ESMA call for input on assets eligible for UCITS

Since 2007 - when the EU UCITS Eligible Assets Directive (2007/16/EC) was introduced in order to give clarity on whether a given asset class is eligible for investment - the number and variety of financial instruments traded on financial markets has increased considerably, leading to uncertainty in determining whether some categories of assets are eligible for investment, in turn giving rise to divergent interpretations and market practices in terms of the application of the UCITS Directive.  

As such, on 7th May 2024, ESMA published a Call for Evidence on a review of the UCITS EAD. The objective of this call is to gather information from stakeholders on market practices and interpretation or practical application issues with respect to the existing eligibility criteria and other provisions set out in the UCITS EAD.

Some key questions for input:

The call for input among other matters, particularly highlights the need for discussion around the following matters:

• the concept of “transferable securities” - and whether the criteria set out in the UCITS EAD are adequate and clear enough;
• the UCITS EAD distinction between (i) financial instruments backed by, or linked to the performance of other assets and (ii) financial instruments embedding a derivative. Input is requested on whether the existing provisions related to these concepts are adequate and clear enough - particularly in the wake of diverging views having been expressed on the distinction between the two concepts as well as whether and when a look-through approach is required in these cases to determine the eligibility of an asset;
• the interpretation of provisions using the notion of “liquidity” or “liquid financial assets”;
• the appropriateness of the presumption of liquidity and negotiability set out in the provisions - particularly given issues identified with respect to the presumption as part of the 2020 ESMA CSA on UCITS liquidity risk management.

Next steps

The Call for input is open to comments until Wednesday 7 August 2024. Taking into account the evidence and views collected, ESMA will then develop its technical advice to the European Commission - albeit it has not specified a timeline for this workstream.