Walking in Brussels Wonderland: 2022 Public Affairs Special

As Bill Nighy poorly performed in the (now 20-year-old!) classic ‘Love Actually’, the holidays are all around us. EU policymakers have left Brussels and, as the three kings of ye old time, will only return to follow the stars (those of the European flag) in early January.

Before we start decking the halls and kissing under the mistletoe, amongst other traditions, let us use this time to guide you through the ghosts of past, present, and future EU legislation (we promise not to sing).

As we lived one of the hottest years to date, climate change has naturally remained at the forefront of the agenda. But Invest Europe has shown it was ready to support its members facing this new reality. Our recent ESG Reporting Guidelines, published in October, set industry standards and will help GPs and LPs alike to navigate new ESG rules. Meanwhile, we have continued to defend our business model in the implementation of the Sustainable Financial Disclosure Regulation (SFDR) and Corporate Sustainability Reporting Directive (CSRD) frameworks.

It was also a year of fund management regulation. The review of AIFMD – the EU framework governing fund marketing - and ELTIF – the European Long Term Investment Funds Regulation - have been on lawmakers’ work benches this whole year. Given how the first AIFMD fundamentally changed the way our industry operates, there was much work to do to impact this year’s debate. While AIFMD negotiations will continue far into 2023, many in our industry will be relieved that they have so far narrowed rather than broadened the scope of the proposal and that some of the more questionable suggestions from various stakeholders did not make it into the text. But one of the nicest gifts this year has been the recent approval of the ELTIF review, which could foster our industry’s democratisation by allowing more fund managers to market to retail investors.

Two important proposals affecting the ability of institutional investors to commit capital in private equity funds have also been at the centre of the EU regulatory agenda. Reviews of Solvency II, for insurers, and of the Capital Requirements Regulation, for banks, are still ongoing - but there are reasons to believe they will make it comparatively more interesting for investors to make equity commitments over the long-term.

As we are about to move into a new year, new challenges await. On top of our industry’s concerns is the Corporate Sustainability Due Diligence Directive, which could force fund managers to be subject to a lot of additional responsibilities and litigation risks, seriously affecting the business model. While the Council has, with some helpful guidance, taken a very positive approach, the file is now in the European Parliament’s court. Expect a fierce debate before the final outcome on this file.

Fund managers will also have to look with apprehension at tax developments, with discussions of potential significance expected to take place on the Unshell Directive, looking at misuse of shell entities for tax purposes, and on the debt-equity tax bias. Other priorities in an increasingly polarised world will include increasingly complex foreign investment rules and increasingly high funding challenges for companies faced with the energy crisis.

Among the other relevant initiatives expected to take centre stage in 2023 are the two recently launched review of listing rules – potentially making IPO easier – and insolvency as well as a “Retailisation” package. The latter could provide an opportunity to change the definition of a professional investor. It is expected to be the last piece of the CMU puzzle before the end of the European Commission. This is not to say further reviews are not under preparation: work has for example started on the review of the EuVECA regime (see our survey here)

Returning to the present, and while we do not suggest that it should replace light reading in front of an open fire, do remember that we have a series of handbooks guiding you through the non-exhaustive lists of legislation we mentioned in this piece. All can be found on our website.

On our end, we will remain at your disposal in the months to come to help you face and prepare the regulatory changes that will come your way in 2023. In the meantime, we wish you a very nice and festive holiday season!