On 3 February 2021, the European Securities and Markets Authority (ESMA) published a letter it had sent to the European Commission concerning the review of the European Long Term Investment Funds (ELTIF) Regulation. In the letter ESMA highlights some areas of the ELTIF Regulation where improvements could be made. ESMA has issued the letter in light of the impending review of the ELTIF Regulation, and as a response to an earlier letter which it received from the Commission on the functioning of the ELTIF framework. The letter is also intended to meet the request for input from ESMA as per Article 37 of the ELTIF Regulation.

In terms of areas of the ELTIF Regulation where amendments could be made ESMA highlights the following:

  • Eligible assets and investments.
  • Authorisation process.
  • Conflicts of interests.
  • Portfolio composition and diversification.
  • Disposal of ELITF assets.
  • Prospectus and cost disclosure.
  • Local physical presence.
  • Specific requirements concerning retail investors.
  • Other residual areas – professional investors, investment incentives (including tax treatment) and eligibility criteria for investors and consistency with the EuVECA and EuSEF Regulations

When discussing possible changes to eligible assets and investments ESMA suggests, among other things, clarifying the definition of “real asset” (Article 2(6) of the ELTIF Regulation). In particular, ESMA states that the nature of real estate referred to in this article could be clarified. ESMA also states that the definition of a “long term investment project that contributes to the Union objective of smart, sustainable and inclusive growth” could be clarified in relation to sustainable growth by reference to contribution to environmentally sustainable economic activities in accordance with Regulation (EU) 2020/852 (Taxonomy Regulation).

Following consultation, the Commission is expected to submit to the European Parliament and Council a report assessing the functioning of ELTIFs in the context of the Capital Markets Union project and suggesting a review of the ELTIF Regulation

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