UK/EU Investment Management Update (July 2025)

1. UK — Non-financial Misconduct

2. UK — Enforcement

3. UK — Regulatory Focus on Private Markets

4. UK — Private Intermittent Securities and Capital Exchange System (PISCES)

5. UK — ESG

6. UK — Tax Update

7. EU — Securitisation Regulation

8. EU — Regulatory Reporting

9. EU — UCITS

10. EU — ESG

11. EU — Securities Settlement

1. UK — Non-financial Misconduct

FCA proposes new rules and guidance on non-financial misconduct

On 2 July 2025, the FCA published a policy statement and a further consultation paper (CP25/18) introducing new rules and draft guidance on non-financial misconduct (NFM) in the financial services sector.

CP25/18 confirms that from 1 September 2026, the scope of the Code of Conduct (COCON) sourcebook will be extended to cover all firms within the Senior Managers and Certification Regime, including non-bank firms. As a result, non-bank firms will be subject to the same conduct standards as banks in relation to serious NFM, such as bullying, harassment, and violence.

The FCA considers that this change will support consistent enforcement of conduct standards across the financial services sector and provide firms with a clearer basis for taking action in appropriate cases.

The FCA has decided not to proceed with the wider diversity and inclusion proposals put forward in its earlier consultation (CP23/20). It will also not amend the Threshold Conditions (COND) or Senior Management Arrangements, Systems and Controls (SYSC) sourcebooks, which had been under review. For an overview of CP23/20, please see our October 2023 and our April 2025 Updates.

Alongside the final rules, the FCA is consulting on draft guidance to assist firms in applying both the conduct rules and the Fit and Proper Test for Employees and Senior Personnel (FIT) sourcebook. This guidance draws on feedback received in response to CP23/20 and addresses, among other matters, the following:

• Scope of COCON. The guidance includes examples to help firms assess whether behaviour falls within the scope of an individual’s professional role or private life.
• Threshold for serious misconduct. It clarifies that conduct will breach the rules only where it has a significant adverse effect, for example where it is violating, humiliating, or degrading.
• Role of managers. It provides examples of reasonable steps managers can take to protect staff from NFM.
• Use of social media. The guidance addresses how social media activity may be relevant in assessing conduct.
• Limits of firm responsibility. The FCA confirms that it does not expect firms to monitor employees’ private lives or social media proactively. However, where a firm becomes aware of information about an individual’s private life that could raise concerns about their fitness and propriety, it should consider what reasonable steps it can take to assess the potential impact.

The FCA is seeking comments on the draft guidance by 10 September 2025. It intends to review the feedback and publish its final regulatory approach by the end of the year.

2. UK — Enforcement

Upper Tribunal upholds FCA decision to ban Jes Staley

On 26 June 2025, the Upper Tribunal (the Tribunal) upheld the FCA’s decision to ban Jes Staley, former CEO of Barclays Bank plc (Barclays), from holding senior management functions in the financial services sector.

The Tribunal found that Staley acted without integrity by recklessly approving a letter sent by Barclays to the FCA in October 2019. The letter contained misleading statements about the nature of his relationship with Jeffrey Epstein.

Contrary to the contents of the letter, the Tribunal found that Staley maintained a close relationship with Epstein and that their contact continued until shortly before Staley joined Barclays in December 2015.

In affirming the FCA’s prohibition order, the Tribunal concluded that Staley is not a fit and proper person to hold senior management roles in the financial services industry. However, it reduced the financial penalty from the £1.8 million originally proposed by the FCA to £1.1 million, having taken into account the loss of deferred remuneration that Staley will no longer receive from Barclays. For further information on the FCA’s enforcement action against Staley, please see our November 2023 Update.

FCA secures convictions for insider dealing and money laundering

On 4 July 2025, the FCA announced the sentencing of Redinel Korfuzi, a former research analyst at a large UK asset management firm, and his sister, Oerta Korfuzi. Both were convicted on 19 June 2025 of conspiracy to commit insider dealing and related money-laundering offences. Mr Korfuzi was sentenced to six years’ imprisonment; Ms Korfuzi was sentenced to five years’ imprisonment. The FCA has confirmed that it will seek confiscation orders to recover the proceeds of crime.

