Policy and regulation provide solid ground for funds in 2025

The evolving regulatory regimes on either side of the Atlantic will be a notable theme for 2025. The inauguration of President Trump heralds a new era in the US and the expectation is for a broad relaxation of regulatory burdens across the financial sector. Meanwhile, in the EU the report from former Italian Prime Minister Mario Draghi on European competitiveness was published in September, making the case for the EU to be more supportive of innovation, accelerate the integration of capital markets and to act with greater speed and clarity on regulation. 

How Draghi’s proposals translate into action and what exactly a Trump administration will mean for regulation remain to be seen, but the mood music is clear - the year ahead looks to be a significant one for ‘big thinking’ on regulation.  

But there is also plenty going on in Europe in the details – and the outlook here is also promising. 

Private assets – the march of democratisation continues 

Earlier in 2024, the European Commission issued Regulatory Technical Standards for European Long-Term Investment Funds (ELTIFs). In summary, the standards provided some flexibility in the choice of methodologies and tools for managing liquidity. This is a welcome development and provides more choice for managers. 

 In the past we have seen some use of UCI Part II regulations for fund launches, but the technical standards now in place on ELTIFs provide some improved flexibility and have the added attraction that ELTIFs have a passport for retail investors. ELTIFs could now be well-placed to challenge UCI Part II funds as the vehicle of choice to support the democratisation of private assets.  

Last year’s update to the Alternative Investment Fund Management Directive (AIFMD II) and the creation of an EU wide framework for loan originating AIFs is a further positive development that will help alternative funds play a stronger role in financing business. 

Interest in private assets continues to be strong in the UK as the LTAF gained traction in 2024 and the new Labour Government continued to highlight the importance of private capital in supporting investment needs in the UK 

Together all these developments lay the groundwork for a highly positive 2025 for private asset funds and their investors. 

Ireland and Luxembourg polish their ETF credentials 

Ireland’s Department of Finance issued its Funds Review 2030 report last year, designed to ensure the nation’s fund sector continues to be a global leader. The review recognised the importance of Ireland’s leadership in ETFs and Money Market Funds and contained welcome developments including proposals to standardise domestic tax rates. 

The report was followed in October by the Central Bank of Ireland issuing an update to naming conventions for UCITS bringing them into line with the wider European market. 

In December Luxembourg authorities announced updates to their regulation of active ETFs, firstly on tax and soon after on transparency, in effect allowing up to a one-month lag on disclosures of portfolio composition by active ETFs. 

The signal from Luxembourg is that Ireland is not the only player on the field when it comes to ETFs.  

EU-UK fund distribution back on a permanent footing 

Fund operations across the border between the EU and the UK has been a tricky issue since the Temporary Marketing Permissions Regime (TMPR) closed in 2020, locking many new funds out of the UK market. 

The Financial Conduct Authority (FCA)’s Overseas Funds Regime, which took effect in September, allows new overseas funds to be registered and marketed to UK investors. We expect a growth in new funds registering to access UK consumers, and existing funds already operating under the TMPR will be able to transfer to the new regime. 

The FCA has been operating a series of landing slots for funds to apply. These have been allocated on an alphabetical basis. 

Our landing slot is between March and May 2025, and we have been in contact with all clients who have funds operating under TMPR or those who have funds launched since its closure to help with registering as soon as possible under the new permanent regime. 

DORA – building confidence in digital service 

The European Union’s Digital Operational Resilience Act (DORA) takes effect on Friday this week requiring financial services groups – and their providers such as Carne – to have frameworks in place to manage and mitigate ICT risks. 

A working group was set up here at Carne to implement our DORA readiness project 12 months ago. That project is now complete, but our work on digital resilience is continuous and there are ongoing improvements still to come.  

Antonia Mahony, Carne’s director responsible for operational resilience is also chair of the Irish Funds Operational Risk Working Group, said DORA has been an example of regulation that has strengthened the industry and in the case of Carne has also added value in the business. 

“DORA has allowed Carne to enhance digital security through comprehensive ICT risk management, incident capture and reporting, and resilience testing,” said Antonia. “The partnership between our operational teams and technology team has never been stronger, as a result of implementing DORA.” 

If regulation can continue to evolve with an eye to improving efficiency, innovation and competition, then 2025 should prove to be a positive year for the whole funds industry.