EU regulation changes for private markets in 2025

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• The European Commission is working on changes to several regulations which will affect fund managers both in the EU and outside of it.  

• This year, it plans to make changes to the Sustainable Finance Disclosure Regulation, the rules around what qualifies as a SME, and the securitization framework, among others.  

• As regulatory changes track across thousands of contracts and agreements, using AI allows fund managers to stay ahead of the game and adhere to legal requirements.  

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Why this matters for GPs

The EU’s reporting requirements apply to all EU-authorised firms and non-EU funds that are marketing in the EU, including their non-EU managers.  

Fund managers should prepare for these changes by reviewing their current compliance frameworks and operational procedures. Fund labelling under the SFDR regime is likely to change, and with it, funds may see their reporting requirements adjusted.  

Early adaptation to these new requirements will be crucial for maintaining regulatory compliance and ensuring smooth operations in 2025 and beyond. National regulators can enforce through spot checks, ranking firms on how well they implement regulations, and fine those who haven’t.  

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The EU’s red tape problem

The EU wants to cut red tape. The bloc’s own advisors, including Mario Draghi, the former President of the European Central Bank, warned of excessive regulatory burdens on EU companies in September last year.  

Now the European Commision’s new work plan includes the Omnibus Simplification Package, part of an effort to reduce administrative burdens by 25% for all companies and at least 35% for small and medium sized enterprises (SMEs). The EU expects approximately €37.5B ($39.2B) of recurring costs to be reduced this way.  

But the first thing to be simplified? The EU’s sustainable finance reporting framework.  

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What’s changing now: sustainable finance reporting framework

The problem is that the current regulations, particularly those around sustainability such as the SFDR framework, are too complex to understand for many investors.  

This is particularly so for retail investors, who are flocking to private markets. A study by Morgan Stanley and Oliver Wyman forecasts that retail investors’ allocations to private markets could hit $5.1T this year, out of forecast $13T private markets AUM globally.  

The Commission simplified several aspects of its sustainable finance framework on February 26^th. These changes include removing about 80% of companies from the scope of the Corporate Sustainability Reporting Directive (CSRD) and reducing the burden of the EU Taxonomy reporting obligations.  

The EU Taxonomy classifies which parts of the economy can be marketed as ‘sustainable’. The CSRD mandates companies to disclose ESG information to increase transparency and support sustainability reporting.  

The Commission has estimated that if the proposals are adopted, they should lead to savings in annual administrative costs of around €6.3B ($6.6B) and mobilisation of additional public and private investment capacity of €50B ($52.1B).  

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What will change next: Sustainable Finance Disclosure Regulation (SFDR)

The Commission plans to review the SFDR framework in Q3 2025 and propose amendments in Q4.  

The SFDR was created to make it easier for investors to differentiate and compare different sustainable investment strategies by increasing transparency. Fund managers have to complete a pre-contractual template with fund- and firm-level disclosures on whether a fund adheres to certain sustainability criteria. Information requested includes how sustainability risks are integrated in investment decision-making, how principal adverse impacts are considered, and detailed explanations on why the funds qualify as article 8 or 9 funds.  

The current regulation differentiates between article 6, article 8 and article 9 funds. Article 6 funds take ESG risks into consideration or explain why sustainability risk isn’t relevant. Article 8 funds promote ESG considerations, but don’t have sustainable investing as their core objective. Lastly, article 9 funds have sustainable investment as their core objective.  

The Commission had found that the SFDR "was designed as a disclosure regime, but is being used as a labelling scheme”, in a consultation document it released in 2023. This suggested there might be demand for establishing product categories within the regulation.  

Now it has proposed rules that would replace the article 8 and 9 classifications with three categories, called Sustainable, Transition, and ESG Collection.  

• Sustainable: These will encompass taxonomy-aligned investments or sustainable investments with no significant harmful activities or assets based on a more concise definition consistent with the taxonomy.  

• Transition: Will consist of investments or portfolios that support the transition to Net Zero and a sustainable economy and avoid carbon lock ins.  

• ESG Collection: These investments will exclude significantly harmful investments or activities and invest in assets with better environmental and/or social criteria.  

Other products that don’t contribute to any of the three goals will be classed as unclassified under the updated SFDR.  

Fund managers’ products that qualify for the three categories will be subject to mandatory pre-contractual disclosures and periodic reporting, and those that are unclassified will also be subject to mandatory periodic reporting.  

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Securitization reforms

Another potential area for change is the securitization framework. Securitization is the process of pooling various financial assets, such as loans or mortgages, and converting them into tradable securities that are sold to investors.  

The Commission is going to review the EU’s securitization framework, which is designed to stimulate private funding and further boost competitiveness, to help financial institutions achieve scale and compete on a global stage.  

Proposed changes include: relaxing Solvency II capital rules for life insurers to enable them to buy securitizations; simplifying the ‘simple-transparent-standardised’ criteria; scaling up true sale securitization, which converts illiquid assets into tradable securities and could potentially unlock over €1T ($1.05T) in additional financing for the EU, according to Apollo; and streamlining paperwork and due diligence requirements for securitizations.  

The Commission is expected to publish a legislative proposal reviewing these possible changes to the securitization framework in the spring of 2025.  

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How Robin AI can help

As part of all this, the EU wants to support the use of AI and digital tools to simplify adhering to the regulatory burden.  

Robin AI can support fund managers in adhering to EU regulations by leveraging AI-driven contract management, compliance monitoring, obligations management, and legal analysis.  

It can automate due diligence on fund agreements, ensure that contracts include the necessary regulatory disclosures and risk factors, and maintain a record of document updates and compliance history for audits.  

Robin AI can analyze fund sustainability reports, and flag potential compliance risks, ensuring ongoing investor due diligence.  

Reducing legal costs while speeding up the process, Robin AI can help your business stay on top.  

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