Between December 2019 and March 2021, Mr Korfuzi used his role as a research analyst to access inside information on at least 13 publicly traded companies. He conspired with his sister to trade on this information using contracts for difference (CFDs), placing trades through accounts held in the names of Ms Korfuzi, his personal trainer, and the trainer’s partner. The trading generated illicit profits of over £960,000 and was detected by FCA market surveillance systems.

The conduct occurred during the Covid-19 pandemic, while Mr Korfuzi was working remotely. Mr Korfuzi and Ms Korfuzi shared a single laptop in their shared flat, passing it between them while sitting in the same room. The sentencing judge noted that trades were routinely placed on shares upon which Mr Korfuzi had been wall-crossed, often within minutes of receiving inside information, and described the arrangement as sophisticated and deliberate.

In addition, both individuals were convicted of money-laundering offences involving 176 cash deposits totalling approximately £198,000. The cash, found to be unrelated to the insider dealing, was handled through multiple bank and trading accounts, with additional sums stored in a safe deposit box and transferred to Albania. The jury rejected claims that these funds originated from legitimate sources.

3. UK — Regulatory Focus on Private Markets

House of Lords Committee launches inquiry into growth of UK private markets

On 1 July 2025, the House of Lords Financial Services Regulation Committee (FSRC) launched an inquiry into the growth of the UK’s private markets. The FSRC has issued a call for evidence to examine the effects of the regulatory reforms implemented in the wake of the 2008 financial crisis.

The inquiry will focus on whether the increased capital and liquidity requirements imposed on banks have constrained their willingness or ability to lend. A key objective is to determine whether this has inadvertently caused a shift in risk from the traditional banking sector to private markets.

The FSRC will also assess the Bank of England’s visibility over private markets, including their scale, their interconnectedness with the banking system, and any potential systemic or spillover risks that may arise. The inquiry seeks to understand the broader implications of the growth in private markets for lending to the real economy and for the UK’s overall financial stability.

The FSRC invites feedback on these topics by 18 September 2025.

FCA speech on private markets

On 2 July 2025, Sarah Pritchard, Deputy Chief Executive of the FCA, delivered a keynote address at the Investment Association Private Markets Summit. The speech outlined the FCA’s evolving approach to private markets, highlighting the need for increased transparency and improved data to support sustainable growth and maintain investor confidence.

Key areas of focus highlighted in the speech:

• Conflicts of interest. Pritchard confirmed that conflicts of interest in private asset managers will continue to be a supervisory priority for the FCA. This aligns with FCA messaging in its February 2025 “Dear CEO” letter to the asset management sector, discussed in our March 2025 Update.
• UK Alternative Investment Fund Managers Directive (AIFMD) reform. The FCA is focused on creating a proportionate, UK-tailored regime, particularly for smaller and mid-size managers, by exploring revised thresholds and risk management obligations that support growth while protecting investors. For a summary of recent reform proposals, please see Leonard Ng’s article in Law360, How UK Proposals Would Simplify Fund Manager Regime.
• Leverage and systemic risk. Referencing her role co-chairing a Financial Stability Board (FSB) working group, Pritchard noted that the FSB’s final recommendations on leverage in non-bank financial institutions are expected in July 2025. The work seeks to enhance the consistency and comparability of leverage data across jurisdictions to enable earlier detection of potential systemic risk.
• Retail access. The FCA remains open to expanding retail access to private markets but will be guided by the “considered approach” taken with Long-Term Asset Funds (LTAFs). Any future expansion will depend on establishing robust guardrails, including transparent risk disclosures and appropriate consumer protections.

4. UK — Private Intermittent Securities and Capital Exchange System (PISCES)

FCA sets out final rules for PISCES and launches PISCES Sandbox

On 10 June 2025, the FCA published Policy Statement PS25/6, setting out the final rules for the new Private Intermittent Securities and Capital Exchange System (PISCES). PISCES is a new market infrastructure designed to facilitate the trading of shares in private companies during intermittent trading windows.

