Asset Management & Investment Funds: EU & International Developments – January 2026

Revised guidelines on LMTs under AIFMD and UCITS Directive

ESMA published a report containing a revised version of its guidelines on liquidity management tools (LMTs) of UCITS and open-ended AIFs.

The guidelines provide guidance on how fund managers should select and calibrate LMTs in the light of their investment strategy, their liquidity profile and the redemption policy of the fund. They reflect mandates in Article 18(a)(4) of the UCITS Directive and Article 16(2)(h) of the AIFMD, in each case as amended by AIFMD II.

ESMA published a final report on the guidelines in April 2025, together with a final report on regulatory technical standards (RTS) on LMTs. In November 2025, the European Commission adopted delegated regulations on these RTS (AIFMD RTS and UCITS RTS) that contained changes to the texts proposed by ESMA. ESMA has made targeted amendments to the guidelines to ensure consistency with the RTS adopted by the Commission. These amendments relate to redemption gates and to transaction costs for anti-dilution LMTs.

The guidelines will apply on the application date of the RTS, which is specified as 16 April 2026. 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.

New UCITS and AIFMD Q&As: exclusion related to UNGC/OECD guidelines

ESMA published QA 2734 (AIFMD) and QA 2733 (UCITS) clarifying how fund managers should apply the EU Paris-aligned benchmarks (PABs) exclusion in Article 12(1)(c) of Commission Delegated Regulation (EU) 2020/1818 (i.e. companies that benchmark administrators find in violation of the United Nations Global Compact (UNGC) principles or the Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises”).

ESMA clarifies that the exclusion should be considered to be applied by the fund manager itself, not by a benchmark administrator. Therefore, for the purposes of applying the guidelines, the exclusion should be understood as companies that fund managers finds in violation of the UNGC principles or OECD Guidelines for Multinational Enterprises.

Political agreement on EU retail investment strategy

Following years of negotiations, the Council and the European Parliament reached provisional agreement on the EU Retail Investment Strategy (RIS). The legislative proposals consist of an omnibus directive containing targeted amendments to MiFID, the Solvency II directive, the UCITS directive, the AIFMD and a regulation amending the PRIIPs Regulation.

The new rules aim to reinforce investor protection rules, provide a wider range of efficient investment and financing opportunities, and contribute to the EU’s savings and investments union (SIU) and simplification of financial services regulation objectives.

Key takeaways:

• Client journey. Advisers providing recommendations to consumers related to diversified, non-complex, and cost-efficient instruments will no longer have assess the client’s investment knowledge and experience as part of the suitability assessment.
• Professional investors. More retail investors will be permitted to be treated as professional clients, provided they satisfy certain criteria concerning their investment experience. Such investors will still need to fulfil two out of three criteria to be considered professional. Company managers and directors of financial companies subject to a fitness and proper assessment and employees of AIFMs who possess a level of knowledge and experience regarding those funds, will also be treated as professional clients.
• Value for money. Firms will be required to identify and quantify all costs and charges borne by investors and assess whether total costs and charges are justified and proportionate by reference to peer group benchmarks that include a representative number of similar financial instruments. Products that are not justified and proportionate should not be approved for sale to retail investors.
• PRIIPS KID. Information about costs, risk and expected returns will be made more visible and accessible for consumers and the ESAs will develop updated templates for firms to use, which must be in machine-readable format 30 months after entry into force of the new PRIIPs rules.
• Inducements. Firms will be required to ensure that an inducement will lead to a tangible benefit for the client and that the inducement cost is published clearly and separately from other fees and commissions paid by the investor. Member States wishing to introduce an inducement ban will still be allowed to do so.
• Financial literacy. The package contains new provisions to spur Member State action in the area of financial literacy, also drawing attention to the activities of financial influencers or ‘finfluencers’.

The provisional agreement needs to be approved by Parliament and Council, and technical work will continue to finalise the legal texts early in 2026. Following publication in the EU’s official journal, Member States have 24 months to transpose the new rules. They will start applying 30 months following their publication, with the exception of the new PRIIPs rules, which would start applying 18 months following publication.

