However, the European Commission’s proposal of two-year implementation means these new UCITS rules will likely not be effective until 2025, Whelan said.įurther down the line, the European Commission has requested the European Securities and Markets Authority (ESMA) review the UCITS Eligible Assets Directive as part of UCITS 7 after more than 16 years since the last major changes were made. It also proposes UCITS management companies should regularly report details of the markets and instruments they trade to its national competent authority (NCA) to align with AIFMD reporting. To counteract liquidity mismatches between ETFs and their underlying, UCITS 6 also prescribes eight liquidity management tools (LMTs) – temporary fund suspensions, gates, notice periods, redemption fees, swing pricing, anti-dilution levy, in-kind redemption, side pockets – and how they should be used. UCITS 6 proposes introducing reporting on delegation arrangements such as portfolio management to third parties, including more demanding due diligence of ‘third country’ entities. July’s AIFMD discussion follows amendments proposed by the EU in November 2021, acknowledging harmonisation of AIFMD and UCITS rules as an ambition after noting many management companies and investors were exposed to both fund frameworks. “The latest political resolution from the EU lawmakers now sets in train another period of renewal for the UCITS framework.” “The perpetual review and recalibration of UCITS is a feature of the framework to reflect prevailing investor and regulator expectations,” Whelan said. The most recent revision – UCITS V – focused primarily on depository liability and asset manager remuneration, according to Adrian Whelan, global head of regulatory intelligence at Brown Brothers Harriman. On 20 July, EU legislators agreed to review the Alternative Investment Fund Management Directive (AIFMD) including plans for additional overlap between the alternative funds regulation with its almost 40-year-old UCITS framework in areas such as additional regulatory reporting and due diligence requirements.įuture revisions to the EU’s directive for liquid and retail-appropriate vehicles will be carried out via ‘UCITS 6’ and ‘UCITS 7’ to ‘level 1’ provisions of the UCITS framework. Future recalibrations of the Undertakings for Collective Investment in Transferable Securities Directive (UCITS) will see the EU focus on greater harmonisation and additional reporting across ‘third countries’, liquidity risk management and eligible asset classes.
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