ESMA submits advice on UCITS Eligible Assets Directive to Commission

On 26 June 2025, ESMA published a Final Report, setting out its technical advice to the European Commission (the Commission) on its review of the UCITS Eligible Assets Directive (EAD).

In its report, ESMA puts forward policy proposals on a variety of issues, which aim to foster supervisory convergence and reduce the burden for UCITS ManCos operating on a cross-border basis by overcoming divergent NCA and market practices.

What does the Final Report contain?

The Final Report runs to 224 pages - this summary is intended to be high level only and we will be publishing a client note once we have assessed the key issues which might affect our clients.

In the Final Report, ESMA

• sees merit in applying a look-through approach to determine the UCITS eligibility of assets since it considers that this would ensure a high level of investor protection and transparency vis-a-vis UCITS investors (and would, consequently, best protect the reputation and trust in the UCITS brand)

• proposes relatively long transitional periods for UCITS management company to make necessary changes to their portfolios, which ESMA believes should allow for an orderly transition

• proposes flexibility to gain limited (up to 10%) indirect exposures to alternative assets in order to improve risk diversification and generate returns from uncorrelated asset classes.

ESMA's policy assessments in respect of the various key aspects on which the Commission requested technical advice can be found at Sections 4 to 17 of the Final Report. These include

• liquidity under the UCITS framework
• the definition of transferable securities
• UCITS exposures to alternative assets
• money market instruments
• financial derivative instruments
• financial indices
• UCITS investments in AIFs
• Efficient Portfolio Management (EPM)
• securitisations and
• short positions.

ESMA's proposals themselves, which set out changes to the UCITS Directive and to the EAD, can be found in Annex VI, starting at page 200 of the Final Report.

What happens next?

The Commission will now consider ESMA's advice with a view to adopting a legislative proposal.

This proposal will be scrutinised by the Council of the EU and the European Parliament which will, through trilogue negotiations, agree a political text. This will, in time, be published in the Official Journal.

What's the background to the Final Report?

In June 2023, the Commission mandated ESMA to carry out a review of the EAD to (among other things):

• assess how Member States have diverged in their implementation of the Directive and

• make recommendations to the Commission for amending the EAD so it keeps pace with market developments.

Our summary of the Commission's mandate can be found here.

The EAD dates back to March 2007, since when changes in financial markets have led to both (a) uncertainty when determining whether certain categories of assets are eligible for investment and (b) divergent interpretations and market practices across the EU as to how the UCITS Directive applies.

In addition to conducting a comprehensive NCA survey and data collection exercise, on 7 May 2024, ESMA published its Call for Evidence, seeking views from stakeholders in order to assess the possible risks and benefits of UCITS gaining exposure to various asset classes as well as insights on some key notions and definitions used in the UCITS EAD and their consistency with other pieces of legislation in the EU Single Rulebook.

Our summary of the Call for Evidence can be found here.

The Final Report sets out ESMA's policy proposals in light of feedback to its survey, data collection exercise and Call for Evidence.