01 Asset Management & Investment Funds
Yvonne McGonigle Knowledge Consultant
2025 AT A GLANCE
- AIFMD II/UCITS amendments transition from legislation to implementation.
- European Commission publishes SFDR 2.0 proposals.
- Ireland supports the growth of private asset funds and loan-originating funds.
- Key enhancements implemented for Irish exchange-traded funds.
- ESMA and the Central Bank of Ireland publish findings from the 2024 common supervisory action on sustainability risks and disclosures.
- ESMA issues advice on the UCITS Eligible Assets Directive.
- The European Commission launches an ambitious competitiveness and simplification strategy.
UCITS REGULATIONS AND AIF RULEBOOK
In September 2025, the Central Bank of Ireland (the CBI) issued two consultations to align Ireland’s regulatory regime with the revised EU rules under the Alternative Investment Fund Managers Amending Directive (EU) 2024/927 (AIFMD II). The consultations propose to:
- overhaul the AIF Rulebook (CP 162)
- repeal and replace the CBI's UCITS Regulations and amend the Guidance on performance fees for UCITS and certain types of Retail Investor AIFs (CP 161)
The CBI’s proposals would transpose AIFMD II into Irish law by the 16 April 2026 deadline and introduce additional updates to modernise and streamline the frameworks in keeping with the European Commission’s and the European Securities and Markets Authority’s (ESMA) wider objectives of regulatory simplification, burden reduction and reporting consistency. AIFMD II will be supplemented at an EU level by new Level 2 regulations and guidance.
Amendments to the AIF Rulebook
The proposed amendments, which seek to align the AIF Rulebook with AIFMD II, include the following:
- delete the category of loan originating Qualifying Investor Alternative Investment Fund (L-QIAIF), which will enable AIFs pursuing private credit strategies to rely on the harmonised AIFMD II loan origination framework (Read more on the loan origination framework here.)
- incorporate the requirements for the selection and use of liquidity management tools (LMTs) by AIFMs of open-ended AIFs
- clarify certain regulatory requirements, including around investment limits, and AIFM reporting and investment through intermediary investment vehicles
- increase structuring flexibility and support investment in private assets through targeted amendments
- correct errors in the current rulebook and clarify existing requirements
The consultation closed on 5 November 2025, with a feedback statement to follow. Read more here.
Replacement of the UCITS Regulations
The CBI’s consultation on the UCITS Regulations and Guidance on performance fees contains proposals to align the domestic UCITS framework with the revised EU UCITS framework introduced by AIFMD II. This includes introducing new harmonised rules on the selection, activation and governance of LMTs. Side pockets will also be permitted for UCITS.
It is also proposed to update the domestic framework by:
- incorporating outstanding updates from previous consultations
- clarifying certain provisions
- incorporating certain Q&As and guidance, such as recent Q&As on exchange-traded fund (ETF) dealing and naming flexibilities
- removing out of date/obsolete provisions
- changing domestic rules on performance fees in line with ESMA guidelines
This consultation also closed on 5 November 2025, with a feedback statement to follow. Read more here.
FUNDS SECTOR REVIEW
In October 2025, the Department of Finance published an implementation plan, reporting progress on the implementation of the recommendations of the Irish Funds Sector 2030 report. Key points from the implementation plan include:
- The CBI has fully implemented the key recommendations to grow ETFs by making UCITS Q&A changes that enable semi-transparent ETFs in Ireland and clarify naming standards. This consolidates Ireland’s EU leadership in ETFs.
- Supporting private assets growth, AIFMD II transposition and a comprehensive AIF Rulebook update (see above) are scheduled for completion in the first half of 2026, following detailed consultation and with interim Q&A clarifications delivered.
- In support of the use of Investment Limited Partnerships (ILPs), the Finance Bill, published on 16 October 2025, includes a targeted dividend withholding tax (DWT) exemption for ILPs, of which you can read more here.
- A roadmap for steps to grow retail investment is targeted for early 2026, which will take into account the European Commission’s recommendations on Savings and Investments Accounts (SIAs) with simplified and advantageous tax treatment.
- The Finance Bill 2025 includes a reduced rate of taxation of 38% (down from 41%), applicable to Irish and equivalent offshore funds (including Irish domiciled ETFs) and Irish and foreign life products. This is effective from 1 January 2026.
- Across the wider regime, steps are being taken to streamline reporting, improve data sharing, and address non-bank financial intermediation systemic risk at EU level.
- Work on anti-money laundering and countering terrorist financing (AML/CFT) is advancing through a revised National Risk Assessment and planned transposition of the new EU package.
