Capital Markets Union: EU adopts new rules for alternative investment fund managers and EU investment funds

On 26 February 2024, the Council of the EU adopted a new Directive as part of the Capital Markets Union (CMU) package enhancing European capital markets and reinforcing investor protection within the EU. The focus is on promoting unity in European asset management markets and updating crucial regulatory aspects.

Amendments to AIFMD and UCITS Directives : Targeting diverse investment vehicles

The new Directive amends :

• the Alternative Investment Fund Managers Directive (AIFMD), which applies to managers overseeing hedge funds, private equity funds, private debt funds, real estate funds and other alternative investment funds across the EU; and
• the framework governing Undertakings for the Collective Investment in Transferable Securities (UCITS), which applies to standard EU-aligned retail investment funds like unit trusts and investment companies.

Enhanced liquidity management tools

A significant improvement involves providing fund managers with enhanced liquidity management tools. These include the ability to suspend subscriptions, repurchases and redemptions or activate side pockets (amongst others), ensuring they can manage significant withdrawals during financial instability. Open-ended funds, which includes UCITS, will be required to implement at least two appropriate liquidity management tools (regulatory technical standards to be adopted by the Commission).

EU framework for loan-originating funds

The new Directive also introduces an EU framework for loan-originating funds, recognising the right of AIFs to originate loans. This framework imposes requirements such as leverage limits and effective policies, procedures and processes for granting loans and assessing credit risk to mitigate risks to financial stability and ensure investor protection.

Strengthened guidelines for delegation practices

The Directive introduces strengthened guidelines for investment managers delegating tasks to third parties. This enables them to leverage market specialists’ expertise effectively while ensuring rigorous supervision and market integrity by reporting to supervisors updated information on the delegates, the delegated activities and the delegate’s monitoring procedure.

Collaborative data sharing, cost identification, and investor protection measures

Other aspects include improved data sharing among regulatory authorities, measures to identify and address undue costs imposed on funds and investors, and safeguards against potentially misleading terminology.

Next steps and Implementation Timeline

After publication in the EU's official Journal, the Directive will take effect following a 20-day period. Member states will have 24 months to incorporate this amending Directive into their national legislation.

We will closely monitor the adoption of regulatory technical standards and Belgian legislative initiatives to implement the Directive.