Asset Management & Investment Funds: EU & International Developments – December 2025

European Commission proposal to revise the SFDR

The European Commission (Commission) published its proposal to revise the SFDR (SFDR 2.0) aimed to reduce complexity, mitigate greenwashing risk, and improve comparability for investors. The proposal would replace the de facto Article 8 and Article 9 “labels” and introduce a simpler product categorisation for financial products making ESG claims:

Article 7: Transition. Financial products in this category claim to invest in, or contribute to, the transition of undertakings, economic activities, or other assets towards sustainability, or contribute to such transition.

Article 8: ESG basics. These are financial products, other than those under Articles 7 and 9, that claim to integrate sustainability factors into their investment strategy beyond the consideration of sustainability risks.

Article 9: Sustainable. Financial products in this category claim to invest in sustainable undertakings, sustainable economic activities, or other sustainable assets, or to contribute to sustainability.

An Article 7 or Article 9 financial product that has as its objective the generation of a pre-defined, positive and measurable social or environmental impact qualifies as a “sustainability-related financial product with impact” and is subject to additional disclosure requirements. A new article 9a sub-category is proposed for products that combine articles 7,8 or 9 subject to the relevant thresholds and exclusions.

Categorised products would need at least 70% of assets aligned to the stated sustainability strategy and would apply common exclusions. Funds referencing EU Paris-aligned or Climate Transition Benchmarks, or with material EU Taxonomy alignment, may also qualify.

The proposal deletes entity-level principal adverse impact disclosures from SFDR and the requirement for fund management companies to include in their remuneration policies information on how those policies are consistent with the integration of sustainability risks or to publish this information on the firm’s website.

Product level disclosures would be substantially reduced and refocused on the new category-defining criteria, with short, simplified templates capped at two pages. The proposal would repeal the existing SFDR regulatory technical standards (RTS), remove the article 2(17) “sustainable investment” concept and related “do no significant harm” test, and take financial advice and portfolio management out of scope. It would also curb national gold plating and import transparency expectations from the EU ESG Ratings Regulation for ESG ratings used in marketing communications. Required product level information for the prospectus and periodic reports could be satisfied using weblinks to the respective documentation. The Commission is empowered to develop implementing rules to supplement key elements.

The SFDR 2.0 proposal now enters the EU legislative process and will be progressed in 2026. The revised disclosure requirements would apply 18 months from the date of application. A narrow opt-out is included for legacy closed-ended funds created and distributed before the application date of SFDR 2.0.

Read more here.

Liquidity management tools RTS

The Commission adopted the following delegated regulations, which contain RTS supplementing the Alternative Investment Fund Managers Directive (AIFMD) and the UCITS Directive, each as amended by AIFMD II:

• Delegated Regulation on RTS specifying the characteristics of liquidity management tools (LMTs) under the AIFMD. These RTS reflect a mandate in Article 16(2)(g) of the AIFMD. 
• Delegated Regulation on RTS specifying the characteristics of LMTs under the UCITS Directive. These RTS reflect a mandate in Article 18(a)(3) of the UCITS Directive.

Under the revised AIFMD and UCITS Directive, AIFMs of open-ended AIFs and UCITS are required to select at least two appropriate LMTs from the list of LMTs set out in Annex V of AIFMD and Annex IIA of the UCITS Directive for potential use in the interest of investors. These new harmonised level 1 rules will be applicable as of 16 April 2026. The RTS supplement the AIFMD and UCITS Directive by specifying the characteristics (including calculation methodologies and activation mechanics) of the available LMTs (suspension of subscriptions, repurchases and redemptions, redemption gates, extension of notice periods, redemption fees, swing pricing, dual pricing, anti-dilution levy, redemption in kind and side pockets).

The RTS generally reflect the final draft RTS published by ESMA in April 2025, except:

• The RTS for open-ended AIFs now provide for the setting of activation thresholds, either at the level of the AIF, at the level of the investors or as a combination of both, and below which the redemption gate cannot be activated.
• Both RTS now clarify that implicit transaction costs (costs borne indirectly by the UCITS/AIF upon acquisition or disposal of assets, that primarily arise from the bid-ask spread and market impact) should be included for redemption fee, swing pricing, dual pricing and anti-dilution levy LMTs, only where appropriate to the investment strategy of the AIF or UCITS.

The Council of the EU and the European Parliament will now scrutinise the RTS. If neither object, the RTS will enter into force 20 days after their publication in the Official Journal of the European Union and apply from 16 April 2026.

Compliance with the RTS may require changes to fund documentation and an update of existing processes and technical infrastructure of open-ended AIFs, UCITS and their management companies. A transitional period of one year is available for AIFs or UCITS constituted before 16 April 2026, to enable adaptation to the new regime. However, those AIFMs or UCITS may choose to be subject to the RTS from the date of application, i.e. from 16 April 2026.

