Retail investors
New proposal to enhance protection for retail investors
On 9 October 2023, the European Parliament published the draft report (the “Draft Report”) by the Committee on Economic and Monetary Affairs following the ordinary legislative procedure’s first reading on the proposal for a directive of the European Parliament and of the Council amending several EU Directives including AIFMD as regards the EU retail investor protection rules. The Draft Report sets out the text proposed by the European Commission alongside the proposed amendments by the European Parliament. It is worth noting that all amendments suggested by the European Commission regarding the AIFMD have not been implemented into the last draft.
The draft report will be discussed in the European Parliament Economic and Monetary Affairs (ECON) Committee in the coming weeks, and a possible ECON vote would take place at the end of January 2024.
New CSSF application form for ELTIF
On 15 March 2023, the ELTIF Regulation (EU) 2015/760 (“ELTIF Regulation”) was amended by Regulation (EU) 2023/606 of the European Parliament and of the Council (“Revised ELTIF Regulation”), the purpose of which is to make ELTIFs more attractive to investment asset managers, particularly for retail investors seeking access to private assets with adequate investor protection. The Revised ELTIF Regulation came into force on 9 April 2023 and will apply as of 1 January 2024.
In view of the approaching application date, the CSSF updated its existing ELTIF application form. The Luxembourg AIFs to be authorised and marketed as ELTIF must complete this form as well as the required documentation.
It is worth noting that ELTIFs authorised in accordance with the ELTIF Regulation before 10 January 2024 will be deemed to comply with the Revised ELTIF Regulation until 11 January 2029.
ELTIFs that have been authorised in accordance with the ELTIF Regulation applicable before 10 January 2024 and that do not raise additional capital will be deemed to comply with the Revised ELTIF Regulation. Notwithstanding the above, an ELTIF authorised before 10 January 2024 may choose to opt in to the Revised ELTIF Regulation, provided its competent authority is notified.
ESMA report on cost and returns of retail AIFs
On 18 December 2023, ESMA released its latest market report on the costs and performance of EU retail investment products. According to the annual report, the average costs of investing in key EU retail financial products decreased by the end of 2022, though heterogeneity in costs persisted across EU Member States.
One of the key findings of the report is that AIFs remained dominated by professional investors, with retail investors accounted for almost 14% of the total NAV for the AIF market. The report emphasizes the need for clear information on retail investment products to facilitate informed decision-making and encourages retail investor participation in capital markets.
ESMA finalises technical standards under the revised ELTIF regulation
On 19 December 2023, ESMA issued its final report setting out the final draft RTS under the Revised ELTIF regulation. The draft RTS have not been adopted yet and the European Commission may adopt the draft RTS in March 2024 (or April 2024 at the latest).
The draft RTS cover:
- the circumstances in which the life of an ELTIF is considered compatible with the life cycles of each of the individual assets, as well as different features of the redemption policy of the ELTIF;
- the circumstances for the use of the matching mechanism, i.e. the possibility of full or partial matching (before the end of the life of the ELTIF) of transfer requests of units or shares of the ELTIF by exiting ELTIF investors with transfer requests by potential investors; and
- the costs disclosure.
The key features of the draft RTS are:
- Minimum holding period: an ELTIF manager would be allowed to select the minimum holding period that is best adjusted to an individual ELTIF based on various factors such as the asset classes, the investment strategy, the redemption policy, etc. (Article 3 of the draft RTS).
- Maximum redemption frequency: If an ELTIF allows redemptions, ELTIF managers must set up a maximum quarterly redemption frequency. Nevertheless, they may deviate from it, for example setting a higher frequency, provided they can justify this to the competent authority at the time of its authorisation (Article 5 (4a) of the draft RTS).
- Choice of liquidity management tools: The mandatory implementation is suggested of at least one anti-dilution mechanism (in addition to notice period), and redemption gates. An ELTIF manager may nonetheless deviate from it, provided they can justify this to the competent authority at the time of the ELTIF’s authorisation (Article 5(7) of the draft RTS).
- Notice period and maximum percentage of liquid assets that can be redeemed: In addition to applying minimum percentages of liquid assets, depending on the length of the notice period, different percentages of maximum amount of liquid assets that can be redeemed are also applied (Article 6 of the draft RTS).