The final rules establish the operational framework for PISCES operators and participating companies. Key features include:

• Disclosure obligations. Companies whose shares are traded on a PISCES venue will be required to provide a core set of disclosures. This includes audited financial statements, details of the company’s capital structure and major shareholders (i.e., those with over 25% of shares or voting rights), material contracts, and specific risk factors.
• Trading windows. The rules grant companies a degree of control over trading events. This includes the ability to set floor and/or ceiling prices for their shares and to restrict which investors can participate in a trading event, provided it is for a legitimate commercial interest.
• Market abuse and oversight. While the UK Market Abuse Regulation does not directly apply to PISCES shares, operators must monitor transactions for disorderly trading conditions and conduct that may constitute a criminal offence (e.g., misleading statements or impressions) and report such conduct to the FCA.

Additionally, the FCA has launched the PISCES regulatory sandbox, which will run for a period of up to five years. This will allow the FCA to assess the effectiveness of the new framework in a live environment before establishing a permanent regime. For further information on PISCES, please see our June 2025 Update.

Finally, to incentivise participation, the Government has enacted the Private Intermittent Securities and Capital Exchange System (Exemption from Stamp Duties) Regulation 2025, under which trades conducted via PISCES during the sandbox period will be exempt from Stamp Duty and Stamp Duty Reserve Tax.

5. UK — ESG

UK Government sets out plans for sustainable finance framework

On 25 June 2025, the UK Government launched a series of consultations aimed at strengthening the UK’s position as a global centre for sustainable finance. The initiatives are designed to establish a robust framework for sustainability-related disclosures and to enhance the UK’s attractiveness to sustainable investment.

Three separate consultations have been launched, each open for comment until 17 September 2025:

• Climate transition plans. The Government is consulting on proposals to mandate that UK-regulated financial institutions (including banks, asset managers, and insurance companies) and all FTSE 100 companies develop and disclose credible climate transition plans. These plans would need to align with UK net-zero commitments and the 1.5°C target of the Paris Agreement.
• Sustainability reporting standards. Draft UK Sustainability Reporting Standards have been published for consultation, closely following the framework developed by the International Sustainability Standards Board (ISSB). The initial emphasis is on disclosures relating to sustainability-related financial risks and opportunities.
• Sustainability reporting assurances. To reinforce trust in sustainability disclosures, the Government is proposing a voluntary registration regime for assurance providers. The aim is to improve transparency and oversight of the sustainability assurance process and to promote the quality and reliability of sustainability-related information presented to the market.

6. UK — Tax Update

Government response and policy update on call for evidence on UK tax treatment of carried interest

Following a Call for Evidence in August 2024 which announced the Government’s intention to reform the UK tax treatment of carried interest, the Government published a Summary of Responses and Next Steps in October 2024 which outlined how the revised regime will operate and launched a consultation with respect to certain aspects of the revised regime. Please see our August 2024 Update and November 2024 Update for a more detailed summary of the Call for Evidence and Summary of Responses and Next Steps, but the headline takeaways were:

• With effect from April 2025, the applicable tax rate for carried interest proceeds which are subject to capital gains treatment increased from 28% (upper rate) to 32%.
• With effect from April 2026, carried interest proceeds will be subject to full income taxation (at a combined rate of up to 47%). However, carried interest proceeds which meet certain qualifying conditions (qualifying carried interest) will benefit from a 72.5% multiplier (resulting in an effective tax rate of up to 34.075%).
• Carried interest proceeds will only benefit from “qualifying” carried interest treatment if it satisfies the existing statutory definition of carried interest and falls outside the scope of the “income-based carried interest” (IBCI) rules (which, with effect from April 2026, will apply to all carried interest proceeds as a result of the removal of the employment-related securities exception from the IBCI rules). In addition, the Government consulted on the introduction of one or more new conditions which would need to be met in order to benefit from “qualifying” carried interest treatment; see Additional “Qualifying” Conditions below.
• Subject to the terms of an applicable double tax treaty, carried interest proceeds arising to a non-UK tax resident individual would be subject to UK taxation to the extent those proceeds were attributable to duties performed in the UK; see Territorial Scope of UK Carried Interest Taxation below.