European Commission’s SIU package - markets integration

The Commission launched major package to fully integrate EU financial markets. This package is a central component of the savings and investments union (SIU) strategy, aiming to create a more integrated, efficient, and competitive financial system providing EU citizens better options for growing their wealth and supporting businesses in accessing funding.

Proposed measures include removing obstacles to market integration and leveraging scale, enhancing passporting opportunities, facilitating innovation related to distributed ledger technology (DLT), streamlining and enhancing supervision.

The proposals must now be negotiated and approved by the European Parliament and the Council.

Asset Management proposals include the below.

• Harmonisation of authorisation procedures for UCITS, UCITS management companies (ManCos) and AIFMs. ESMA to issue RTS.
• Automatic marketing passporting based on authorisation for UCITS and AIFMs marketing to professional investors.
• ESMA’s data platform which will enable home NCAs to share all information and documentation relevant to the cross-border marketing of UCITS and AIFs with host NCAs.
• Pre-marketing with AIFMs having an automatic right to pre-market throughout the EU.
• Optimisation of the management passport for UCITS ManCos and AIFMs - transmission timelines will be reduced.
• Simplified rules for EU groups of UCITS ManCos and AIFMs.
• Harmonised rules of conduct and prudential rules for AIFMs and UCITS ManCos.  
• 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.  
• Adjustments to the UCITS investment limits.
• Removal of UCITS KID provisions from the UCITS Directive. 
• Depositary passport.
• ESMA will not directly supervise investment funds and fund managers.

Read more here

Commissioner Albuquerque announced that the European Commission will introduce a significant initiative focused on EU growth capital fund managers, scheduled for Q3 2026. An open public consultation and an accompanying targeted consultation will be published in the coming weeks.  

The reform will aim to enable EU asset managers to operate more efficiently and on a broader scale across the EU Single Market, reduce administrative burdens, boost incentives to operate larger funds and invest into the EU real economy, including infrastructure projects. The Commission want to:

• introduce simpler and more proportionate rules for small and mid-size growth capital asset managers
• explore measures that enable such asset managers to scale up faster and with less costs
• ensure that companies and investors benefit from a uniform market, by removing obstacles at both national and EU level

IOSCO consultation on updated recommendations on valuing collective investment schemes

The International Organization of Securities Commissions (IOSCO) published a consultation report on CR/05/2025 Valuing Collective Investment Schemes (CIS). Comments may be submitted through a survey link by 2 February 2026.

IOSCO proposes to update IOSCO's principles for the valuation of CIS, which were published in May 2013, as well as its principles for the valuation of hedge fund portfolios, which were published in November 2007.  

The proposed revisions to the previous recommendations are intended to reflect recent market developments, including an increase in CIS holding less liquid and illiquid assets, including private assets, as well as increased retail investment in CIS. 

Among other revisions, IOSCO proposes revisions to the existing recommendations relating to the following.

• The oversight of the valuation function and governance arrangements under stressed market conditions.
• The framework for identifying and avoiding (or mitigating) conflicts of interest.
• The circumstances in which third party valuation service providers are used, including due diligence on assessing the independence and qualification of third-party valuation service providers.
• The appropriate level of records and documents that should be maintained and the designation of specific entities responsible for record keeping.

IOSCO intends to publish a final report on the recommendations in Q2 or Q3 2026.

ESMA peer review of depositary supervision

ESMA published the results of a peer review which assessed how five NCAs supervise depositary obligations under UCITS and AIFMD. The peer review focused on five jurisdictions: Czechia (CNB), Ireland (CBI), Italy (Bank of Italy), Luxembourg (CSSF), Sweden (SFSA). Recommendations relevant to CBI are detailed below.

General

• In line with the principles of risk-based supervision, where more frequent and intrusive engagement is delivered to higher impact entities, NCAs are to consider more frequent supervisory schedules for higher risk and/or impact depositaries (CZ, IE, IT, LU, SE).
• To ensure depositary supervision is supplemented with a credible threat of enforcement, NCAs are encouraged to consider more frequent enforcement actions on foot of identified breaches (IE, SE).

Valuation oversight

• To revise the scope of their supervisory activities to include more in-depth assessments of a depositary’s valuation-related controls and their effectiveness that is consistent with the outcome of due diligence/risk assessments of the fund manager (IE, IT).
• To review contractual arrangements between depositaries and fund managers as part of their overall supervisory approach, at least on a sample basis. This also applies to subsequent expectation on investment restrictions and leverage limit oversight (IE, SE).
• To review the frequency of depositary control checks on valuations to ensure they are consistent with the valuation schedule of the fund (IE, LU, SE).

