The European Commission has recently unveiled a comprehensive package aimed at further integrating and supervising capital markets within the European Union. This move is set to revolutionize the way fund managers and investors operate, making it easier to distribute funds across borders and simplifying various regulatory processes. The proposals include a master amending directive concerning the Alternative Investment Fund Managers (AIFM) Directive, Undertakings for Collective Investment in Transferable Securities (UCITS) Directive, and Markets in Financial Instruments Directive (MiFID) II, as well as a master amending regulation concerning a variety of EU regulations, including the Markets in Financial Instruments Regulation (MiFIR).
## New Rules for Cross-Border Fund Distribution
One of the main focuses of capital market integration concerns the cross-border distribution of funds. The EU distribution passport, which currently allows fund managers to distribute funds across the EU without requiring individual authorization from each member state, will be abolished in its current form. Instead, cross-border distribution will be more closely linked to product approval and will take place via an EU data platform of the European Securities and Markets Authority (ESMA). This change aims to avoid potential obstacles from the authorities of individual member states.
## Increased Flexibility for ELTIFs
The draft of the Pension Reform Act 2025 for the first time systematically brings European Long-Term Investment Funds (ELTIFs) into focus for private retirement provision. They shall be expressly recognized as permissible investment vehicles for the new return-driven pension scheme. The draft takes up the expanded scope of the ELTIF Regulation 2023/606, which includes broader asset allocation, easier access for retail investors, and more flexible redemption rules, making ELTIFs regulatorily attractive for the mass market.
## BaFin Applies ESMA Guidelines on Outsourcing to Cloud Providers
The Federal Financial Supervisory Authority (BaFin) has announced that it will apply the guidelines of ESMA on outsourcing to cloud providers, dated 30 September 2025. These provide guidance on identifying, managing, and monitoring risks associated with outsourcing to cloud providers. The guidelines published in September 2025 now only apply to depositaries of Alternative Investment Funds (AIFs) that are not financial institutions and are not subject to the Digital Operational Resilience Act (DORA).
## Simplifications for Holder Control Procedures
Due to an amendment to the Regulation on Notifications under section 2c of the German Banking Act and section 17 of the Insurance Supervision Act (Inhaberkontrollverordnung) (InhKontrollV), certain simplifications for the holder control procedures that must be followed are in effect as of 25 November 2025. The simplifications particularly concern documents and declarations that have previously been submitted by the notifier; even if these are more than two years old, they do not have to be resubmitted if they are still valid and are still available to BaFin (or the competent state supervisory authority to which they were previously submitted for another reason).
The European Commission’s proposals will now enter the legislative process and be further negotiated with the European Parliament and the European Council. This new development is set to have a significant impact on the financial industry, making it essential for fund managers and investors to stay informed and adapt to the changing regulatory landscape. By understanding the implications of these proposals, they can navigate the complexities and take advantage of the opportunities presented by these changes.