The Government has now published its Response to the consultation. A summary of the key changes to the proposed new carried interest regime as a result of the consultation is set out below; on the whole, these are helpful changes, and it is positive to see the government listening to the feedback from industry and law firms (including Sidley) who responded to the call for evidence and consultation.

Additional “Qualifying” Conditions

As part of the consultation launched in October 2024, the Government announced it was considering introducing one or more additional conditions which would need to be met in order for carried interest proceeds to constitute qualifying carried interest. The additional conditions being considered by the Government were: (i) a requirement that carried interest recipients make an aggregate co-investment in the fund (tested on a team-level) above a certain size (a minimum co-investment condition); and (ii) a requirement that the carried interest recipient has held their carried interest for a minimum period of time before any carried interest proceeds arising to them can be treated as “qualifying” carried interest (a minimum holding period condition).

Following strong industry opposition to the complexity and distortive effects of both the minimum co-investment and minimum holding period conditions, the Government has confirmed that no additional qualifying conditions will be introduced. Accordingly, carried interest proceeds should benefit from “qualifying” carried interest treatment (resulting in an effective tax rate of up to 34.075%) provided it:

• satisfies the existing statutory definition of carried interest (which, very broadly, requires carried interest to represent a profit-related return arising by reference to fund investments); and
• falls outside the scope of the IBCI rules (which, again very broadly, requires the relevant fund to have an average holding period in respect of its underlying investments of at least 40 months).

Recognising that the removal of the employment-related securities exclusion from the IBCI rules will result in those rules applying to a broader spectrum of fund executives, the Government has also delivered on its promise to introduce a number of targeted amendments to the IBCI rules to ensure they do not unfairly impact private credit funds and secondary funds.

Territorial Scope of UK Carried Interest Taxation

Under the revised regime, carried interest proceeds will be taxed as profits of a deemed trade carried on by the relevant carried interest recipient. One consequence of this is that (subject to the application of an applicable double tax treaty) carried interest proceeds arising to a carried interest recipient who is not UK tax resident (a Non-UK Recipient) would be subject to UK taxation to the extent those proceeds were attributable to investment management services performed by the Non-UK Recipient in the UK.

Following submissions to the consultation, the Government has proposed a number of specific rules for determining what portion of a Non-UK Recipient’s carried interest proceeds are treated as being attributable to investment management services performed in the UK (and therefore taxable in the UK). The Government has mandated a time-based apportionment method which uses the number of UK workdays to determine the portion of carried interest proceeds attributable to UK services. However, that apportionment will be subject to a number of specific rules or “safe harbours” which provide that:

• services performed by a Non-UK Recipient before 30 October 2024 will be deemed to be performed outside the UK – thereby ensuring that Non-UK Recipients are not subject to UK tax on carried interest proceeds which are attributable to services performed before 30 October 2024 (being the date on which the proposals were first announced);
• services performed in a tax year in which the recipient is not UK tax resident and spends fewer than 60 workdays in the UK are deemed to be performed outside the UK – thereby ensuring that Non-UK Recipients are not taxed in the UK where they spend a de minimis amount of time in the UK; and
• a recipient will not be subject to UK tax on their carried interest proceeds if the recipient was not UK tax resident and spent fewer than 60 workdays in the UK in the year in which the carried interest proceeds arise to the recipient and each of the prior three tax years – thereby ensuring that a recipient falls outside the scope of UK taxation on carried interest proceeds which arise after a reasonable time after a recipient ceases to have any material links to the UK.

These safe harbours are a welcome addition and will go some way in addressing industry concerns regarding the compliance burden and risk of double taxation for Non-UK Recipients who perform only a de minimis amount of services in the UK and recipients who cease to be UK tax resident during the life of the fund long before they receive any carried interest proceeds.

