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ESMA Final Report on 2025 CSA on compliance and internal audit functions of AIFMs and UCITS management companies
The European Securities and Markets Authority published its Final Report (Report) on the 2025 Common Supervisory Action (CSA), which assessed the establishment of effective compliance and internal audit functions in UCITS management companies and AIFMs. The Report also sets out examples of good and poor practices identified during the review.
Key findings - overall
The EU-wide review found that most managers comply with key requirements under the AIFMD and UCITS framework. However, the CSA identified weaknesses, particularly regarding the independence of control functions, the quality and implementation of internal policies and senior management and board oversight.
Relevant policies and procedures were generally considered adequate but their quality and practical implementation varied depending on size, nature and complexity of the firms sampled. While the majority of national competent authorities (NCAs) reported no regulatory breaches, a few were identified, mostly concerning the independence of the control functions or incomplete reports to senior management. A large number of NCAs observed vulnerabilities, such as missing or incomplete internal audit documentation, insufficiently robust compliance risk assessments and a lack of a structured, risk-based approach to assessing and addressing compliance risks.
ESMA’s views and conclusions
While acknowledging the overall positive outcomes, ESMA encourages NCAs to follow up on the breaches and vulnerabilities identified, to better understand their root causes and to ensure that relevant entities take effective remedial actions in a timely manner. ESMA encourages NCAs to:
ESMA also stresses that managers that are subsidiaries of banking groups should be aware that risk assessment methodologies and tools provided by the parent company may lead to underestimating relevant local risks. Managers should not rely solely on the group risk assessment but should develop their own where the group risk assessment does not gather properly the risks applicable to the manager’s business. The compliance risk assessment should at least take into consideration the business areas, types of products and services, distribution channels and categories of investors. The evaluation of the compliance risk should inform the establishment of the compliance monitoring plan.
The Annex contains examples of good and poor practices observed during the assessment. Read more here.
ESMA simplification of EU reporting frameworks for funds and transactions
ESMA has launched a harmonised approach to funds reporting and has set a clear path towards streamlined, more efficient transaction reporting across European markets.
The two reports form part of ESMA’s wider simplification and burden reduction agenda, to address growing complexity and operational costs stemming from EU reporting requirements.
Final Report on the integrated collection of funds’ data (AIFMD II)
In the report, ESMA sets out a strategic move away from fragmented national reporting towards a common EU reporting framework, centred on a common and single reporting template designed to remain proportionate for different fund sizes and investment strategies, while meeting supervisory needs. The aim is to reduce duplication, improve data consistency and enhance the usability of data for authorities.
To support this approach, ESMA outlines a hybrid operational model, under which data validation, storage and analytics would be organised at EU level, while data collection would remain at national level. By facilitating data sharing across authorities, the centralised hub will offer efficiency gains not only for authorities but will also contribute further to burden reduction by limiting duplicative data requests.
Next steps on funds reporting include the development of regulatory and implementing technical standards (RTS, ITS), that will be presented next year. After that, the implementation of the new template and the rest of recommendations will be gradually introduced, with the first phase focusing on the integration of reporting under AIFMD and UCITS, and the second phase that would expand the integrated framework to other reporting obligations.
Interim report on transaction reporting
Based on the feedback received from more than 100 respondents to the previous call for evidence on transaction reporting simplification, ESMA has identified the main challenges in the current reporting frameworks, and the most promising approaches to overcome them: instrument‑based and dual-side simplifications and the implementation of a “report once” framework across EMIR, MiFIR and SFTR in the long term.
Most respondents indicated that overlapping and inconsistent reporting requirements, frequent and unsynchronised regulatory changes, fragmented reporting channels and dual reporting are major drivers of cost and complexity.
Considering the need to perform a thorough cost-benefit analysis, the report does not contain policy recommendations yet. As part of the next steps, ESMA will further engage with markets participants, including through an open hearing that will be held on 28 May, before moving forward with final recommendations to be published by mid-year.
European Commission report and FAQ on EU Money Market Funds Regulation
The EU's regulatory framework for money market funds (MMFs) continues to perform well, according to a European Commission report. The report finds that the market would benefit from additional guidance, which the Commission has issued alongside the report in the form of frequently asked questions (FAQs).
The report provides, alongside the FAQs, key additional guidance and aims to support more consistent and well‑calibrated supervision of MMFs across the EU, strengthening the resilience of the sector.
The EU’s MMF regulatory framework is in application since 2018. The Commission’s first report, published in 2023, found the framework had performed well over time, including during market stress, while noting that certain areas warranted further assessment. Building on those conclusions, this analysis confirms that MMFs generally take a cautious approach, keeping liquidity reserves above the regulatory minimum.
The FAQs provide guidance on MMFs’ minimum liquidity levels and on how liquidity buffers may be used, particularly to meet rising redemption requests during times of market stress.
ESMA consultation on a new simplified approach to updating MMF stress test parameters
ESMA proposes to replace the annual amendments to Section 5 of the MMF stress test Guidelines with an annual web-published set of calibration parameters. The Guidelines would continue to define the stress testing framework and methodology, while the website would serve as a single point of access so market participants can apply updated parameters immediately after approval.
The measure aims to simplify the update process, improve accessibility and reduce compliance and supervisory burden under ESMA’s simplification and burden reduction initiative. Responses are due by 6 August 2026. ESMA expects to publish a final report in H2 2026 and to apply the new procedure with the next update at the end of 2026.
ESMA CSA on MiFID II sustainability aspects
ESMA published the results of its CSA assessing how investment firms and credit institutions have integrated sustainability requirements into their MiFID II suitability assessment and product governance processes. The CSA found that while firms have made progress, practices remain uneven and further improvements are needed in several areas.
Key findings
ESMA expects firms to strengthen procedures, ensure clear and neutral client communication, apply proportionate product categorisation and maintain robust records. It also invites NCAs to adopt a proportionate approach, prioritising supervisory dialogue over enforcement during the current transitional period, without prejudice to action in cases of clear breaches or mis‑selling, while broader reforms to the sustainable finance framework are ongoing.
AMLA reporting package to identify entities for direct supervision
The EU Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA) has published a reporting package for national supervisors to use when identifying provisionally eligible obliged entities that will come under AMLA's direct supervision from 2028.
AMLA will host a public webinar on 10 June 2026 offering a practical walkthrough of the template. Relevant obliged entities are invited to participate. More information will follow in due course. National supervisors will collect data by 15 August 2026. An error correction and alignment phase will follow in coordination with home supervisors. The provisional list of eligible obliged entities is expected to be finalised by end-September 2026.
For more information on these topics please contact any member of A&L Goodbody's Asset Management & Investment Funds team.
Date published: 28 May 2026