State before implementing any material changes to the conditions for initial authorisation, including changes concerning the management company and depositary, as well as changes to fund rules or constitutive documents. To this extent, the proposed amendments empower ESMA to develop regulatory technical standards specifying the procedures, timelines, forms and templates for information provided as part of the UCITS authorisation. Similarly, the proposed amendments remove diverging national requirements and procedures in the authorisation of AIFMs and UCITS management companies by mandating ESMA to develop regulatory technical standards specifying the information to be provided to national competent authorities and the format, template and procedures for providing this information. Consequently, much will depend on the regulatory technical standards prepared by ESMA, but this may entail potentially significant changes from how the authorisation process and subsequent updates are currently handled at national level.

EU groups of UCITS management companies and AIFMs

The EU Commission proposes introducing the concept of an EU group of management companies and AIFMs, which would include UCITS management companies, authorised AIFMs, credit institutions and investment firms. Under the proposed concept, AIFMs and UCITS management companies demonstrate at the time of authorisation that they make use of the human and technical resources of other entities within the same EU group and would no longer be required to provide information on the delegation and sub-delegation of functions to the group’s other EU entities. Where an AIFM or UCITS management company relies on other EU entities within their EU group to carry out their activities, these arrangements would not be characterised as delegation and would not be subject to the requirements on the delegation of functions, other than the requirement to duly inform the competent authorities. Overall, this is a welcome simplification much sought by the asset management industry, however it is not clear how much practical benefit the change will actually bring since the same flexibility is not provided with respect to delegation to non-EU entities and many entities apply the same standards across all intragroup delegations. Moreover, the impact of this change on regulatory scrutiny of non-EU delegation remains to be seen.

Elimination of national discretions

The proposal amends multiple provisions in both Directives to remove national discretions that allow Member States to interpret, supplement or derogate from core rules. The amendments also ensure that harmonised rules of conduct and prudential rules for AIFMs and UCITS management companies are applied across the EU. ESMA may develop guidelines to specify the application of national rules of conduct and prudential rules with which UCITS management companies and AIFMs are required to comply.

Simplification of disclosure obligations for white labels

The disclosure obligations of AIFMs and UCITS management companies that manage or intend to manage UCITS or AIFs at the initiative of a third party are simplified. Instead of actively disclosing detailed information and evidence, the proposed change requires AIFMs and UCITS management companies to disclose this relationship to the competent authorities of their home Member State at the time of authorisation, and to be in a position to demonstrate to them upon request that they have taken all reasonable steps to identify, prevent, manage, monitor or, where applicable, disclose conflicts of interest.

Optimisation of management passport for UCITS management companies and AIFMs

Under the proposed amendments, the time by which the competent authorities of the UCITS management company’s or AIFM’s home Member State should transmit to the competent authorities of the host Member State information regarding the intention to operate in the territory of the host Member State with or without the establishment of a branch is reduced to one month for the establishment of a branch and 15 days under the freedom to provide services rule. The time that the host Member State would have to prepare the necessary supervisory arrangements is reduced to one month. Furthermore, the proposed amendments clarify that the host Member State should not impose any additional requirements on UCITS management companies or AIFMs operating in their territory.

Introduction of EU depositary passport

The EU Commission proposes to establish an EU depositary passport, enabling AIFMs and UCITS to appoint a depositary located anywhere within the EU and allowing depositaries to offer their services on a cross-border basis. This depositary passport will be applicable to depositaries that are authorised as credit institutions or investment firms and already benefit from an EU passport under Directive 2013/36/EU, known as the Capital Requirements Directive, and Directive 2014/65/EU, known as MiFID II, respectively.

Adjustments to UCITS investment limits

The EU Commission suggests relaxing certain investment restrictions for UCITS. The 10% limit on debt securities issued by a single entity is increased to 15% for UCITS investing in securitisations issued in accordance with Regulation (EU) 2017/2402, known as the Securitisation Regulation, recognising their distinct characteristics and regulatory safeguards. Additionally, the 20% issuer limit currently applicable to index-tracking UCITS is extended to UCITS that are managed by reference to an index that is recognised by ESMA.

Removal of obligation to draw up key investor information for UCITS

The proposal removes the requirement for UCITS management companies to draw up a key investor information (KIID), as UCITS management companies and investment companies managing UCITS that are marketed to retail investors are already required to draw up and make available to investors a key information document (KID) pursuant to the PRIIPs Regulation.

Transfer of rules on cross-border marketing into Cross-Border Distribution Regulation

The provisions governing the marketing of EU AIFs managed by EU AIFMs and of UCITS across the EU are proposed to be deleted from both Directives and moved to Regulation (EU) 2019/1156, known as the Cross-Border Distribution Regulation. In parallel, provisions regarding the powers of the AIFM and UCITS host Member States vis-à-vis the AIFs and UCITS marketed in their territories are amended and the related provisions deleted and moved to the Cross-Border Distribution Regulation. Read more The wording of Annex II of the UCITS Directive will be aligned with the wording of Annex I of the AIFMD, meaning that marketing would no longer be considered a core function of collective portfolio management.

ESMA’s supervisory powers

Both Directives empower ESMA to identify and maintain a list of the largest asset management groups based on net asset values and cross-border operations and activities. A supervisory framework is proposed to be established whereby ESMA, in cooperation with the relevant competent authorities, carries out reviews at least annually to effectively identify and address divergent, duplicative, redundant or deficient supervisory practices in specific cases, ultimately removing barriers to the operations of large asset management groups. The proposed amendments further empower ESMA to identify and pursue actions to address diverging, duplicative, redundant and deficient supervisory actions hindering the operations of asset managers and depositaries pursuing their activity on a cross-border basis. Finally, ESMA is granted the power to intervene when national authorities do not effectively apply EU rules, or to directly suspend the cross-border activities of an asset manager or depositary in certain cases.

Initial assessment

Whilst overall the proposed package addresses some important concerns of the asset management industry and the intended direction is clearly a welcome one, it also proposes to strengthen ESMA’s powers to coordinate activities among national competent authorities. As such, the final assessment remains subject to how ESMA will use its new powers.

Next steps

These are preliminary proposals that must undergo the full EU legislative process with the legislative proposals now under review by the EU Parliament and the Council of the EU. A number of amendments can likely be expected. Currently the proposed legislative texts provide that Member States must implement the amendments, once adopted, within 18 months following their entry into force.

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