ESMA Call for Evidence on UCITS Eligible Assets Directive

Objective of the CfE:

The CfE is designed to collect data to evaluate the potential risks and advantages of UCITS being exposed to various asset classes. It also aims to gather insights on some key notions and definitions used in the UCITS EAD and their consistency with other pieces of legislation in the EU Single Rulebook.

Issues Addressed:

The reassessment is triggered by the significant growth in the number and variety of financial instruments traded on financial markets since the adoption of the EAD. This has caused confusion in determining the eligibility of certain asset categories for investment, resulting in differing interpretations and market practices across the EU regarding the application of the UCITS EAD. Questions of interpretation have especially arisen concerning whether direct or indirect exposures to asset classes like structured/leveraged loans, catastrophe bonds, commodities, crypto assets, and emission allowances qualify as eligible for UCITS investment.

The CfE aims to gather insights from stakeholders, including market participants, regulators, and other interested parties, regarding the functioning of the UCITS EAD. Specifically, ESMA seeks feedback on various aspects, including but not limited to:

• the adequacy of the current eligible assets list;
  
  
• the effectiveness of risk management practices concerning eligible assets;
  
  
• the impact of technological advancements on the eligible assets framework;
  
  
• the alignment of the UCITS EAD with international standards and best practices; and
  
  
• any challenges or inefficiencies experienced in implementing the UCITS EAD.
  
  

Key Areas of Focus:

• Eligible Assets List: Stakeholders are invited to provide feedback on the comprehensiveness and relevance of the current list of eligible assets. This includes considerations of new asset classes that have emerged since the EAD's inception and whether adjustments are necessary to accommodate evolving market dynamics.
  
  
• Risk Management Practices: ESMA seeks input on the risk management processes employed by UCITS funds concerning eligible assets. This encompasses considerations of liquidity risk, credit risk, and other relevant factors to ensure adequate investor protection and fund stability.
  
  
• Technological Advancements: The CfE addresses the impact of technological innovations, such as blockchain technology and digital assets, on the eligible assets framework. Stakeholders are encouraged to provide insights into the challenges and opportunities presented by these advancements and their implications for the directive.
  
  
• Alignment with International Standards: ESMA seeks feedback on the alignment of the UCITS EAD with international standards and best practices, particularly those set forth by supranational organizations such as the International Organization of Securities Commissions (IOSCO).
  
  

Next Steps:

The Commission has tasked ESMA with the provision of technical advice, including recommendations for legislative amendments, by 31 October 2024. Please find the relevant form available here.

Who Should Read This CfE?

This CfE is of particular interest for investors and consumer groups interested in retail investment products, management companies of UCITS, self-managed UCITS investment companies, depositaries of UCITS and trade associations.

How to Respond to the CfE?

ESMA invites comments on all matters set out in this paper. Comments are most helpful if they respond to the questions stated, indicate the specific question to which the comment relates, contain a clear rationale, and describe any policy options or alternatives ESMA should consider. ESMA will consider all comments received by Wednesday 7 August 2024.

Publication of Responses:

All contributions received will be published following the close of the consultation, unless indicated otherwise.