The eu commission endorses the objective of the eltif regulatory reform and supports efforts to further increase the eltif’s attractiveness. taking this into account, it proposes amendments to the draft regulatory technical standards for the eltif 2.0 regime that reflect market practice and cater for the burgeoning eltif industry.
On 6 March 2024, the EU Commission wrote to ESMA commenting on the draft regulatory technical standards (RTS) for Regulation (EU) 2015/760 on European long-term investment funds (ELTIFs) as amended by Regulation (EU) 2023/606, also known as the ELTIF 2.0 regime. ESMA had prepared and submitted the draft RTS for adoption in December 2023. Read more_
What are the main amendments proposed by the EU Commission?
The EU Commission states that, while one objective of the ELTIF 2.0 regime is to provide ELTIF managers with flexibility to pursue a broad range of investment strategies and objectives, particularly as regards their portfolio composition, the ESMA draft RTS do not sufficiently consider the individual characteristics of different ELTIFs. As there is no “one-size-fits-all” solution, the EU Commission proposes amendments to the draft RTS that take a more proportionate approach and consider market practice.
The EU Commission also provided ESMA with a proposal for redrafted RTS.
Among the detailed proposals made by the EU Commission are:
- Dropping the minimum notice period for redemption
The draft RTS provide for a minimum notice period for redemptions of 12 months unless the ELTIF complies with a fixed minimum percentage of liquid assets, depending on the length of the notice period. The EU Commission proposes to remove this requirement as it is of the opinion that it restricts the flexibility granted to certain open-ended ELTIFs under the ELTIF 2.0 regime and would therefore contradict the purpose of the ELTIF reform.
- Respecting proportionality and market practice when it comes to liquidity requirements
The EU Commission considers that the high liquidity requirements set out in the draft RTS could create a cash drag on ELTIFs caused by excessive liquidity in its portfolio. In addition, it believes that the standardised approach taken by the draft RTS does not suit the individual situation of the ELTIF and could therefore disincentivise the use of ELTIFs, which would defeat the objectives of ELTIF 2.0. The EU Commission therefore recommends amending the liquidity related requirements by taking into account the principle of proportionality, the existing market practices for retail long-term funds and the individual situation of ELTIFs.
- No sector-specific requirements for choice of liquidity management tools and disclosure of costs
The EU Commission does not support ELTIF-specific requirements when it comes to the selection of liquidity management tools or the disclosure of costs. Instead, it proposes to align the rules of the draft RTS concerning the choice of liquidity management tools with the AIFMD framework rules. It also proposes to align the rules on disclosure of costs with those under the PRIIPs Regulation, MiFID II and the AIFMD framework.
The EU Commission also commented on the draft RTS’ approach to material changes to the redemption policy and redemption gates which should generally be notified in advance to the competent regulator.
Next steps
In line with EU legislative rules, ESMA now has six weeks to amend the draft RTS based on the Commission’s considerations and resubmit the amended draft RTS to the EU Commission. If ESMA does not resubmit the redrafted RTS within six weeks or resubmits draft RTS that are not consistent with the proposed amendments, the EU Commission may adopt the RTS with the amendments it considers relevant or reject the draft RTS entirely.
To access the EU Commission’s letter to ESMA, please click here_
To access the ESMA final report containing the draft RTS, please click here_
To read more about the ELTIF 2.0 regime, please click here_ and here_
