Summary of the Commission’s 2025 Directive and Regulation

On 4 December 2025 the European Commission published a proposal for a new directive (2025/0382 (COD)) and regulation (2025/0383 (COD)) (the “Directive” and “Regulation”). Both the Directive and the Regulation propose significant revisions to EU fund legislation impacting the Alternative Investment Fund Managers Directive (AIFMD) and the Cross-Border Distribution Regulation (CBDF). The impact will also be considerable on a number of other EU directives and regulations.

The proposed Directive and Regulation aim at reducing discrepancies between Member States, enhance cross-border operations, and strengthen supervisory alignment across the Union. The aim is in line with the broader objectives of the Savings and Investments Union (SIU) strategy. Suggested amendments to the AIFMD and the CBDF Regulation purport to reduce national discretions that have lead to diverging requirements and supervisory practices within the European Union.

The approach taken by the European Commission will have a direct effect on alternative investment fund managers (AIFMs) and their organisations.

In summary, the Directive and Regulation seek to:

• harmonise the regulatory framework applicable to EU groups of management companies and AIFMs;
• simplify depositary rules to encourage cross-border depositary services;
• harmonise marketing and distribution rules; and
• strengthen ESMA’s oversight.

As a consequence of the adoption of the Directive and Regulation, managers and depositaries stand to gain greater regulatory certainty regarding their organisational structures, as the proposed Directive and Regulation largely codify existing practices within the internal organisations of managers active across multiple EU jurisdictions.

The management teams will also gain greater freedom in structuring their group using intra-group service agreements and reassess their local presence in certain jurisdictions. Certain specific services, such as depositary services, can be made available on a pan-European basis, increasing competition and harmonising the EU-market for such services, to the ultimate benefit of investors.

1. The EU group concept

The proposed Directive and Regulation seek to address the treatment of certain group structures which are of particular relevance for larger managers operating in multiple jurisdictions within the European Union. To this end, the proposals suggest amending the AIFMD in order to include a new definition of a so called “EU group of an AIFM and management company” (Article 2(1)(b) of the Directive), defined as management companies, managers of AIFs, investment firms or credit institutions that are established in the Union, and which are authorised in accordance with that Directive.

This new definition serves the purpose of simplifying intra group arrangements. Where an AIFM relies on an entity within its EU group, either for the performance of the functions typical for AIFMs or for investment services for the group they may be permitted to provide, shall not be considered as a delegation subject to applicable delegation rules. This approach will likely ease requirements for managers considering establishment in other Member States.

Instead of undergoing the full delegation due diligence process, reliance on these internal group entities requires only that the AIFM has notified the competent authorities of its home Member State that functions or services are performed by other entities within the EU group.

The proposed amendments are also likely to ease the authorisation process, as compliance may be demonstrated by specifying that the group relies on “[..] one or more entities that belong to its EU group for the performance of the functions referred to in Annex II or the services referred to in Article 6(3) (conditions for taking activities as AIFM) […]”. The Directive further provides “The authorisation of a management company shall not be made conditional on the requirement that the management company refrains from utilising resources of one or more entities within that same EU group.”

2. EU depositary passport

One of the key changes proposed by the Directive is to establish an EU depositary passport, which will enable AIFMs to appoint a depositary located anywhere within the EU, irrespective of the jurisdiction of the AIF. This will help to ensure integration of the depositary market and favour competition.

The cross-border depositary passport is achieved by adding a new sub-paragraph to Article 21(5) of the AIFMD and by deleting Article 5a which was recently introduced by AIFMD II and which in essence left this option to the discretion of Member State (under certain circumstances). For illustration purposes, the Luxembourg bill of law implementing AIFMD into national law (Bill of Law 8628) does not today allow for Luxembourg AIFs to appoint a depositary established outside of Luxembourg (and domiciled in another Member State).

3. A uniform EU fund marketing regime

Another significant amendment suggested by the Directive is the transfer, in view of limiting national discrepancies and ensure uniformity, of the rules governing the marketing regime of AIFs under the CBDF Regulation (i.e. Regulation (EU) 2019/1156.) This includes the removal of Articles 30a, 31, 32 and 32a of the AIFMD (these articles are part of Chapter VI of the AIFMD) and the introductions by the Regulation of new articles in the CBDF Regulation.

These changes aim to ensure consistent implementation and greater harmonisation of marketing requirements and notification procedures across Member States. The amendments stand to reduce compliance requirements and accelerate market entry. Under the new Article 17g (5) of the CBDF (as proposed by the Regulation), AIFMs can access any host Member State’s markets almost instantly. Upon receiving authorisation from their home Member State, the AIFM shall notify ESMA via the ESMA data platform and may market in the foreign Member State from the date of notification to ESMA.

