On 19 December 2023, the European Securities and Markets Authority (“ESMA”) published its final report setting out its draft regulatory technical standards (the “Draft RTS”) on Regulation (EU) 2023/606 (the “ELTIF 2 Regulation”).

Please see our separate update here for a summary of the key changes proposed under the ELTIF 2 Regulation.

The Draft RTS has not been adopted yet and so could still be amended or rejected by the European Commission. Some of the key takeaways proposed by the Draft RTS are as follows:

A few key takeaways…

  • Minimum holding period: the ELTIF manager is given flexibility to determine the minimum holding period as appropriate for the ELTIF, subject to certain criteria set out in the draft RTS.
  • Maximum redemption frequency: the Draft RTS proposes a quarterly maximum redemption frequency, although the ELTIF manager is permitted to deviate from this if it is able to provide justification to the ELTIF’s competent authority. The ELTIF manager must provide the competent authority at the time of authorisation with detailed information on the redemption policy, the frequency of redemption, the valuation procedures, the liquidity stress tests and the liquidity management tools of the ELTIF and inform it of any material changes within three business days.
  • Minimum notice period: the Draft RTS provides that redemptions are only possible after a notice period is given by each investor and that the minimum notice period is 12 months. However, an ELTIF may allow investors to redeem their shares with a shorter notice period to the extent that the notice period is adjusted based on a minimum of liquid assets, as set out in the draft RTS. The draft RTS also sets out the maximum percentage of liquid assets that the manager of the ELTIF can use to satisfy redemptions, which is based on the notice period.
  • Choice of liquidity management tools: the ELTIF manager must choose and apply at least one liquidity management tool (e.g., anti-dilution levies, swing pricing or redemption fees). The ELTIF manager may use a different liquidity management tool if it can justify to the ELTIF’s competent authority why this would be in the investors’ interests. They may also ask the competent authority for an exemption from using any liquidity management tools if the ELTIF is only marketed to professional investors.

What happens next?

The ELTIF 2 Regulation will come into force in a few days’ time, on 10 January 2024. The Draft RTS has been submitted by ESMA to the European Commission for its endorsement and final approval. If it is adopted, the Draft RTS will enter into force on the day following its publication in the Official Journal of the European Union.

If you have any questions on the ELTIF 2 Regulation, please do not hesitate to reach out to the Proskauer London Regulatory team at UKReg@proskauer.com.

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Photo of John Verwey John Verwey

John Verwey is a partner in the Private Funds Group. John advises on a wide number of regulatory issues at a national UK and European level, including firm authorisations, appointed representative arrangements, change in control, market abuse. He represents a variety of clients…

John Verwey is a partner in the Private Funds Group. John advises on a wide number of regulatory issues at a national UK and European level, including firm authorisations, appointed representative arrangements, change in control, market abuse. He represents a variety of clients that range from small start-up fund managers to established global fund advisers and managers.

A particular area of focus for John is Alternative Investment Fund Managers Directive (AIFMD) and Markets in Financial Instruments Directive II (MiFID II).  This includes advising on pre-marketing and marketing strategies for fund managers, advising on the Level One and Lever Two requirements under AIFMD and implementing UK rules and legislation, and advising on the organizational and conduct of business requirements under MiFID II.

Photo of Amar Unadkat Amar Unadkat

Amar Unadkat is a special regulatory counsel in the Corporate Department and a member of the Private Funds Group.

Amar advises on a variety of financial services regulatory and compliance matters both from a UK and European perspective. Amar regularly advises his clients…

Amar Unadkat is a special regulatory counsel in the Corporate Department and a member of the Private Funds Group.

Amar advises on a variety of financial services regulatory and compliance matters both from a UK and European perspective. Amar regularly advises his clients on issues relating to the Alternative Investment Fund Managers Directive (“AIFMD”), the second Markets in Financial Instruments Directive (“MiFID II”), as well as the latest ESG developments. Amar also focusses on UK regulatory compliance matters, including the FCA’s change of control regime, the appointed representative regime and the Senior Managers & Certification Regime.

Amar’s clients include private equity firms, investment managers and advisers, firms in the FinTech space, wealth management businesses, banks and sovereign wealth funds.

Photo of Sulaiman Malik Sulaiman Malik

Sulaiman Malik is an associate in the Corporate Department and a member of the Private Funds Group.

Sulaiman advises clients on a range of UK and international financial regulation. He advises private equity funds, hedge funds, sovereign wealth funds and other asset managers…

Sulaiman Malik is an associate in the Corporate Department and a member of the Private Funds Group.

Sulaiman advises clients on a range of UK and international financial regulation. He advises private equity funds, hedge funds, sovereign wealth funds and other asset managers, as well as banks, FinTechs, broker-dealers and governments.

Prior to joining Proskauer, Sulaiman trained at Simmons & Simmons in London, where he was seconded to Brevan Howard. He has also spent time at the UK’s Ministry of Justice and as an adviser to the Mayor of Brisbane, in Australia.

Sulaiman is a passionate advocate for diversity and inclusion. He previously worked at Rare, a market-leading diversity consultancy, and provides pro bono legal advice to a range of community and civil rights organizations.