On March 13, 2024, the European Union introduced Directive 2024/927. This new rule improves how investment funds are managed to make markets safer, more transparent, and fairer for investors. It updates the laws for Alternative Investment Funds (AIFs) and funds known as UCITS (Undertakings for Collective Investment in Transferable Securities).
Here are the key points:
1. Better Management of Liquidity (Cash Availability)
To handle market pressures, the directive requires funds to:
- Choose Two Tools for Managing Liquidity: Funds can use options like limiting how much investors can withdraw (redemption caps), adjusting fund value for costs (swing pricing), or separating hard-to-sell assets (side pockets).
- Inform Regulators: Fund managers must notify authorities when using or stopping these tools.
These steps help protect remaining investors when markets are unstable.
2. More Transparency for Investors
The directive ensures investors get clear and honest information:
- Managers must report all fees and costs charged to investors.
- Investors should know how funds manage risks and liquidity.
This helps investors make better choices.
3. Rules for Funds That Lend Money
Some funds lend money to companies. The directive ensures this is done safely:
- Limits on how much funds can borrow to prevent risks.
- Clear rules for checking and managing loans.
- Restrictions on loans to individual consumers in certain cases.
These rules protect both investors and the financial system.
4. Stricter Rules on Delegation
Funds often hire others to manage certain tasks (delegation). The directive:
- Requires managers to provide detailed reports on delegation arrangements.
- Ensures they keep enough control and resources within the EU.
This makes sure managers are responsible and not just "letterbox" companies.
5. Stronger Safeguards for Assets
The directive strengthens the role of fund custodians (depositaries) who protect investors’ assets.
- Central Securities Depositories (CSDs) are now part of this system.
- Custodians must share information and work with regulators to improve safety.
6. Focus on Sustainability (ESG)
The directive includes sustainability goals:
- Funds must consider Environmental, Social, and Governance (ESG) factors in their decisions.
- Clear rules for funds claiming to be sustainable.
This helps support environmentally and socially responsible investments.
7. Same Rules Across the EU
The directive aims to harmonize rules for funds in all EU countries:
- The European Securities and Markets Authority (ESMA) will set guidelines to help funds use liquidity tools properly.
- This makes it easier for funds to operate across borders and ensures fairness.
What Does This Mean for Investors?
Directive 2024/927 aims to:
- Protect investors by ensuring funds are managed responsibly.
- Strengthen financial markets by reducing risks.
- Encourage trust with clear and simple rules.
For fund managers, the directive highlights the need to plan and comply with these new requirements. It also offers investors a safer and more transparent environment for their money.
How We Can Help
We are here to guide fund managers, Central Administrations through these changes. Whether you need help understanding the rules or preparing for compliance, our team is ready to assist.
Contact us today to ensure your investments and operations align with EU Directive 2024/927.