Industry submissions to the consultation highlighted concerns around how double tax treaties will apply to carried interest proceeds, particularly where the UK taxes carried interest proceeds as profits of a deemed trade (which would suggest the relevant treaty article is the business profits article) but the carried interest recipient’s home jurisdiction taxes carried interest profits according to the nature of the underlying return (which would suggest the relevant treaty article is instead the interest, dividends or capital gains articles). The Government has now confirmed its view that the correct treaty article is the business profits article, with the result that the UK would have taxing rights in respect of carried interest proceeds where the recipient in question has a permanent establishment in the UK. While helpful, there remains considerable uncertainty as to when a recipient would be treated as having a permanent establishment for this purpose and it is yet to be seen whether foreign jurisdictions will respect the UK’s characterisation of carried interest proceeds as trading profits and how issues of double taxation will be resolved where jurisdictions take a different view as to the applicable treaty article.

Payments on account

Notwithstanding the concerns raised by the industry in their responses to the consultation, the Government has also confirmed that carried interest proceeds will be taken into account when calculating payments on account for future income tax purposes. This is expected to add a degree of complexity to the tax filing position for carried interest recipients, particularly given the unpredictability of carried interest proceeds.

Next Steps

The next steps will be for the Government to (shortly) publish draft legislation for inclusion in the next Finance Bill.

7. EU — Securitisation Regulation

Commission proposes measures to revive the EU securitisation framework

On 17 June 2025, the Commission published a proposal (the Proposal) to amend various aspects of the EU Securitisation Regulation. We have published our analysis of the Proposal in our Sidley Update Proposed Reform of EU Securitization Regulation — Implications for U.S. Securitizations.

8. EU — Regulatory Reporting

ESMA publishes call for evidence on streamlining transaction reporting

On 23 June 2025, ESMA published a Call for Evidence on simplifying transaction reporting requirements across EU financial markets. This initiative forms part of ESMA’s mandate under the EU Markets in Financial Instruments Regulation (MiFIR) Review and aligns with the Commission’s “Simpler and Faster Europe” strategy, which targets a 25% to 35% reduction in regulatory burden. The Call for Evidence seeks stakeholder views on how to integrate, streamline, and simplify reporting frameworks under EU MiFIR, the European Market Infrastructure Regulation (EMIR), and the Securities Financing Transactions Regulation (SFTR) without compromising supervisory effectiveness.

ESMA has identified several longstanding challenges for firms:

• Duplicative reporting. Duplicative reporting of the same derivative instruments under MiFIR, EMIR, and the EU Regulation on Wholesale Energy Market Integrity and Transparency (REMIT). ESMA estimates that approximately one-third of transactions reported under EMIR in H2 2024 were also reported under MiFIR.
• Inconsistent terminology. Conflicting terminology and inconsistent data field definitions across regimes.
• Fragmented reporting channels. For example, MiFIR reports are submitted to EU National Competent Authorities (NCAs), EMIR and SFTR reports to trade repositories, and REMIT reports to the EU Agency for the Cooperation of Energy Regulators (ACER).
• Dual-sided reporting inefficiencies. Inefficiencies associated with dual-sided reporting obligations under EMIR and SFTR.

To address these issues, ESMA is seeking feedback on two potential reform options:

• Option 1: removal of duplication. This approach would seek to eliminate overlapping requirements by allocating reporting responsibilities for different instruments or events to a single regime. For example, reporting for exchange-traded derivatives could be assigned solely to MiFIR, with over-the-counter derivatives assigned to EMIR.
• Option 2: a “report once” principle. This more ambitious option would involve consolidating the MiFIR, EMIR, and SFTR frameworks into a single, unified reporting system with a harmonised data template. A broader version of this option could also integrate other regimes, such as REMIT and Solvency II.

Stakeholders are invited to respond by 19 September 2025, and a final report is expected in early 2026.

ESMA publishes discussion paper on the integrated collection of funds’ data

On 23 June 2025, ESMA published a discussion paper outlining proposals for an integrated supervisory data collection system for the EU investment management sector. The initiative is mandated by Article 69a of AIFMD and Article 20b of the Undertakings for the Collective Investment in Transferable Securities (UCITS) Directive.

The proposed framework aims to streamline data reporting across the investment management sector, reduce the compliance burden for fund managers, and improve data quality by addressing inconsistencies between regulatory and statistical reporting frameworks, particularly those developed by the European Central Bank.

