European regulators, especially those in Paris and Luxembourg, are at odds over the regulatory and technical standards for the updated European Long Term Investment Funds scheme, known as Eltif 2.0, according to people familiar with the discussions. Without consensus before Eltif 2.0 becomes effective in January it may pose challenges for issuers introducing new products to the market.
Different viewpoints between the French supervisor AMF, which advocates a strict, uniform application, and its Luxembourg counterpart CSSF, which calls for a flexible approach, are at the heart of the conflict. Without an agreement that gives national supervisors some flexibility, the potential success of the new regime for these investment products that target high-net-worth clients and the retail-plus segment could be at risk, industry experts said.
“We need a far more holistic approach to things instead of having a one-size-fits-all redemption policy that takes no account of the investor base, the type of assets the Eltif will invest in and the liquidity management tools foreseen in the documentation of the relevant fund,” said a representative of the European Fund Management Association, Efama
Eltif 2.0 could be stillborn baby
“Such a one-size-fits-all approach risks making the new Eltif a stillborn baby,” he said.
The European Securities and Markets Authority, or Esma, told Investment Officer it hopes to complete the discussions, also known as the ‘Level 2 RTS talks’ on time by producing an agreement by 10 January, the legal deadline for the negotiations. Level 2 RTS talks usually take place once an EU regulation has been agreed and are seen as a final step for fine tuning how European supervisors will handle the new regulation.
The fund and asset management industry has “very big concerns” over these discussions because the technical standards for the Eltif 2.0 regulation will be key to its success. “What we see is very stringent quantitative criteria in terms of redemption policies,” said the Efama representative. “Esma seems to favour a one-size-fits-all approach that disregards the rich diversity of assets in which the Eltifs will be able to invest under the new Regulation”.
Esma is understood to be insisting on a minimum holding period for Eltifs of three years and wants investors to inform the fund about redemption plans with notice of 12 months. The industry, however, believes that more flexibility is required for Eltifs to become the success that many Luxembourg actors are projecting.
CSSF wants principle based approach
Luxembourg’s supervisor CSSF shares that sentiment and supports the case for a more flexible approach. “CSSF advocates a principle based approach to setting RTS in order to guarantee investor protection,” a spokesperson for CSSF told Investment Officer.
Paris-based markets supervisor AMF is understood to block such a flexible approach and says it prefers a clear and simple interpretation of the rules for the new Eltif regime. AMF fears that free room for interpretation among national supervisors across Europe could trigger a race to the bottom.
“The AMF supports clear and simple rules, given the risk that the multiplicity of European supervisors could lead to divergent approaches, or even a race to the bottom, in the event of an overarching standard that could a priori lead to a stricter or less strict approach,” said an AMF spokesperson.
“We want the same level of protection for investors, regardless of the country in which the fund is domiciled. This is all the more important as investors are in fact savers, since ELTIF funds have a passport, including for distribution to this clientele. Whatever the outcome of this debate, and given the obvious competitiveness issue, the AMF will strictly apply European legislation without adding any additional national requirements.”
The Dutch and Belgian supervisors both are actively following the discussions but said they did not want to comment on the status of the discussions.
Related articles on Investment Officer Luxembourg:
- Confusion over ‘retail’ casts cloud over Eltif’s prospects
- Luxembourg to encourage Eltif uptake with tax exemption
- IO Talks: Linklaters’ Silke Bernard on Eltif 2.0 prospects