The Regulation on European Long-Term Investment Funds (the ELTIF Regulation) provides that the European Securities and Markets Authority (ESMA) shall develop draft regulatory technical standards (RTS) to determine the criteria for establishing the circumstances in which the use of financial derivative instruments solely serves hedging purposes, the circumstances in which the life of a European long-term investment fund (ELTIF) is considered sufficient in length, the criteria to be used for certain elements of the itemised schedule for the orderly disposal of the ELTIF’s assets, the costs disclosure and the facilities available to retail investors.

ESMA has now published a final report which contains the draft RTS that it has developed together with feedback to its earlier consultation.

ESMA’s key proposals include:

  • the criteria to determine the circumstances in which financial derivatives are used solely for hedging purposes;
  • a non-exhaustive list of the types of market risk ELTIF managers should take into account when assessing the market for potential buyers ahead of the disposal of their asset;
  • the criteria for the valuation of the ELTIF assets ahead of their divestment which specify the timing of the valuation and allow for valuations made under the Alternative Investment Fund Managers Directive to be taken into account; and
  • a grandfathering provision, whereby ELTIFs have one year after the draft RTS come into force to comply with the rules.

The draft RTS have been submitted to the European Commission for endorsement. From the date of submission the Commission should take a decision on whether to endorse the RTS within three months.

Following discussion with the Commission ESMA is postponing the delivery of its draft RTS on the cost disclosure information which must be included in the ELTIF’s prospectus, in order to take into account the work being undertaken on cost disclosures for packaged retail and insurance-based investment products.

View ESMA issues technical standards for European long-term investment funds, 8 June 2016