ESMA sets out several structural reforms:

• Establishing consistent definitions and classifications to enhance comparability across jurisdictions and regulatory regimes.
• Introducing an integrated, modular reporting structure that can be adapted for different fund types and regulatory requirements.
• Moving towards more granular, security-by-security reporting, using consistent identifiers such as ISINs and LEIs to reduce reliance on aggregated data.
• Exploring options for data sharing and collection, including centralised EU-level reporting or national single-collection points.

Stakeholders are invited to submit feedback by 21 September 2025. ESMA is expected to provide its final recommendations to the Commission by April 2026.

9. EU — UCITS

ESMA publishes technical advice on UCITS Eligible Assets Directive (EAD)

On 26 June 2025, ESMA published its final report providing technical advice to the Commission on the review of the UCITS EAD. The advice follows a consultation process and data-gathering exercise and focuses on addressing inconsistent supervisory practices across EU Member States, particularly in relation to indirect exposures and alternative assets.

Key proposals include:

• No expansion of eligible assets. ESMA has not proposed extending the list of eligible asset classes under the UCITS EAD, noting that this list is set out in Level 1 legislation and outside the scope of the current review.
• Clarification of asset eligibility. ESMA recommends clarifying the definition of “transferable securities” to enhance legal certainty and supervisory convergence, particularly by aligning key eligibility criteria with existing UCITS risk management obligations. The advice emphasises the need for robust due diligence, reliable valuation, and consistency with a UCITS’s investment objectives and proposes linking these criteria more explicitly to the Level 2 UCITS Directive.
• Look-through approach. ESMA recommends a harmonised application of the look-through approach to prevent UCITS from gaining indirect exposure to ineligible asset classes (e.g., via delta-one instruments or ETNs), except within a 10% limit. This is aimed at maintaining a clear distinction between UCITS and alternative investment funds (AIFs) and improving investor transparency.
• Liquidity assessments. ESMA proposes clarifying that liquidity should be assessed at both the individual asset and portfolio levels, using a principles-based framework that captures conditions in both normal and stressed markets. While listing remains a relevant factor, ESMA recommends removing any presumption that listed securities are automatically liquid or negotiable, emphasising that a standalone listing is not sufficient to evidence liquidity.
• Divergent implementation. The report highlights widespread differences across EU Member States in the treatment of eligibility criteria, authorisation procedures, and interpretation of key terms. ESMA advises the Commission to consider using directly applicable EU regulations to ensure greater harmonisation.
  The Commission will now consider ESMA’s advice as part of its broader review of the UCITS framework.

The Commission will now consider ESMA’s advice as part of its broader review of the UCITS framework.

10. EU — ESG

European Council agrees position on corporate sustainability reporting and due diligence directives

On 23 June 2025, the European Council (the Council) adopted its negotiating position on proposed changes to simplifying corporate sustainability reporting and due diligence requirements. The proposals form part of the Commission’s February 2025 “Omnibus I” simplification package and aim to reduce regulatory and reporting burdens on EU companies, particularly for smaller businesses. For an overview of the EU Omnibus Package, please see our Sidley Update EU Omnibus Package: Key Changes Proposed by the Commission on ESG Reporting and Due Diligence.

The Council’s mandate confirms several amendments intended to narrow the scope of the CSRD:

• Employee threshold. The threshold for mandatory sustainability reporting would be raised to companies with over 1,000 employees.
• Turnover threshold. A new net turnover threshold of €450 million is introduced, providing a further exemption for medium-sized firms.
• Listed small and mid-size enterprises (SMEs). Listed SMEs would be excluded from the scope of mandatory CSRD reporting requirements.

The Council’s position on the CS3D includes more substantial changes, especially in scope and due diligence methodology:

• Scope. The thresholds for due diligence obligations would be raised substantially to companies with over 5,000 employees and a net turnover exceeding €1.5 billion.
• Due diligence obligations. The Council advocates for a more targeted, risk-based approach, focusing due diligence on a company’s own operations, its subsidiaries, and its direct business partners. Obligations would extend further down the value chain only where there is objective evidence of significant risk.
• Climate transition obligations. The requirement to adopt climate transition plans is retained, but implementation is postponed by two years. Supervisory authorities will be empowered to provide guidance on both design and implementation.
• Civil liability. The Council maintains the Commission’s proposal to remove the EU harmonised civil liability regime. Member states would retain autonomy over national liability frameworks.

