2. Background

Introduction

The investment funds industry in the EU is mainly regulated by two Directives:

• Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (“UCITS”); and

• Directive 2011/61/EC of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010.

In June 2020, the European Commission (“the Commission”) presented a report on the functioning and scope of Directive 2011/61/EC - the Alternative Investment Fund Managers Directive (“AIFMD”) - to the European Parliament and the Council of the EU.[1] While the AIFMD had largely achieved its objectives, the Commission’s assessment concluded that the Directive could benefit from improvements in areas that were either not sufficiently addressed in 2011 or that had evolved considerably since that time.

As a number of issues highlighted in the AIFMD review were considered to be equally relevant for the activities of UCITS, Directive (EU) 2024/927 amends both the AIFMD and Directive 2009/65/EC (“the UCITS Directive”), so as to better align their regulatory requirements.

Directive (EU) 2024/927 was published in the Official Journal of the European Union on 26 March 2024 and entered into force 20 days later on 15 April 2024.[2] The deadline for transposition of Directive (EU) 2024/927 is 16 April 2026.

The domestic legal provisions giving effect to Directive (EU) 2024/927 will apply from 16 April 2026, with the exception of the measures transposing Article 1(12), and those transposing Article 2(7) with regard to Article 20a of Directive 2009/65/EC, which shall apply from 16 April 2027.

Alternative Investment Fund Managers Directive (AIFMD)

Directive 2011/61/EU was adopted in 2011 to create a harmonised framework for managers of Alternative Investment Funds (“AIFs”).

In the EU, AIFs are collective investment funds that are not covered by the UCITS Directive. They are designed primarily for professional investors and they can vary in terms of their investment strategies, markets, asset types and legal forms. AIFs include venture capital and private equity funds, real estate funds, hedge funds and fund of funds.

AIF managers (“AIFMs”) are responsible for the management of a significant amount of invested assets in Europe. At end-2023, net assets under management in Europe totaled €7.5 trillion. Ireland accounted for over 10% of this market with AIF net assets of €865 billion.[3]

The objectives of AIFMD, which provides detailed conduct and operational rules and enhanced transparency requirements for AIFMs, included:

• supporting a coherent supervisory approach to the risks of the financial system;
• providing high-level investor protection; and
• facilitating EU AIFs’ market integration.

The original Directive was transposed into Irish legislation in 2013.[4] The Directive and corresponding domestic legislation have been amended on a number of occasions since 2011. Irish legislation related to AIFs is supplemented by the regulatory requirements and guidance set out by the Central Bank.

UCITS Directive

Directive 2009/65/EC establishes rules in relation to UCITS, including around allowable investments, liquidity, disclosure and investor protection, as well as setting out detailed conduct and operational standards for companies managing UCITS. The UCITS Directive also provides for the passporting of UCITS, meaning that a UCITS authorised in one EU Member State may be marketed and sold in another EU Member State (subject to compliance with host State marketing requirements).

UCITS are a success story, both in Europe and globally, serving tens of millions of EU and non-EU citizens investing for their future financial needs. UCITS account for around 75% of all collective investments by retail investors in the EU. Over €13 trillion was held in European domiciled UCITS at end-2023. Ireland is the second largest domicile for UCITS in Europe, accounting for 25% of the market at end-2023, with UCITS net assets of over €3.2 trillion.[5]

Directive 2009/65/EC was transposed into Irish legislation in 2011.[6] The Directive and corresponding domestic legislation have been amended on a number of occasions since 2009. UCITS, UCITS management companies and depositories of UCITS domiciled in Ireland are also subject to the Central Bank UCITS Regulations.[7]