Yesterday, ESMA published a new version of the regulatory and technical standards (RTS) related to the new regulation on the European Long-Term Investment Fund (ELTIF – link in the comments section).

ESMA had already proposed a version thereof back in December 2023, but it was met with criticism by the industry and prompted, in a rather exceptional turn of events, the European Commission (EC) to voice its disagreement, apparently fearing that if the RTS went ahead they would jeopardise the success of the new ELTIF Regulation. That was at the beginning of March and ESMA had 6 weeks to propose amendments to its draft or else the EC would draft them on their own. ESMA exceeded such deadline, and its justification for proposing its amendments often reads like a petulant child talking back to its parent after being told off. Some key points are indeed improved, one at least was made slightly worse:

– Liquidity requirements for open-ended ELTIFs: While the EC had proposed a simple principle based approach, ESMA insists on a rather complicated table setting out compulsory percentages of liquid assets depending on the length of the notice period given by investors. At least such percentages have been reduced and now top out at 25%.

– The obligation to choose at least one liquidity management tool from a list was removed; however, the obligation to justify any other such tool still remains.

– The EC was of the view that a compulsory minimum holding period was not necessary; ESMA does not share such view and maintained this requirement.

– The EC thought it sufficient if the redemption policy was published on the website of the ELTIF manager; ESMA disagreed and not only maintained the requirement to include it in the prospectus, but also added the requirement to publish it on the website.

– The EC criticised that regulators should not be informed only three days after that fact in case of material changes to the redemption procedure. Unfortunately, ESMA now introduced the requirement to inform regulators one entire month before any such change, adding an additional delay to the process.

Taken as a whole, there are some positive aspects to the changes, mostly for the crucial element of liquidity requirements for open-ended ELTIFs. One cannot help wondering in relation to some points if ESMA made some points worse on purpose, as it also becomes very clear from the language used by ESMA that it is not at all pleased with the intervention of the EC. It clearly remains convinced that its prescriptive approach, distrustful of investors’ own reasoning (“investors may not understand…”) should continue to be pursued.