EU Council Implements Measures to Protect Investors in Investment Funds

Find out how the EU Council is working to prevent undue costs and enhance investor protection with new rules for investment fund managers under the capital markets union package.

The European Council has recently approved new legislation with the aim of strengthening the European capital markets and enhancing investor protection within the European Union. This significant development, announced on Monday, February 26, marks a crucial step in the ongoing progress of the capital markets union. The directive focuses on amending the regulatory framework that governs alternative investment fund managers, who oversee various investment funds in the EU, including hedge funds, private equity funds, private debt funds, and real estate funds.

In addition to regulating alternative investment fund managers, the legislation also seeks to update the regulatory environment for undertakings for collective investment in transferable securities (Ucits), which are standardised EU-harmonised retail investment funds such as unit trusts and investment companies. This update is intended to promote the integration of asset management markets across Europe while modernizing key aspects of regulatory oversight.

One of the key 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 better equip fund managers to handle significant withdrawals of investors' money during periods of financial instability.

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

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

The new regulations also focus on promoting improved data sharing and cooperation between authorities. Additionally, the directive introduces measures to identify and address undue costs that could be imposed on funds and 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 crucial components of the capital markets union package, which was initially presented by the European Commission on November 25, 2021. The directive is set to be published in the EU's official journal in the coming weeks, after which member states will have 24 months to transpose the rules into national law.