Europe’s top markets regulator said she is trying to ease the cost and effort required for hedge funds and private credit firms to comply with new rules which will require them to hand over more data to authorities.
“We can reduce the complexity and reporting burden and cost that is currently in the system,” Verena Ross, the chair of the European Securities and Markets Authority, said in an interview. The watchdog will make proposals in April on how to simplify reporting, notably via better coordination between authorities, she said.
European regulators want a clearer picture of potential financial risks outside of traditional banking as private credit and other such firms rapidly expand. Yet critics say a related update to investment fund regulation will be costly and may overwhelm authorities with a flood of data, rather than showing them where risks lie.
Ross said there are currently more than 100 different reporting templates and requirements across Europe’s public sector for funds in general. “Clearly we need to simplify that and have common data that we can all use and which comes together in one place,” she said.
ESMA is working to hammer out revisions to a rulebook – known as AIFMD – that has been in force for more than a decade. That is however increasingly at odds with a more recent drive by European leaders to simplify regulations and improve the bloc’s ability to compete, Jiri Krol, the deputy chief executive officer of the Alternative Investment Management Association, told Bloomberg.
The European Union in 2024 agreed on a package of rules for asset managers that especially targeted direct lenders. As a result, ESMA is drafting standards including for the disclosures on liquidity, leverage and holdings of funds such as those of private credit shops.
“A more focused reporting model would give regulators better insight into areas of potential systemic risk without requiring fund managers to hand over to regulators significant amounts of detailed, commercially sensitive, raw data that is not relevant for purposes of systemic risk monitoring,” said Krol.
Ross said ESMA was empowered by the updated rules to “really take a step back and look again at the regulatory reporting requirements for funds in Europe.” The watchdog received “really good feedback” on a recent discussion paper on how to simplify the overall framework for reporting, she said.
Lobby group AIMA wants the EU to work with market participants “to deliver a framework that cuts redundant reporting and focuses on insights regulators can actually use,” Krol said, adding that the US and UK are moving toward “more targeted and effective reporting regimes.”
The European markets watchdog already has a hub for several data flows that “works well” because national authorities can tap and share the information, Ross said. She cited the example of transaction reporting, which has become “more efficient and avoids duplicating requirements.”
While it isn’t yet clear which body will be responsible for bringing together the data on funds, “it will be important that the national authorities remain close to the supervised entities,” Ross said.
Separately, ESMA has also written standards for the liquidity requirements of open-ended loan originating funds. Ross said those have not yet been finalised by the European Commission, which “might actually take a bit more time as part of their reprioritization exercise to finalise regulatory technical standards.”