Shearman & Sterling LLP | FinReg | European Securities and Markets Authority Proposes Changes to European Long-Term Investment Funds Regulation
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  • European Securities and Markets Authority Proposes Changes to European Long-Term Investment Funds Regulation

    The European Securities and Markets Authority has written to the European Commission proposing a series of amendments to the European Long-Term Investment Funds Regulation. ESMA's letter comes in response to the Commission's consultation on the efficacy of the ELTIF Regulation, which was designed to increase long-term investments in the real economy (e.g. infrastructure projects, real estate and listed and unlisted small and medium-sized enterprises). The consultation was launched in October 2020 and was designed to analyze why the ELTIF market has not developed to a large scale and how well it is contributing to the integration of European capital markets and smart, sustainable growth within the EU.

    ESMA's proposals are aimed at better aligning ELTIFs with the needs of retail and professional investors, in the hope that this would make it a more attractive investment vehicle. ESMA's key proposals include:
    • Further extending and clarifying the scope of ELTIFs' eligible assets and investments;
    • Removing the requirement for national regulators to approve an EU-authorized alternative investment fund manager who intends to manage an ELTIF, given AIFMs are already subject to the Alternative Investment Fund Managers Directive;
    • Clarification of the prohibition on conflicts of interest in the ELTIF Regulation;
    • Reduction of portfolio composition and diversification requirements, which typically require ELTIFs to make 10 investments, for ELTIFs subscribed only by professional investors;
    • Developing options that would enable early redemption from ELTIFs, which may include allowing ELTIFs of indefinite duration;
    • Amending the requirement for ELTIFs to disclose to national regulators a schedule for orderly disposal of assets in order to redeem investors' funds, so that the schedule may be required only if specifically requested by the regulator in question;
    • Amending prospectus and cost disclosure requirements for ELTIFs to present information more clearly to investors; and
    • Removing the requirement for ELTIF managers to establish a local physical presence in each Member State where they intend to market ELTIFs.

    View ESMA's proposals to the European Commission.

    View details of the Commission's consultation on the ELTIF Regulation.

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    TOPIC: Funds