Funds And Investment Management Update Ireland And Luxembourg Q4 2024 – Fund Finance

1 Legal & Regulatory

1.1 UCITS and AIFMD Update

EU

Directive (EU) 2024/927 amending AIFMD 2011/61/EU and
the UCITS Directive 2009/65/EC relating to delegation arrangements,
liquidity risk management, supervisory reporting, provision of
depositary and custody services, and loan origination by
alternative investment funds (“AIFs”) (“AIFMD
II”) has to be transposed into national law by EU member
states by 16 April 2026. The changes introduced aim to strengthen
investor protection; improve access to finance from sources other
than banks; tackle greenwashing; and help complete the capital
markets union by limiting national approaches when it comes to
marketing AIFs. One of the major changes introduced by AIFMD II is
the introduction of a pan-European loan origination regime for
AIFs.

On 14 November 2024 the European Securities and Markets
Authority (“ESMA”) launched a data collection exercise together with the
national competent authorities (“NCAs”), on costs linked
to investments in AIFs and UCITS. It is a two-stage data collection
involving both manufacturers and distributors of investment
funds:

• Information requested from manufacturers will provide an
  indication on the different costs charged for the management of the
  investment funds.




• Information requested from distributors, i.e. investment firms,
  independent financial advisors, neo-brokers, will inform on the
  fees paid directly by investors to distributors.

A report based on this data will be submitted to the European
Parliament, the Council and the European Commission in October
2025.

Ireland

On 1 November 2024, the Central Bank of Ireland (“Central
Bank”) published the 41st edition of the UCITS Q&A revising QA
ID 1012, ID 1016, and ID 1088 to encompass changes enabling the
exchange traded fund (“ETF”) naming requirement at the
share class level.

On 1 November 2024, the Central Bank also updated its streamlined filing process to
reflect implementation of ESMA’s guidelines on funds’ names
using ESG or sustainability-related terms. These guidelines apply
from 21 November 2024 and for funds in existence prior to this
date, a transitional period of six months applies until 21 May
2025. This will result to an ability, in addition to changes to
fund names, to incorporate minor changes to disclosure in the
offering documentation and pre-contractual documentation made
solely for the purpose of bringing the fund into compliance with
the guideline requirements.

Luxembourg

On 19 December 2024, the Commission de Surveillance du Secteur
Financier (“CSSF”) updated its FAQ on the Luxembourg law
of 17 December 2010 relating to undertakings for collective
investment to reflect a new FAQ 12(1) on portfolio transparency
requirements for actively managed UCITS ETFs. Historically, active
UCITS ETFs were required to disclose their portfolio holdings
daily. However, this information may now only be published once a
month, with a maximum delay of one month to protect proprietary
strategies and prevent replication by other market participants. In
accordance with the ESMA ETF guidelines, each UCITS ETF should
disclose its portfolio transparency policy in its prospectus. This
disclosure should include details on where information on the
portfolio can be obtained as well as the frequency and any
applicable time lag of the publication of the portfolio.

AIFMD II Consultations

Ireland

The Department of Finance on 22 November 2024 opened a public
consultation (until 17 January 2025) on the exercise of the
national discretions in AIFMD II to be taken into consideration
when deciding how to transpose it into Irish law. The matters
subject to national discretion cover:

• extending the list of ancillary activities and services that
  may be provided by an external AIFM and by a UCITS management
  company.




• prohibiting AIFs that originate loans from granting loans to
  consumers in Ireland.




• permitting the national competent authority to allow the
  appointment of a depositary established in another member state, on
  receipt of a reasoned request from an AIFM and subject to strict
  conditions.

EU

On 12 December 2024, ESMA published a consultation on draft regulatory technical
standards (“RTS”) on open-ended loan-originating
alternative investment funds (“LO AIFs”) under AIFMD
II.