Investment restrictions/leverage limit oversight

• To review depositaries’ use of client attestations and verify the adequacy of depositary control checks performed on more complex funds in order to ensure they are sufficiently robust and intrusive (IE).
• To revise the scope of their supervisory activities to include more in-depth assessments of a depositary’s investment restrictions/leverage limit controls and their effectiveness that is consistent with the outcome of due diligence/risk assessments of the fund manager (IE, IT).

Delegation

• To ensure depositaries do not delegate oversight functions, NCAs are to more thoroughly assess, through the review of sample reports, key performance indicators (KPIs), contracts/SLAs and on-site inspections at large service providers, whether any envisaged arrangements with third party service providers are in line with the applicable rules as further specified in the ESMA Q&As 47 (IE, IT, LU, SE).

ESMA will continue promoting further discussion on the supervision of depositaries and will follow up on the recommendations in the report in due course.

Updated PRIIPs KID Q&A with five new Q&As on performance scenarios 

Updated PRIIPs KID Q&A JC 2023 22 Consolidated Q&As on the PRIIPs Key Information Document (KID) with five new Q&As on performance scenarios (Articles 3 and 8 and Annexes IV and V). The Q&As concern: 

• 27. Assessment of whether a UCITS product is category 2 or category 3, impact on redemption value at maturity and performance scenarios
• 28 and 29. Assessment of whether the use of a particular benchmark or proxy is appropriate
• 30. Calculation methodologies for defining the performance of the PRIIP over a certain sub-interval
• 31. Clarifications for actively managed funds that have been valued on a weekly basis for more than ten years but would transition to daily valuations

ESMA (and NCAs) will carry out a CSA on MiFID II conflicts of interest in the distribution of financial instruments in 2026

ESMA will launch a Common Supervisory Action (CSA) with NCAs on conflicts of interest in the distribution of financial instruments. The CSA will take place during 2026.

The CSA will assess how firms comply with their obligations under MiFID II to identify, prevent and manage conflicts of interest when offering investment products to retail clients.

The CSA will focus on:

• The possible impact of staff remuneration and inducements on what products are offered to investors.
• The role of digital platforms in directing investors towards certain products, and whether this serves their best interests.
• The ways firms manage potential conflicts between their own profits and the needs of retail investors.

ESMA expects that this initiative, together with the exchange of practices among NCAs, will contribute to the consistent application of EU rules and strengthen investor protection in line with its objectives.

European Parliament adopts resolution on impact of AI on financial sector

The European Parliament adopted a resolution TA on the impact of AI on the financial sector.

A related press release - MEPs give guidelines for use of AI in the financial sector | News | European Parliament - explains that the resolution sets out the Parliament's priorities on using AI in the financial sector. MEPs recognise AI's potential to improve efficiency, innovation and consumer services. However, they highlight significant risks such as data bias, model opacity, overreliance on a few technology providers, cyber-security threats and governance challenges. To mitigate these risks, MEPs stress the need for human oversight, robust data governance and updated EU supervisory tools.

AML/CFT/FS

EU list of AML high-risk third countries

On 4 December 2025 the Commission updated its list of high-risk third countries (HRTCs) presenting strategic deficiencies in their national anti-money laundering and countering the financing of terrorism (AML/CFT) regimes. This update follows the decisions taken at the Financial Action Task Force (FATF) and its list of 'Jurisdictions under Increased Monitoring' (‘grey list’), following the FATF plenaries of June and October 2025. The update of the list of HRTCs takes the legal form of a delegated regulation, which will enter into force after scrutiny and non-objection of the European Parliament and the Council within a period of one month (which can be prolonged for another month) and publication in the Official Journal of the EU. EU entities covered by the AML framework are required to apply enhanced vigilance in transactions involving HRTCs.

The EU delegated regulation will:

• delist the following third-country jurisdictions from the list: South Africa, Burkina Faso, Mali, Mozambique, Nigeria, and Tanzania
• add new third-country jurisdictions to the list: Bolivia and the British Virgin Islands

On 3 December 2025, the Commission published a delegated regulation to add Russia to the list of HRTCs. This delegated regulation will enter into force after scrutiny and non-objection of the European Parliament and the Council within a period of one month (which can be prolonged for another month) and publication in the Official Journal of the EU.

Consultation on formats for submitting beneficial ownership information

On 26 November 2025, the Commission opened feedback on the draft Commission Implementing Regulation on formats for submitting beneficial ownership information. This initiative will establish the formats used to submit beneficial ownership information referred to in Article 62 of Regulation (EU) 2024/1624 to central registers. The concept of beneficial ownership was introduced to increase the transparency of complex corporate structures in the fight against money laundering and terrorist financing. It will include a checklist of minimum requirements for this information to be examined by the entity in charge of the central register.

This feedback period of this draft act is open until 24 December 2025.

Read more: European Commission: Have Your Say: Draft implementing regulation (Ares (2025) 10331989) (26 November 2025).

For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.

Date published: 16 December 2025