- Technological advancements are being facilitated through industry led engagement on tokenisation, with an initiative commenced to establish a structured framework to launch an Irish domiciled tokenised fund.
CBI FOCUS AREAS FOR FUNDS
The CBI’s Regulatory and Supervisory Outlook Report for 2025, published in February, sets out its regulatory and supervisory priorities. The CBI highlights the “evergreen risks” of fund liquidity and leverage, addressed through macro‑prudential measures and active supervision. It notes that the external environment can drive volatility, sharp revaluations and changes in investor preferences, with implications for investors’ outcomes and firms’ financial and operational resilience. Sustainable finance remains central, including measures to minimise greenwashing risk. The report also emphasises the important role of the funds sector in bridging the EU’s economic and innovation performance gap, and flags emerging risks of AI use for funds.
Working with ESMA and the International Organization of Securities Commissions (IOSCO), the CBI’s priorities for the funds sector include:
- risk-based reviews of fund and fund service provider applications
- sectoral and thematic assessments, including the completion of the ESMA Common Supervisory Action (CSA) on compliance and internal audit functions
- continued focus on delegation and outsourcing
- implementation of the Digital Operational Resilience Act (DORA)
The CBI indicated that it would continue its focus on strengthening AML risk assessments, governance and oversight. It also intends to publish a paper on fund tokenisation, noting the potentially transformative impact of distributed ledger technology (DLT) and tokenisation for the funds sector. Securities lending practices, hedge funds and macroprudential measures for Irish property funds have been subject to review, and the CBI completed its assessment under ESMA’s CSA on sustainability risks and disclosures.
In December 2024, the CBI issued its first investment funds supervision bulletin, signalling a more data-driven and outcomes focused approach. It outlines key thematic work including:
- ETF management company oversight of authorised participants and contracted market makers
- fixed operating expense models
- the role of non-discretionary investment advisors and the fund fee model
- liquidity stress testing for Irish property funds
- securities lending revenue splits and costs
FITNESS AND PROBITY
In April 2025, the CBI launched a consultation to amend its Fitness & Probity (F&P) regime. The consultation followed the 2024 independent review of the F&P assessment process by Andrea Enria, former chair of the European Central Bank’s Supervisory Board. The 'Enria report' made 12 recommendations, all of which the CBI accepted. The consultation focused on enhancing the clarity and transparency of supervisory expectations under the F&P Standards.
Following stakeholder feedback, the CBI published revised Guidance on the Fitness and Probity Standards (Guidance), effective 20 November 2025. The revised Guidance consolidates F&P guidance in existing CBI publications and correspondence (including FAQs) and introduces targeted enhancements across a number of areas including:
- inherent responsibilities
- board independence
- knowledge and experience
- time commitments
- job sharing
- temporary appointments
- conflicts of interest
- collective suitability, diversity, and inclusion
The CBI has also indicated that it will conduct a more substantive review of the pre-approval controlled functions (PCF) list to coincide with its planned review of SEAR in 2027. The F&P Standards have also been updated to a November 2025 version, which consolidates the previous Fitness and Probity Standards 2023 and the Fitness and Probity Standards for Credit Unions 2024 into one set of standards, without making substantive changes to the text.
Other key actions taken by the CBI to implement the Enria recommendation to strengthen F&P gatekeeping, include:
- establishing a dedicated F&P unit and a Gatekeeping Decisions Committee
- the publication of a process manual alongside the consolidation and enhancement of F&P guidance
- enhancing training for supervision teams
- future stakeholder engagement
STREAMLINED HONG KONG REGISTRATION PROCESS FOR UCITS
The CBI and the Hong Kong Securities and Futures Commission (SFC) have entered into a memorandum of understanding, establishing a Mutual Recognition of Funds (MRF) regime. Building on arrangements entered into between the authorities in 1997, the MRF framework facilitates regulatory cooperation and provides an expedited registration process for the cross‑border offering of certain CBI-authorised UCITS in Hong Kong, as well as eligible Hong Kong collective investment schemes in Ireland.
UCITS ELIGIBLE ASSETS REVIEW
In June 2025, ESMA published a final report containing its technical advice to the European Commission on the review of the UCITS Eligible Assets Directive (UCITS EAD).
ESMA’s advice provides recommendations to clarify and modernise key concepts and definitions around UCITS asset eligibility and aims to overcome the currently divergent market practices and those of national competent authorities. ESMA believes this will foster supervisory convergence and reduce the burden for UCITS management companies operating and marketing UCITS on a cross-border basis.