LO AIFs are closed-ended by default. Article 16(2a) of AIFMD II
provides that an AIFM must ensure that the LO AIF it manages is
closed-ended. However, by way of derogation to this requirement, a
LO AIF may be open-ended provided the AIFM that manages it can
demonstrate to the competent authorities of its home member state
that the AIF’s liquidity risk management system is compatible
with its investment strategy and redemption policy. Article 16(2f)
mandates ESMA to develop draft RTS to determine the requirements
with which LO AIFs are required to comply to maintain an openended
structure. These must include a sound liquidity management system,
the availability of liquid assets and stress testing, and an
appropriate redemption policy having regard to the liquidity
profile of LO AIFs. They must also take account of the underlying
loan exposures, the average repayment time of the loans and the
overall granularity and composition of the LO AIFs portfolios.

The consultation closes on 12 March 2025. ESMA expects to
publish a final report and submit the final draft RTS to the
European Commission by Q3-Q4 2025.

For more information see AIFMD 2.0 – ESMA consults on open-ended loan
originating AIFs

1.2 ELTIF

2.0 EU

On 10 January 2024, Regulation (EU) 2023/606 which revised the European
Long-Term Investment Fund (“ELTIF”) framework, came into
effect across the EU. Commonly referred to as “ELTIF 2.0″
it aims to make ELTIFs more attractive by removing certain
regulatory obstacles. ELTIFs are EU AIFs managed by AIFMs that
invest in long-term investments and can be distributed on a
cross-border basis to both professional and retail investors.

On 26 October 2024, the ELTIF 2.0 delegated regulation RTS entered
into force and marks the final major milestone on full
implementation of ELTIF 2.0. It covers the requirements for an
appropriate redemption policy and liquidity management tools and
the circumstances for the matching of transfer requests of units or
shares of the ELTIF. For more information see ELTIF 2.0 – RTS Delegated Regulation Enters
into Force

Ireland

On 1 November 2024, the Central Bank updated its ELTIF application form to reflect
the entry into force of ELTIF 2.0 delegated regulation RTS to
include open-ended ELTIFs with limited liquidity. Information
relating to the authorisation process for ELTIFs was also
updated.

Luxembourg

On 25 October 2024, the CSSF confirmed its ELTIF application
form has been updated to reflect the provisions of the ELTIF 2.0
delegated regulation RTS. It also confirmed that existing
Luxembourgdomiciled ELTIFs that do not benefit from the
grandfathering clause must make the necessary amendments to comply
with the ELTIF 2.0 delegated regulation RTS as soon as possible and
notify all resulting significant changes to the CSSF.

1.3 Ireland Funds Sector 2030 Review Report

Following a review of the Irish funds industry and wide
engagement with industry participants, the Irish Minister for
Finance, Jack Chambers on 22 October 2024 published the final Report of the Funds Sector 2030. This
review was initiated to ensure that Ireland maintains its leading
position as a domicile for asset management and funds servicing and
focused on three interlinked themes: open markets, resilient
markets, and developing markets.

The report makes 42 specific recommendations across nine areas
(legal structures and products; Ireland’s regulatory and
supervisory regime; harnessing technology; enabling more retail
investment; structured finance; providing stability and certainty
in investment in property; supporting the green transition;
engagement and promotion; and skills and access to talent). These
include enhancing the regulatory framework, promoting technological
innovation, increasing retail investment participation, and
improving the attractiveness of existing fund structures. Reforms
to the taxation of funds (Irish, EU and OECD funds) are suggested
to abolish the eight year deemed disposal rules and align the Irish
tax rates with that applicable to other forms of investments, such
that a lower rate would apply. In addition, there was a
recommendation that Irish dividend withholding tax exemptions be
extended to payments to investment limited partnerships to improve
Ireland’s attractiveness as a private equity fund domicile.

The report also emphasises the importance of collaboration
between industry, government, and regulators to navigate future
challenges and opportunities.

For more information please see Ireland Funds Sector 2030 Review: Strategic
Recommendations for Future Growth and Innovation

1.4 Sustainable Finance Update

On 30 October 2024, the European Supervisory Authorities
(“ESAs”) (that is, ESMA, EIOPA and the European Banking
Authority (“EBA”) published a final report on principal
adverse impact (“PAI”) disclosures under the Sustainable
Finance Disclosure Regulation (EU) 2019/2088 (“SFDR”). It
refers to PAI disclosures published by 30 June 2023, regarding the
reference period from 1 January 2022 to 31 December 2022. The ESAs
have assessed both entity and product-level PAI disclosures.