The Council can now begin trilogue negotiations with the European Parliament once the latter adopts its own negotiating position.

ESMA publishes final report on the integration of sustainability risks and disclosures in the investment management sector

On 30 June 2025, ESMA published its final report on the Common Supervisory Action (CSA) assessing, among other things, how investment managers across the EU integrate sustainability risks and comply with disclosure obligations under the Sustainable Finance Disclosure Regulation (SFDR). The CSA was conducted jointly with NCAs over the course of 2023 and 2024.

While the majority of NCAs considered the overall level of compliance to be satisfactory, ESMA found there is still room for improvement and identified several areas where investment managers need to enhance their practices.

Key findings from the report include:

• Integration of sustainability risks and factors. Most firms have taken steps to integrate sustainability risks into governance, investment decision-making, and risk management frameworks. However, NCAs found deficiencies, including a lack of formal procedures to align sustainability risks with investment strategies, exclusion of some products (notably SFDR Article 6 funds) from sustainability risk frameworks, and poorly defined escalation procedures for sustainability-related issues.
• Entity-level SFDR disclosures. The CSA found inconsistencies in how managers disclose the alignment of remuneration policies with sustainability risk integration. For example, a minority of firms had failed to address ESG risks at all, while others provided only cursory, principles-based statements that lacked specific links between performance incentives and ESG metrics. In some instances, disclosures were published only on the website of a parent or group affiliate rather than the firm’s own site.
• Product-level disclosures were found to be highly variable in quality. In some cases, fund-specific principal adverse impact disclosures were generic, and the sustainability characteristics or objectives of funds were not clearly stated. The CSA also highlighted potential greenwashing risks, including instances where the names of certain Article 6 funds contained sustainability-related terms or their marketing materials used images suggestive of environmental themes (e.g., windmills) that were not supported by the fund’s strategy.

ESMA issues thematic note on sustainability-related claims and ESG credentials

On 1 July 2025, ESMA published the first in a series of thematic notes addressing the use of sustainability-related claims in fund marketing and other non-regulatory communications. The note focuses on ESG credentials and sets out supervisory expectations for market participants under the principle that sustainability claims must be fair, clear, and not misleading.

The note identifies common concerns with ESG-related claims, including the use of vague or exaggerated terminology, unsubstantiated comparisons to peers, and the promotion of outdated or irrelevant labels and awards. It highlights particular risks of greenwashing where firms fail to explain the meaning or limitations of ESG credentials, selectively present ratings, or overstate the significance of voluntary initiatives and industry memberships.

To mitigate these risks, ESMA outlines four key principles: Sustainability claims should be accurate, accessible, and substantiated and kept up to date. The guidance is intended to apply across all forms of non-regulatory communication, including websites, factsheets, and marketing materials, and reflects ESMA’s continued supervisory focus on greenwashing.

11. EU — Securities Settlement

European Council agrees to move to T+1 settlement for EU securities

On 18 June 2025, the Council and European Parliament reached a provisional agreement on proposed amendments to the Central Securities Depositories Regulation (CSDR). The changes will mandate a move from the current settlement cycle for securities trades from two business days (T+2) to one business day (T+1).

The move follows recommendations from ESMA, which concluded that a shorter settlement cycle would significantly reduce counterparty risk and align the EU with a broader global shift towards T+1 settlement (for an overview of ESMA’s recommendations, please see our December 2024 Update).

Certain transaction types will be exempt from the T+1 requirement, including (i) transactions negotiated privately but executed on trading venues, (ii) transactions executed bilaterally but reported to a trading venue, and (iii) certain securities financing transactions including repurchase agreements that are documented as single transactions composed of two linked operations.

The new rules are scheduled to apply from 11 October 2027. However, the agreement includes a transitional provision allowing the Commission to postpone the application date if ESMA reports that a delay is necessary to avoid serious risks to EU financial stability.