“The capital markets union is the EU’s initiative to create a truly single market for capital across the EU,” said the European Council in a press release announcing the new regulations to enhance European capital markets and investor protection. Photo: Shutterstock

“The capital markets union is the EU’s initiative to create a truly single market for capital across the EU,” said the European Council in a press release announcing the new regulations to enhance European capital markets and investor protection. Photo: Shutterstock

A new European directive, part of the capital markets union package, aims to mitigate financial risks and prevent undue costs to investors by enhancing regulatory oversight and cooperation between authorities, the European Council said on Monday.

The European Council has adopted new legislation aimed at enhancing the European capital markets and bolstering investor protection within the European Union. on Monday 26 February, this initiative represents a significant step in the ongoing development of the capital markets union, with the directive amending the regulatory framework governing alternative investment fund managers, who oversee a diverse array of investment funds in the EU, including hedge funds, private equity funds, private debt funds and real estate funds, said the council.

The legislation also seeks to update the regulatory environment for undertakings for collective investment in transferable securities (Ucits), essentially standardised EU-harmonised retail investment funds such as unit trusts and investment companies. This move is intended to further the integration of asset management markets across Europe while modernising key aspects of regulatory oversight.

One of the enhancements introduced by the new rules is the improvement in the availability of liquidity management tools. The directive mandates new requirements for managers to prepare for the activation of these instruments, aiming to equip fund managers more effectively to handle significant withdrawals of investors’ moneyduring periods of financial instability.

Furthermore, the amending directive expands its scope to include an EU framework for loan-originating funds. These funds provide credit to companies and are now supplemented with various requirements aimed at mitigating risks to financial stability and ensuring a suitable level of investor protection.

Additionally, a provision in the directive pertains to the rules on delegation by investment managers to third parties. This is designed to facilitate access to the best resources from market specialists while ensuring enhanced supervision and the preservation of market integrity.

Other aspects of the new regulations involve the promotion of improved data sharing and cooperation between authorities. Additionally, the directive introduces measures to identify and address undue costs that could be levied on funds and, consequently, their investors. It also aims to prevent the use of potentially misleading names to enhance investor protection.

These amendments to the regulatory frameworks governing both alternative investment fund managers and Ucits are integral components of the capital markets union package, which was initially presented by the European Commission on 25 November 2021. The directive will be published in the EU’s official journal in the coming weeks, and then member states will have 24 months to transpose the rules into national law.

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