ESMA’s key proposal is a mandatory “look-through” approach for determining UCITS eligibility, requiring that at least 90% of a UCITS portfolio is invested in conventional assets under article 50(1) of the UCITS Directive. Exposures obtained via “wrappers” of ineligible assets, such as delta‑one securities, exchange‑traded notes or commodities, and derivatives on indices comprising ineligible components would be restricted. To allow limited diversification, ESMA recommends broadening the so called “UCITS trash ratio”, permitting up to 10% exposure to specified alternative assets, (including commodities, catastrophe bonds, crypto assets, structured or leveraged loans, unlisted equities, and real estate) subject to all other eligibility, risk management and disclosure requirements being met.
ESMA supports a sufficiently long transitional period for UCITS management companies to adapt their portfolios. Confirmation is awaited from the European Commission as to whether it accepts ESMA’s recommendations. The European Commission will then launch its own consultation in 2026 before implementing any legislative changes. Read more here.
EU COMPETITIVENESS
In January 2025, the new European Commission set out a Competitiveness Compass to translate the Draghi Report’s recommendations on ‘The future of European competitiveness’, published in September 2024, into a roadmap to restore European competitiveness and secure sustainable prosperity. Initial priorities include:
- Omnibus simplification packages covering, among other things, simplification measures relating to sustainable finance reporting, sustainable due diligence and the sustainable finance taxonomy. Read more here.
- The introduction of a Savings and Investments Union (SIU), which aims to enable wealth creation for EU citizens and mobilise capital for EU projects by promoting low-cost savings and investment products, removing barriers to the consolidation of financial markets infrastructure, promoting EU securitisation, and implementing measures to move toward more unified EU level supervision.
As first steps towards an SIU, the European Commission has issued:
- recommendations to Member States on a European blueprint for SIAs, which reflect best practices
- an EU financial literacy strategy aimed at helping citizens to make sound financial decisions throughout all stages of their lives and to facilitate their participation in capital markets on a safe and sound basis, including through SIAs
Other key initiatives for the asset management sector include revision of the Sustainable Finance Disclosure Regulation (SFDR - more on this here) and legislative proposals to implement the proposed Retail Investment Strategy, which are currently in trilogue negotiations.
EU TRANSITION TO T+1 SETTLEMENT
In February, the European Commission proposed shortening the settlement period for EU transactions in transferable securities from two days to one. The Regulation to shorten the settlement cycle (2025/2075/EU) was published on 14 October 2025 and shall apply from 11 October 2027. From this date, the settlement cycle on securities, such as shares or bonds, executed on EU trading venues will move from two business days (T+2) to one business day after the trading takes place (T+1). The move to T+1 aims to strengthen the efficiency and competitiveness of post-trade financial market services in the EU.
The October 2027 commencement date gives market participants time to develop, test and agree processes and standards to ensure an orderly and successful introduction of T+1 on EU capital markets. The legislation is also future proof, setting a maximum duration for the settlement cycle (T+1) while also allowing settlement faster, at T+0 if desired.
AMENDMENT OF EU BENCHMARKS REGULATION
Regulation (EU) 2025/914 amending the EU Benchmarks Regulation (BMR) aims to reduce the regulatory burden on smaller EU benchmark administrators. It entered into force on 8 June 2025, with the amendments applying from 1 January 2026. The reduction in scope introduced by the amending Regulation will mean that only UCITS management companies, UCITS, AIFMs and AIFs, which use the following financial benchmarks, will be subject to the requirements of the BMR:
- benchmarks deemed critical or significant (as defined by the BMR)
- certain commodity benchmarks
- EU climate transition benchmarks
- EU Paris-aligned benchmarks
LOOKING AHEAD
EU legislation
- The legislative process to implement the European Commission’s proposals to revise the SFDR is expected to progress in 2026.
- More targeted measures to increase competitiveness through simplification of rules and reduction of compliance costs are planned by the European Commission for the year ahead.
- Progress is expected on the SIU strategy to support retail investment.
- Legislative work will also continue on the Retail Investment Strategy package, amendments to the Regulation on packaged retail and insurance-based investment products (PRIIPs), and amendment of the Securitisation Regulation.
Policy and regulatory priorities
- We expect to see greater alignment of sustainable finance disclosures and sustainable risk integration requirements with supervisory expectations.
- The focus on key investor protection, including disclosures, costs and charges, will continue.
- Strengthened supervisory data capabilities and deployment of AI supervisory tools are anticipated in the funds sector in 2026.
- Developments relating to DLT and tokenisation of funds are also likely.