ESMA proposes changes and updates timeline for its Guidelines on funds’ names

Summary:

The European Securities and Markets Authority (ESMA) has provided an update on the status of its guidelines on Environmental, Social, and Governance (ESG) and sustainability-related terms in fund names. The guidelines, which were launched in a previous stage, have been postponed to ensure that the outcome of the reviews of the Alternative Investment Fund Managers Directive (AIFMD) and the Undertaking for Collective Investment in Transferable Securities Directive (UCITS) can be fully considered.

The updates to the AIFMD and UCITS Directives contain new mandates for ESMA to develop guidelines on specifying the circumstances where the name of an Alternative Investment Fund (AIF) or a Undertaking for Collective Investment in Transferable Securities (UCITS) is unclear, unfair, or misleading. ESMA plans to adopt the guidelines shortly after the date of entry into force of the revised legal texts.

The key contents of the forthcoming guidelines are being highlighted in this statement, which intend to provide guidance on the circumstances where the name of an AIF or UCITS is unclear, unfair, or misleading. The guidelines are expected to be approved and published in Q2 2024, subject to the timing of the publication of the revised texts.

Once published, the guidelines will apply three months after their publication on the ESMA website in all official EU languages. Managers of new funds will be expected to comply with the guidelines in respect of those funds from the date of application of the guidelines. Managers of funds existing before the date of application of the guidelines will need to comply with the guidelines in respect of those funds six months from the application date.

Additional Context:

The ESMA is contributing to the transition towards a more sustainable economy in line with the European Union’s sustainable finance goals. The ESMA, along with the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA), has published a joint statement on sustainable finance and several interactive factsheets to provide insights into the European supervisory authorities’ stance on sustainable finance.

Key Takeaways:

ESMA’s guidelines on ESG and sustainability-related terms in fund names have been postponed to ensure consideration of the AIFMD and UCITS Directive reviews.
The guidelines will be developed in response to new mandates to specify circumstances where fund names are unclear, unfair, or misleading.
The guidelines are expected to be approved and published in Q2 2024, with a three-month application period after publication.
Managers of new and existing funds will need to comply with the guidelines accordingly.