European Commission proposes further changes to UCITS Directive

On 4 December 2025, the European Commission (the Commission) published its Market Integration and Supervision Package (MISP), part of its wider Savings and Investment Union (SIU) initiative.

The general objective of the SIU is to "integrate EU capital markets and improve the functioning of the EU single market in financial services for the benefit of investors, businesses and the wider EU economy".

The MISP comprises proposals to amend various existing pieces of legislation, including the UCITS Directive - these are contained in:

• a draft Master Regulation

• a draft Master Directive and

• a proposed Regulation, which would repeal the Settlement Finality Regulation and amend the Financial Collateral Directive.

The changes which the Commission is proposing would need the agreement of the Council of the EU (the Council) and of the European Parliament (EP) before becoming effective. The aim is for the co-legislators to agree a final text in Q2 2026 and to formally approve this by the end of the year.

Some of the proposals, though, (in particular, those which increase the powers of ESMA) are likely to be contentious and it may well be that the expected timetable slips.

Note that the proposed changes under MISP would be in addition to the recent amendments generally referred to as AIFMD 2, the large majority of which apply from 16 April 2026.

For our high-level summary of the changes being proposed to the AIFMD, see here.

Overview of changes proposed

The MISP - in particular, the draft Master Directive - puts forward amendments to the UCITS Directive in a number of areas with the aim of removing barriers to the cross-border operations of fund managers and their EU groups and eliminating national discretions that could lead to diverging national requirements and supervisory practices.

Authorisation and delegation

• Before a UCITS can implement any proposed material changes to the conditions for its initial authorisation, it would be required to notify its home NCA. This includes, in particular, proposed material changes as regards the management company, the depositary, the fund rules or the instruments of incorporation.

  Should the UCITS home NCA decide to impose restrictions or reject those changes, it must inform the UCITS of this within one month of receiving the UCITS's notification. This period can be extended by up to an additional month where the case involves 'specific circumstances'. Where the NCA does not oppose the changes within the applicable period, the changes can be implemented.

• ESMA would be empowered to standardise and further harmonise the authorisation process for a UCITS by developing

  • Level 2 measures which specify the details of the information which must be included in the application for the authorisation of the UCITS, the procedures and timelines to be followed as part of the application and the methods and arrangements for delivering the information to be provided

  • templates, data standards and formats for providing the required information

Marketing and marketing communications

• Chapter XI of the UCITS Directive, which covers marketing of a UCITS in host Member States, would be deleted. An amended marketing regime is, instead, proposed to be inserted into the Cross Border Distribution of Funds (CBDF) Regulation simplifying the rules around marketing a UCITS in a Member State other than its home Member State and de-notification of marketing of the UCITS.

• The CBDF Regulation would also be amended to clarify that UCITS ManCos must ensure that marketing communications rules are met even when the marketing function is delegated to a third party. However, where the UCITS ManCo has delegated the marketing function to a third-party distributor acting on its own behalf, the ManCo would not be subject to the requirements on marketing communications.

• In addition, host Member States would not be able to require the notification of marketing communications as a condition before the UCITS could be marketed in that Member State.

Delegating marketing functions

• Article 7(1) of the UCITS Directive would be amended to clarify that, where a UCITS ManCo demonstrates at the time of authorisation that it makes use of resources of other entities within the same EU group, it would no longer be required to provide information on the delegation and sub-delegation of functions to other EU entities within that group and

• Article 13 of the UCITS Directive would be amended to clarify that reliance by the ManCo on other EU entities within its group to carry out its activities would not be regarded as a delegation - as a result, the, ManCo would need only inform its home NCA that functions or services are performed by other entities within the EU group.

Supervision

• The Commission's amendments would empower ESMA to, among other things,

  • identify any EU groups of ManCos and AIFMs where (a) the group's ManCos and AIFMs have an aggregate EU-wide AuM of at least EUR 300 billion and (b) the ManCos and AIFMs within the group are either established in more than one Member State or manage or market UCITS or AIFs in more than one Member State

  • carry out reviews at least annually of such EU groups frequent) reviews to assess the supervisory approaches regarding each EU group's organisational structure and governance arrangements, resources and risk management systems

  • identify and take action to address any divergent, duplicative, redundant, or deficient supervisory practices revealed by the review which hinder the cross-border operations of asset managers and depositaries. (Note that reviews are intended to focus on the operations of asset managers, rather than investment funds.)

  • intervene when ESMA considers that NCAs are not effectively applying EU rules or, in certain cases, directly suspend the cross-border activities of a fund manager or depositary

  • clarify that NCAs can refer any disagreements on assessments, actions, or omissions to ESMA to settle.

Depositary passport

• The draft Master Directive would establish a depositary passport, allowing a UCITS to appoint a depositary located outside its home Member State and permitting depositaries to offer their services on a cross-border basis - the passport would be applicable to depositaries authorised as credit institutions or investment firms, which already benefit from an EU passport under the Capital Requirements or MiFID II, respectively.

Investment limits

Amendments are proposed to

• increase the limit on debt securities issued by a single entity from the current 10% to 15% for UCITS which invest in securitisations issued in accordance with the Securitisation Regulation and

• extend the 20% issuer limit applicable to index-tracking UCITS to UCITS managed by reference to an ESMA-recognised index.

Removing the obligation for UCITS to draw up a key investor information document (KIID)

• The Commission's proposals would delete Section 3 of Chapter IX of the UCITS Directive, which requires UCITS ManCos to draw up a KIID and make this available to investors.

Timing

The Commission's proposals are being reviewed by the Council of the EU and the European Parliament.

These aim to agree a version by the end of Q2 2026, with votes to formally adopt an agreed text expected to be held by the end of the year.

The Master Directive would enter into force on the twentieth day after publication in the Official Journal and Member States would then have 18 months to introduce the relevant changes to their national law.

As a result, it is anticipated that the changes which are agreed will not be effective until Q3 of 2028, though this timing is preliminary and subject to change, depending on how the legislative procedure progresses.