Overall, the ESAs noted positive progress on several elements
compared to previous years. Improvements on the location of the PAI
disclosures (which are becoming more accessible to retail
investors), and on the level and quality of the information
disclosed are noted. Also, improvements were identified in product
PAI disclosures, although the share of products disclosing PAI
information remains quite low. However, the level of compliance
with SFDR provisions (at both level 1 and level 2) is not yet fully
satisfactory. The report includes recommendations to NCAs and to
the European Commission.

On 8 November 2024, a European Commission notice on the
interpretation and implementation of certain legal provisions of
the Disclosures Delegated Act EU) 2021/2178 made under Article 8 of
the Taxonomy Regulation (EU) 2020/852 on the reporting of
Taxonomy-eligible and Taxonomy-aligned economic activities and
assets was published in the Official Journal of the EU
(“OJ”). It:

• Covers the reporting obligations of large financial
  undertakings and financial undertakings admitted to trading on EU
  markets relating to how they finance, invest in, or insure
  taxonomyaligned activities.




• Clarifies the scope of entities subject to the reporting
  obligations, the taxonomy assessment of specific exposures such as
  to retail clients, local authorities and exposures to individual
  undertakings and groups.




• Considers the rules on the verification and evidence of
  compliance with the EU taxonomy, and targeted questions related to
  credit institutions, insurance undertakings and asset
  managers.

The replies to the FAQs in the notice clarify the rules in the
applicable legislation.

On 13 November 2024, the European Commission published
frequently asked questions to give guidance on sustainability
reporting requirements under the Corporate Sustainability Reporting
Directive (EU) 2022/2464 (“CSRD”). It also addresses
certain provisions of SFDR. It confirms that financial market
participants may assume that if an investee undertaking subject to
the CSRD reports an indicator as non-material, it does not
contribute to the corresponding indicator of PAIs in the context of
SFDR disclosures.

On 29 November 2024, the European Commission published a draft
Notice on the interpretation and implementation of certain
provisions of the Taxonomy Environmental Delegated Act (EU)
2023/2486, the Taxonomy Climate Delegated Act (EU) 2021/2139 and
the Taxonomy Disclosures Delegated Act (EU) 2021/2178. It contains
FAQs that provide technical clarifications on the technical
screening criteria (“TSC”) in the Taxonomy Climate
Delegated Act and the Taxonomy Environmental Delegated Act. The
FAQs also cover the disclosure obligations for the non-climate
environmental objectives contained in the Taxonomy Disclosures
Delegated Act.

On 12 December 2024, Regulation (EU) 2024/3005 on the
transparency and integrity of environmental, social and governance
(“ESG”) rating activities was published in the OJ. It
introduces a regulatory regime for ESG rating providers operating
in the EU. It enters into force on 2 January 2025 and will apply
from 2 July 2026.

On 13 December 2024, ESMA published Q&As relating to its
guidelines on funds’ names using ESG or sustainability-related
terms. Among other things, they clarify:

• Investment restrictions relating to the exclusion of companies
  do not apply to investments in European green bonds. For other
  green bonds, fund managers can use a look-through approach to
  assess whether the activities financed are relevant for the
  exclusions.




• Investment funds may not be meaningfully investing in
  sustainable investments if they contain less than 50% of
  sustainable investments.

Since November 2024, the guidelines have applied to UCITS
management companies and AIFMs and are intended to ensure that
investors are protected against unsubstantiated or exaggerated
sustainability claims in fund names.

On 17 December 2024, the EU Platform on Sustainable Finance
published a report on the categorisation of products under SFDR. It
strongly supports establishing a categorisation scheme and outlines
recommendations for the European Commission to implement as part of
the SFDR review process.

The Platform recommends a categorisation scheme that is grounded
in the sustainability strategy of a financial product and that
aligns with an investor’s values or impact objectives (which
are identified using sustainability preferences).

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