EC Markets Integration And Supervision: Key Proposals For Investment Funds

The European Commission (EC) has published its much-anticipated Market Integration and Supervision Package on 4 December 2025.

The measures are wide-ranging. In this article we note some key proposed changes to AIFMD, the UCITS Directive and the Cross-border Distribution of Funds Regulation (CBDR). There are also proposed changes to the legislative frameworks regulating asset management, trading, post-trading, innovation, and the supervisory structure.

This comprehensive package of measures adopted is designed to remove barriers and unlock the full potential of the EU single market for financial services. It is a central component of the Savings and Investments Union (SIU) strategy. The next step is negotiation and approval by the European Parliament and the Council.

Product passporting/fund registration streamlining

• A new "passporting upon authorisation" regime which will grant UCITS funds and AIFs, through their AIFMs, immediate single market access to their chosen Member States upon authorisation.
• The cross-border marketing rules in the UCITS Directive and AIFMD will move to the CBDF regulation and are amended to optimise marketing notification and de-notification procedures.
• CBDR is amended to clarify that AIFMs, EuVECA and EuSEF managers and UCITS management companies should ensure that the requirements on marketing communications are met even when the marketing function is delegated to a third party. However, where the marketing is performed by third-party distributors acting on their own behalf so that the AIFMs and UCITS management companies are no longer in control of the marketing function, the AIFMs and UCITS management companies are not subject to the requirements on marketing communications.
• host Member States cannot impose any additional requirements on marketing communications than the ones laid down in Article 4. The EC is empowered to adopt delegated acts to specify the format and content of marketing communications.
• CBDR is amended to reduce diverging national practices on marketing communications and the payment of regulatory fees and charges.
• the competent authorities of host Member States shall not require prior notification of marketing communications.
• ESMA to publish and maintain up-to-date information on the regulatory fees and changes imposed by host competent authorities to AIFMs, EuVECA managers, EuSEF managers and UCITS marketing AIFs or UCITS in their territories, including the level and frequency of those fees and payment.
• ESMA will develop an interactive IT system serving as a single access point for the cross-border marketing of UCITS and AIFs, including European Venture Capital Funds (EuVECAs), European Social Entrepreneurship Funds (EuSEFs) and European long-term investment funds (ELTIFs) to facilitate information and document exchange between home and host competent authorities and avoid delays caused by bilateral transmissions among competent authorities.
• Simplification of the de-notification of arrangements made for the marketing of units or shares of UCITS or AIFs. The existing 36 month prohibition of pre-marketing of units or shares of EU AIFs with similar investment strategies in the Member State identified in the de-notification is removed.

UCITS Investment Restrictions

• Adjustments to the UCITS investment limits: Article 56(2) of the UCITS Directive is amended to increase the current 10% limit on debt securities issued by a single entity to 15% for UCITS investing in securitisations issued in accordance with the Securitisation Regulation, recognising their distinct characteristics and regulatory safeguards.
• Article 53(1) of the UCITS Directive is amended to extend the 20% issuer limit currently applicable to index-tracking UCITS to UCITS that are managed by reference to an index that is recognised by ESMA.

ManCo Regulation

• Maximum harmonisation for rules of conduct and prudential rules for AIFMs and management companies. Currently these are fragmented as local NCA can impose local gold plating supplementing the UCITS Directive/AIFMD.
• Simplification of the disclosure obligations of AIFMs and management companies that manage or intend to manage UCITS or AIFs at the initiative of a third party. Instead of actively disclosing detailed information and evidence under conflict of interest rules, the proposed change will now require AIFMs and management companies to disclose this relationship to the competent authorities of their home Member State at the time of authorisation and to be in a position to demonstrate to them upon request that they have taken all reasonable steps to identify, prevent, manage, monitor or, where applicable, disclose conflicts of interest.
• Optimisation of the management passport for management companies and AIFMs – reduction of times by which home and host member states must transmit information and providing that a host Member State should not impose any additional requirements to the management companies operating in their territory.
• Entities within the EU group would be able to share and rely on each other's human and technical resources and allocate functions within the group without being subject to the delegation requirements under the UCITS Directive and AIFMD. UCITS management companies and AIFMs would, however, remain fully responsible for the functions or services carried out by other entities within the group and must ensure that such reliance does not reduce them to mere "letter box" entities.

Role of NCAs

• ESMA will not directly supervise investment funds and fund managers; they will continue to be supervised by national competent authorities.

UCITS KIIDs

• Removal of UCITS KIID provisions: The UCITS Directive stipulates that where a PRIIPs KID is made available to retail investors, the requirement to provide a UCITS KIID is fulfilled. Therefore, the practical use of the UCITS KIID remains with professional clients only. However, professional investors do not require a generic UCITS KIID. Thus, the requirement to provide a UCITS KIID where there is no PRIIP KID is no longer necessary.

Contributed by Ann Shiels

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.