Call for Evidence on the Review of the UCITS Eligible Assets Directive

ESMA’s call for evidence runs until 7 August 2024.  Feedback received will inform the technical advice that ESMA has been requested to deliver to the European Commission by 31 October 2024.

Background

The UCITS EAD was adopted in 2007, with the aim of establishing a common understanding of the criteria for assets eligible for investment by UCITS funds.  Since 2007, however, financial markets have evolved considerably, leading to a degree of uncertainty as to the extent to which modern financial instruments can be accommodated within the definitions provided under the UCITS EAD.  According to ESMA, definitional uncertainty creates risks that the UCITS framework will be interpreted and applied in an inconsistent manner, and that divergent market practices may emerge.  In turn, this gives rise to investor protection concerns.

In this context, last June, the European Commission mandated ESMA to carry out an assessment of the implementation of the UCITS EAD across EU Member States, and to provide a set of recommendations as to how the Directive could be revised to keep it in line with market developments.

Call for Evidence

ESMA’s call for evidence is divided into separate sections which seek to collect evidence on the below aspects of the ESMA mandate for technical advice.

(I) Convergence issues and clarity of key concepts

First, ESMA seeks to gather evidence and views from stakeholders on the clarity of key concepts under the UCITS EAD, as well as potential interpretation and convergence issues in respect of the Directive.  To this end, ESMA’s call for evidence sets out a number of questions which seek to ascertain stakeholders’ practical experience of the UCITS EAD. 

(ii) Direct and indirect UCITS exposures to certain asset classes

Secondly, ESMA seeks to assess possible risks and benefits of UCITS gaining exposures to asset classes on which there are divergent views as regards their eligibility as UCITS investments.  This covers both direct and indirect exposures, by way of, for example, delta-one instruments, embedded derivatives, and replications of financial indices.  The questions set out in ESMA’s call for evidence are aimed at further solidifying ESMA’s understanding of the extent to which UCITS have gained direct and indirect exposures to certain asset classes that may give rise to risk for retail investors.  Conscious of diverging views and interpretations, ESMA is interested in receiving stakeholder feedback to assess the merits of allowing UCITS to gain direct or indirect exposures to a range of asset classes, which include unlisted equities, commodities, and crypto-assets.

Next Steps

ESMA will consider all feedback received by 7 August 2024 (submissions can be made here).  After considering feedback, ESMA is expected to deliver its final technical advice to the European Commission by the deadline of 31 October 2024.

Also contributed to by David O’Keeffe Ioiart