ESMA’s principles on risk-based supervision

ESMA published principles for risk-based supervision, reinforcing the EU approach that priorities supervisory focus on and address risks that pose the greatest threats to investor protection, financial stability, and orderly markets. The principles also support the EU simplification and burden reduction agenda.

The principles aim to promote a common EU supervisory culture with a framework for identifying, prioritising, mitigating and managing risks. They apply to both national competent authorities (NCAs) and ESMA when carrying out direct supervision.

The principles are non-binding and are intended to complement pre-existing frameworks, providing elements that promote the effective and consistent application of supervisory capabilities. NCAs are expected to apply supervisory judgment, and to consider the specific risks and characteristics of their national market and the entities and products under their supervision.

European Commission consults on EU venture and growth capital funds reform

The European Commission has launched a targeted consultation on proposed reforms to the regulatory framework for EU venture and growth capital funds, as part of its SIU strategy.

The consultation seeks feedback on the barriers faced by fund managers and potential policy measures to address them under the European Venture Capital Funds Regulation (EuVECA Regulation), AIFMD, and national regimes applicable to small and mid-sized AIFMs.

The Commission's target audience comprises fund managers, businesses, institutional investors, and public authorities and supervisors. It also launched a public consultation.

The deadline for responses to both consultations is 12 March 2026.

ESMA’s second thematic note on sustainability-related claims

ESMA published a thematic note addressing how market participants use the terms ESG integration and ESG exclusions in non-regulatory oral and written communications. Regulatory information is understood as that required by specific disclosure standards (e.g. fund or bond prospectuses, management reports, funds’ KIDs, benchmark statements), while non-regulatory information covers all other types of communications such as marketing materials and voluntary reporting.

The note concentrates on statements made in relevant communications relating to ESG integration and ESG exclusions, noting that references to these strategies are often made by market participants and widely referenced in marketing communications directed to retail investors. The aim of the note is not to define these strategies, but to call on market participants to be clear about what they mean when referencing them, in the interests of ensuring clear, fair and not misleading communications and, ultimately, the avoidance of greenwashing.

Like ESMA’s first thematic note on ESG credentials, this publication provides practical do’s and don’ts and examples of good and poor practices to support clear, fair and not‑misleading ESG disclosures.

European Parliament adopts amendments to CSRD and CSDDD

As part of the Omnibus I package, the European Parliament and Council reached a provisional agreement on significant amendments to the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), aimed at simplification, reducing administrative burdens and enhancing competitiveness.

Once the Council formally adopts the text, it will be signed into law and published in the Official Journal of the EU. The amendments will enter into force 20 days after publication, following which Member States will have 12 months to implement the CSRD amendments into law. The new CSDDD implementation deadline is 26 July 2028. Read more here.

EU Taxonomy Delegated Regulation published

Commission Delegated Regulation (EU) 2026/73 (Disclosures Delegated Act), which amends the Taxonomy Disclosures, Climate and Environmental delegated acts under the EU Taxonomy Regulation has been published in the Official Journal of the European Union. Key reporting simplification measures include:

• Financial and non-financial companies are exempt from assessing taxonomy-eligibility and alignment for economic activities that are not financially material for their business.
• Non-financial companies are exempt from assessing taxonomy alignment for OpEx when it is considered non-material for their business model.
• For financial companies, key performance indicators (KPIs) are simplified, with an option not to report taxonomy KPIs for two years.

The measures apply from 1 January 2026, with early application allowed for financial year 2025.

Amendment to definition of controversial weapons for PAB/CTB exclusions

Under current rules, companies involved in any activities relating to “controversial weapons” must be excluded from PAB and CTB benchmarks, and this exclusion also applies to funds in scope of ESMA’s guidelines on ESG or sustainability related fund names.

The existing definition in the EU Climate Benchmark Regulation refers broadly to “controversial weapons” as those referenced in international treaties, UN principles, and, where relevant, national law. ESMA’s December 2024 Q&A clarified that, for the purposes of the guidelines, this aligns with SFDR PAI 14 - namely anti-personnel mines, cluster munitions, chemical weapons and biological weapons.

