Capital Markets Union: Forthcoming Legislative Package

PUBLISHED: 6th December 2021

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A package of proposals has been adopted by the European Commission with the aim of increased integration of EU capital markets and furthering the objectives of the Capital Markets Union (CMU).

It is intended that the package of proposals will help to “connect EU companies with investors, improve their access to funding, broaden investment opportunities for retail investors and better integrate capital markets.”

The package of proposals was published on 25 November 2021. It includes four legislative proposals, two of which are discussed here.

Proposed Changes

The package includes legislative proposals to amend Directives 2011/61/EU (AIFMD), 2009/65/EU (UCITS), and Regulation (EU) 2015/760 (ELTIF).

Amendments to AIFMD and UCITS will be achieved through the adoption of a new Directive which seeks to harmonise rules for both AIFMD and UCITS on delegation, liquidity risk management, supervisory reporting, depositary and custody services, and loan origination by alternative investment funds (AIFs).

The amendments to ELTIF will be achieved through the adoption of an amending Regulation that seeks to make ELTIFs the cornerstone fund structure for long-term investments by broadening the scope of eligible assets, providing for more flexible fund rules, and reducing barriers for retail investment.

Changes to AIFMD and UCITS


The key changes in relation to delegation are as follows:

  1. Specifying minimum substance requirements on Alternative Investment Fund Managers (AIFMs) and UCITS Management Companies (UCITS ManCos) (Managers) to employ or engage at least two persons resident in the EU on a full-time basis.
  2. Requiring Managers to have appropriate technical and human resources when applying for authorisation. The details of these resources to supervise delegates must also be described when applying for authorisation.
  3. Extending the list of ancillary services that AIFMs can provide in addition to collective investment management. This will include administration of benchmarks and credit servicing activities.
  4. Mandating that National Competent Authorities (NCAs) (in Ireland, the Central Bank of Ireland (CBI)) notify the European Securities and Markets Authority (ESMA) annually of all delegations where Managers delegate more risk or portfolio management to third country entities than they retain. ESMA will develop Regulatory Technical Standards (RTS) to specify the details of such notifications.
  5. Forbidding unauthorised entities that act as delegate from sub-delegating functions delegated to them.
  6. Requiring that UCITS justify their enter delegation structure based on objective reasons to their NCAs (in Ireland, the CBI).
  7. Providing that the European Commission may specify the conditions under which a UCITS ManCo will constitute a letter box entity by adopting a delegated act.
  8. Requiring ESMA to routinely review NCA’s supervisory practices through a “peer review” mechanism in respect of rules on delegation and the prevention of the creation of letter-box entities.

Liquidity Management

The key changes in relation to liquidity management are as follows:

  1. Requiring Managers to choose at least one liquidity management tool (LMT) in the new Annexes to AIFMD and UCITS. ESMA will develop RTS to specify characteristics of the LMTs.
  2. Empowering NCAs to require that Managers activate or deactivate a relevant LMT.
  3. Requiring Managers to notify NCAs about activating or deactivating LMTs.

National Private Placement Regimes (NPPR)

The main change to the NPPR under AIFMD is as follows:

Imposing new conditions for non-EU and EU AIFMs to market non-EU AIFs in a Member State including that the non-EU AIF cannot be domiciled in either: (a) a non-cooperative jurisdiction as defined by the EU Council from a tax perspective; or (b) a “high risk country” pursuant to Directive (EU) 2015/849.


The key changes in relation to data reporting are as follows:

  1. Requiring AIFMs to make additional disclosures including conditions for using LMTs and fees that will be borne by the AIFM or its affiliates and periodical reporting on all direct and indirect fees and charges that were directly or indirectly charged or allocated to the AIF or to any of its investments.
  2. Removing limitations on the data that NCAs should be able to receive from AIFMs on AIFs it manages. It is proposed that ESMA will develop draft RTS and draft implementing technical standards to replace the current supervisory reporting template and frequency of reporting.
  3. Requiring UCITS ManCos to regularly report to their NCAs on the markets and instruments in which they trade on behalf of the UCITS they manage. ESMA will develop draft RTS specifying the details and templates that a UCITS ManCo must use for reporting.

Loan Origination AIFs

The key changes in relation to loan origination AIFs are as follows:

  1. Requiring AIFMs that manage loan origination AIFs to implement effective policies, procedures, and processes for the granting of loans, including assessing credit risk and administrating and monitoring credit portfolios.
  2. Requiring AIMFs not to lend more than 20% of an AIF’s capital to a single borrower where the borrower is a financial undertaking or fund.
  3. Prohibiting AIFs from lending to its AIFM or its staff, its depositary, or its delegates.
  4. Mandating that AIFMs ensure that the loan origination AIFs it manages retain, on an ongoing basis, 5% of the notional value of the loans it has originated and subsequently sold on the secondary market.
  5. Mandating that AIFMs ensure that the loan origination AIFs that lend more than 60% of their NAV as loans adopt a closed-ended structure.
  6. Requiring AIFMs to report to investors the portfolio composition of originated loans.


