On May 7, 2024, the European Securities and Markets Authority (ESMA) published its long-awaited call for evidence on the review or the Undertakings for Collective Investment in Transferable Securities (UCITS) Eligible Assets Directive (EAD).
Since the adoption of UCITS EAD almost two decades ago the number and variety of financial instruments traded on financial markets has increased considerably. This led to a growing uncertainty around whether some categories of financial instruments such as AT1 bonds, commodities, crypto assets, emission allowances, structured and leveraged loans, etc., are eligible for investment within UCITS products or not. In turn, this uncertainty led to a rise of divergent interpretations and market practices in terms of the application of the UCITS directive.
The UCITS EAD review has two goals. First, focusing on the clarity of existing definitions and the current divergence in the interpretation of the eligibility of assets and instruments used by UCITS products. This shall minimize the room for interpretation by local regulators and ensure that eligible assets are subject to stringent eligibility criteria—for example, create a level playing field between the different European fund domiciles. Second, assessing possible risks and benefits of allowing UCITS products direct or indirect exposure to various “non-plain vanilla” asset classes.
According to the European Commission, ESMA should make a preliminary assessment of the impacts of the proposed regulatory adjustments, if any, considering the characteristics of the underlying market.
While ESMA will consider all feedback received up until August 7, 2024, the European Commission expects technical advice by ESMA until October 31, 2024.
This article is for information purposes only and does not constitute any investment advice.
The views expressed are the views of the author, not necessarily those of Refinitiv Lipper or LSEG.