The European Commission has adopted a delegated regulation amending the Climate Benchmark Regulation (EU) 2025/1775. From 19 January 2026 for new PAB/CTB benchmarks (and from 30 June 2026 for benchmarks authorised before 19 January 2026), the term “controversial weapons” will be replaced by “prohibited weapons.” “Prohibited weapons” will cover anti-personnel mines, cluster munitions, biological weapons, and chemical weapons the use, possession, development, transfer, manufacture, or stockpiling of which is expressly banned under the main international conventions to which the majority of Member States are parties:

• Convention on the Prohibition of Biological Weapons (1972)
• Convention on the Prohibition of Chemical Weapons (1993)
• Ottawa Treaty on Anti-Personnel Mines (1997)
• Convention on Cluster Munitions (2008)

Commission notice on sustainable finance, CSDDD and the defence sector

The European Commission published a notice clarifying how the EU sustainable finance framework (SFDR, MiFID II, the EU Taxonomy Regulation, CSRD, the Benchmarks Regulation (BMR) and CSDDD)  apply to the defence sector. Its aim is to help prevent undue discrimination of the sector in investment decisions and ensure a better understanding and recognition of the sector’s potential to contribute to social sustainability, in line with the objectives of the European defence industrial strategy and the Joint White Paper for European Defence Readiness 2030.

The notice confirms that EU rules permit investment in defence and that only “controversial weapons” trigger additional mandatory disclosures under SFDR. More specific content around the application of the various pieces of legislation listed in the paragraph above is included in the notice and it is intended for all investors and operators referred to in the EU sustainable finance framework including financial market participants, ESG rating providers, providers of ESG labels and stock exchanges/index providers, benchmark providers, data vendors, and certification bodies, etc.

ESMA report on cross-border marketing of funds

ESMA has published its third report on the application of the marketing requirements and communications under the Cross-Border Distribution of Funds Regulation, including statistics on notifications of cross-border notifications of funds. The report finds that national rules governing the marketing of funds have not undergone any significant changes since the second report in 2023.

ESMA communication on EMIR 3.0 reporting obligations

ESMA issued a public statement providing clarifications on two key reporting obligations introduced by EMIR 3.0 (Regulation (EU) 2024/2987).

• Reporting under the Active Account Requirement (AAR) - the AAR became applicable on 25 June 2025 for counterparties meeting the conditions set out under Article 7a(1) of EMIR. ESMA expects the first reporting submission by entities subject to the AAR to be provided by July 2026, including any backlog data. ESMA will develop additional instructions on how to report according to the templates included in the draft Regulatory Technical Standards (RTS).
• Reporting of information on clearing activity at recognised third-country CCPs - counterparties subject to the new reporting obligation in relation to their clearing activity at recognised third-country CCPs (Article 7d of EMIR) are expected to report to their competent authorities annually. It is expected that the first reporting will be submitted together with the 2026 reporting cycle, following the implementation of RTS and implementing technical standards (ITS).

AML/CFT/FS

Changes to EU list of high-risk third countries under 4AMLD

Commission Delegated Regulation (EU) 2026/46 was published in the Official Journal of the EU adding Russia to the list of high-risk third countries (HRTCs) with strategic AML/CFT deficiencies under the fourth anti-money laundering directive (4AMLD). This follows the Commission’s commitment to review third countries not listed by the Financial Action Task Force (FATF) but whose membership is suspended. The Commission’s technical assessment concluded that Russia meets the criteria for designation.

Commission Delegated Regulation (EU) 2026/83 was published in the Official Journal of the EU updating the Commission’s list of HRTCs presenting strategic deficiencies in their AML/CFT regimes. This follows the decisions taken at the FATF and its list of jurisdictions under increased monitoring (‘grey list’).

The Delegated Regulation:

• adds Bolivia and the British Virgin Islands to the HRTC list
• removes Burkina Faso, Mali, Mozambique, Nigeria, South Africa and Tanzania

From 29 January 2026, in scope EU firms must apply enhanced vigilance in transactions involving the HRTCs.

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

Date published: 27 January 2026