The key changes in relation to depositaries are as follows:

  1. Requiring a depositary to cooperate not only with its NCA but also with the NCAs of the AIF that has appointed it and to the NCAs of the AIFM that manages the AIF where those NCAs are located in a different Member State than that of the depositary.
  2. Permitting NCAs to allow depositary services to be procured in other Member States until measures are taken following a review of the need to introduce a depositary passport.
  3. Specifying that central securities depositories providing custody services are deemed delegates of the depositary.  This levels the playing field between custodians and ensures that depositaries have access to the information needed to carry out their duties.

Changes to ELTIF

Eligible Assets

The key changes in relation to eligible assets are as follows:

  1. Clarifying that eligible assets can be located in third countries.
  2. Increasing the scope of “real assets” to include assets that derive their value from their nature or substance.
  3. Permitting European long-term investment funds (ELTIFs) to make minority
    co-investments in investment opportunities.  This should enable ELTIFs to obtain additional flexibility in implementing their investment strategies.
  4. Enabling ELTIFs to have a fund-of-fund investment strategy including investment beyond European venture capital funds (EuVECA) or European social entrepreneurship funds (EeSEF) to include EU AIFs and UCITS provided that those funds invest in eligible assets.
  5. Allowing ELTIFs to invest in real assets if the minimum investment value of such assets is at least €1 million.  The real assets no longer need to be owned directly or indirectly through qualifying holding portfolio undertakings.
  6. Clarifying that eligible investment assets include simple, transparent and standardised (STS) securitisations where the underlying assets consist of long-term exposures.
  7. Requiring that exposure to STS securitisations be limited to 20%.
  8. Raising the market capitalisation threshold for listed qualifying portfolio undertakings from €500 million to €1 billion and ensuring it is only applied at the point of initial investment.
  9. Lowering the 70% threshold for eligible assets to 50% for ELTIFs marketed solely to professional investors.
  10. Increasing to 20% the maximum retail ELTIF exposures to instruments issued by, or loans granted to, any single qualifying portfolio undertaking.
  11. Specifying that ELTIFs may acquire no more than 30% of the units or shares of a single ELTIF, EuVECA, EuSEF, or of an EU AIF Managed by an EU AIFM.
  12. Specifying that concentration limits may not apply where ELTIFs are marketed solely to professional investors.
  13. Enabling ELTIFs that can be marketed to retail investors to increase their borrowing of cash up to 50% of the ELTIF threshold.  ELTIFs marketed solely to professional investors would be permitted to leverage up to 100% of the value of the capital of the ELTIF.
  14. Removing the 30% encumbrance requirement and clarifying that the encumbering of assets is permitted where it is sought to implement the borrowing strategy.
  15. Clarifying that borrowing arrangements fully covered by investors’ capital commitments would not be considered to constitute borrowing.
  16. Clarifying that master-feeder structures may be established if sufficient investor protection is ensured.


The key changes in relation to marketing are as follows:

  1. Deleting Article 26 of ELTIF thereby allowing ELTIF managers to forego the requirement to establish investor “facilities” in the Member State in which marketing is taking place.
  2. Deleting Article 28 of ELTIF thereby removing the partial duplication of suitability assessments by ELTF managers for retail investors.  Going forward, Article 30 of ELTIF will enable ELTIF managers to market to retail investors if they have completed a suitability assessment.
  3. Amending Article 30 of ELTIF so that the two-week withdrawal period solely applies to retail investors and can only be effective during the two weeks following the effective date of the commitment or subscription agreement.
  4. Removing the minimum €10,000 investment and the 10% exposure threshold for retail investors whose financial portfolios are below €500,000.


The key changes in relation to liquidity are as follows:

  1. Enabling ESMA to develop draft RTS specifying the circumstances for redemptions under limited circumstances.
  2. Enabling ESMA to develop draft RTS specifying the information that ELTIFs need to disclose to investors.

Next Steps

The Proposal will now follow the EU’s standard legislative procedure.  It is anticipated that the Proposal will be published in the EU Official Journal in early 2023, meaning that it will be official law at that point, and then become applicable / enter into force in early 2025.

If you have any comments or questions in relation to any of the please get in touch with your usual LK Shields contact.

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