This intention of offering quick and seamless access to marketing is also reflected in the revised version of Article 7(1) of the CBDF Regulation which would read as follows “1. The competent authorities of the host Member State shall not require the prior notification of marketing communications which AIFMs, EuVECA managers, EuSEF managers and UCITS intend to use directly or indirectly in their dealings with investors as a prior condition for the marketing of AIFs and UCITS in their territory.” Host Member States will not be in a position to require the prior notification of marketing communications as a condition for the marketing of AIFs. Furthermore, they must not impose additional requirements on the content and format of marketing communications.

As a consequence of the proposed amendments, Member States may need to amend local rules to align with the language of the new Article 17g(7) the CBDF Regulation, which would state that “Host Member States shall not require an AIFM to have a physical presence in their territory or to appoint a third party in that host Member State for the purposes of marketing EU AIFs in that host Member State or for any other purposes relating to the activities of the AIFM in that host Member State”. The removal of a requirement of local presence by an AIFM will likely ease the distribution in certain jurisdictions where the appointment of a local agent is the norm and drive administrative costs (e.g. in Spain the appointment of local agent/paying agent for the purpose of paying CNMV fees is required in the context of marketing an EU AIF managed by an EU AIFM). It is noted however that such removal relates to the requirements for the marketing of an AIF with respect to the harmonised marketing procedures in the EU – which will limit this removal to the EU AIFs being marketed solely to professional investors – NCAs being still allowed to imposed additional requirements with respect to the EU AIFs seeking marketing to the retail investors (when subject to appropriate European labels, such as ELTIF, EuVECA or EuSEF), including imposing local presence or further requirements (e.g. France restricts the French retail investors market to French-domiciled AIFs managed by a French AIFM).

Also, one of the key elements of the new framework is the simplification of the de-notification process (set out in Article 32a of the AIFMD), which is intended to be streamlined and further transferred in the CBDF Regulation (as new Article 17h). In essence, the process is greatly simplified and the blackout period post de-notification of 36 months would be removed.  This addition is welcomed as it was a source of uncertainties for certain promoters who were avoiding going through the de-notification process.

4. Increased ESMA oversight

One of the Directive’s objectives is to strengthen ESMA’s supervisory authority. The Directive proposes the establishment of a supervisory framework. Under the proposal, ESMA would review large asset managers’ operations based on data from the national authorities. The Directive also proposes granting ESMA a specific power to intervene when “national authorities do not effectively apply Union rules or to directly suspend the cross-border activities of a fund manager or depositary in certain cases”. This supervisory framework is designed to apply to entities with a significant Union-wide impact, as relating to EU groups of management meeting certain conditions (i.e. managing more than EUR 300 billion in assets across multiple Member States). This threshold approach lets ESMA focus its resources where they will have the greatest impact in terms of operational efficiency and supervisory coordination. By identifying these groups every three years, ESMA is intended to create a stable scope for enhanced coordination without imposing excessive burdens on smaller, domestic-focused management companies. Whether a three-year cycle will prove to be an appropriate and effective interval for this purpose, however, remains to be seen.

To maintain the integrity of this oversight, ESMA is mandated to conduct annual reviews of how National Competent Authorities (NCA) supervise these large groups. The purpose of these reviews is not to develop new risk models. Instead, should ESMA seek to apply a uniform methodology to spot where supervisory practices differ, overlap or fall short in how they address organisational structures and risk management. The goal is to clear away barriers to the Single Market by making sure national authorities implement EU law consistently and effectively.

Under the new Articles 110(b) and 110(c), the Regulation also provides for a strengthened oversight framework allowing ESMA to intervene directly when supervisory deficiencies remain unaddressed. Where an NCA fails to implement recommended corrective measures within one year, for example, ESMA would be able escalate and step in. In cases of continued non-compliance or systemic failures that threaten investor protection or financial stability, ESMA would be able directly to suspend the relevant group’s authorisation to provide cross-border services.

This direct intervention power would likely create friction in instances where an NCA enforces national laws that conflict with harmonized EU standards, such as the eligibility restrictions for European Long-Term Investment Funds (ELTIFs). For illustration purposes, in France national regulations have historically required ELTIFs to be established locally to be eligible for major retail distribution channels like the Plan Épargne Retraite (PER) and unit-linked insurance products. While recent European Commission guidance clarifies that the ELTIF Regulation prohibits Member States from imposing such domicile-based requirements or location-specific authorizations, the persistence of national barriers may necessitate the direct supervisory escalation the Directive & Regulation now propose.

The approach is intended to prevent the passport regime from being weakened by supervisory arbitrage or inadequate oversight in individual Member States.

The effects of the proposed changes are likely to drive a reduction in compliance costs and administrative burdens for groups currently forced to maintain resources across several Member States. A more aligned supervisory approach should also strengthen confidence in a harmonised market and make EU capital markets more competitive internationally. The fee-based funding model (as further provided under the Regulation, proposing the insertion of a new Article 39n to Regulation (EU) No 1095/2010 establishing the ESMA) also means that costs will be likely fall on the large entities that stand to gain most from a more predictable and efficient regulatory framework.