Authorities will evaluate governance based on its effectiveness under stress, prioritizing the use of “better data” rather than a higher volume of reports to detect risks in time. ESMA drives new UCITS rules to standardize information, while the CSSF intensifies supervision of conflicts of interest in delegation agreements. Luxembourg plans to make its unregulated funds more flexible through segregated compartments, and the United Kingdom has just presented its largest post-Brexit asset management reform.
Regulators are increasingly examining how governance and delegation operate in practice, using higher quality data and more visible on-site supervision to drive targeted supervisory actions. Therefore, the central theme of Carne Group’s third-quarter update points to how companies are being driven toward more resilient models of delegation and fund structuring, through “smart” supervision that uses standardized, high-quality data to detect issues early rather than after the fact.
In the report, the firm analyzes the Central Bank of Ireland’s review of the delegation framework and the growing expectation that governance will be evaluated by how it functions under stress, not just on paper. In addition to ESMA’s ongoing effort toward reporting harmonization, the recent work by the CSSF on conflicts of interest, the potential for segregated liability compartments in unregulated funds, and the Financial Conduct Authority’s (FCA) proposal for the new U.K. asset management framework.
Review of the CBI Delegation Framework
The Central Bank of Ireland’s (CBI) July 2026 delegation review marks an important evolution in regulatory expectations, rather than a challenge to the delegation model itself. It concludes that delegation remains fundamental to the European fund industry. The broader issue it addresses concerns how effectively governance operates in practice, rather than simply what structures exist. For managers and delegates, this means a greater emphasis on demonstrable supervision, accountability, and resilience.
Effective governance increasingly depends on factors such as timely, reliable, and connected information. For this reason, the Central Bank identified fragmented systems, manual reconciliations, and weak contingency planning as areas for improvement. What they seek with this is to prioritize quality over quantity; that is, “better data” as opposed to “more data.” If companies collect information intelligently and connect it effectively, they can identify risk areas without creating unnecessary layers of reporting. Consequently, they can scale their business and become much more effective supervisors of delegates.
ESMA Drives Supervisory Convergence
ESMA continues to drive supervisory convergence and the harmonization of reporting, particularly through new UCITS reporting rules expected in the autumn. These will require more detailed information on liquidity, risk management, delegation arrangements, and investment markets and instruments. Implementation will require operational work, but in turn, it creates an opportunity to move away from ad hoc reporting toward consolidated and flexible reporting capabilities. Standardized data requirements could reduce point-in-time regulatory requests and allow companies to use regulatory data more proactively across all their businesses.
UCITS is already a fully harmonized European framework, making it a logical vehicle for greater standardization across all markets. However, at Carne Group they perceive some caution regarding ESMA assuming a broader supervisory role, with a preference for harmonization when it creates a level playing field while retaining the expertise of national regulators, such as those in Ireland and Luxembourg. Amendments in the European Parliament are also not in favor of ESMA becoming a single supervisor. This falls within a broader macroeconomic dynamic amid a growing focus on European champions.
Therefore, the question is how far supervisory convergence can go while maintaining national expertise, which remains important for Europe’s fund industry. ESMA’s Common Supervisory Action is also analyzing the risk management function, including whether companies have genuinely independent risk functions, adequate expertise, sufficient authority, appropriate staffing, and effective oversight by senior management. Unlike previous thematic reviews, the focus is centered directly on whether the function can operate effectively and independently.
On September 28, ESMA set its priorities for 2027, which include delivering on key elements of the Savings and Investments Union (SIU) agenda and advancing capabilities in data, artificial intelligence, and tokenization.
Conflicts of Interest: The CSSF Identifies Key Areas of Focus
Recent work by Luxembourg’s CSSF on conflicts of interest underscores the growing regulatory focus on how governance operates in practice, particularly where delegation arrangements exist. The CSSF has identified conflicts that can arise when commercial partners or initiators are appointed as investment advisors or portfolio managers. For example, when an initiator acts as a portfolio manager, they must have both the capability and the willingness to operate independent controls. If the investment manager retains portfolio management, there is a risk that the investment fund manager (IFM) will follow the initiator’s guidelines rather than acting independently in the best interest of the fund.
Another concern is that commercial partners or initiators may attempt to influence asset valuations, potentially affecting the independence of the valuation process and the IFM’s ability to act in the best interest of investors. The CSSF is also analyzing “white-label” firms, where conflicts may arise from the allocation of responsibilities, particularly when individuals linked to commercial partners or initiators occupy roles, functions, or positions in reporting lines that give rise to conflicts.
Segregated Liability Compartments for Unregulated Funds
A proposed change to Luxembourg’s fund framework could provide greater flexibility to private equity managers using Société en Commandite Simple (SCS) and Société en Commandite Spéciale (SCSp) structures. Standard SCSps are widely used in the world of private equity and infrastructure funds. However, an unregulated SCSp cannot legally create umbrella “sub-funds” with ring-fenced liabilities. Managers seeking segregated compartments typically need to use structures like RAIFs, SIFs, SICARs, or a Part II Fund, all of which carry additional legal product requirements.
The new proposal introduces a new Article 28bis to the Luxembourg AIFM Law, allowing eligible SCS and SCSp AIFs to legally create segregated compartments. Each compartment would have legally separate assets, liabilities, investors, and creditors, and creditors of a compartment would generally have recourse only against the assets of that compartment. Therefore, a single SCSp could contain multiple compartments representing different strategies, vintages, parallel vehicles, co-investment tranches, or separate groups of investors within a single legal entity. Individual compartments could also be liquidated independently, while cross-investment between compartments would be possible subject to safeguards.
If the proposal (still subject to Luxembourg’s parliamentary process) moves forward in its current state, managers currently using separate SCSp vehicles or RAIF umbrellas to achieve segregated liability could achieve the same result through a single unregulated SCSp platform managed by an authorized AIFM.
Regulation of Asset Management in the U.K.
In mid-July, the FCA launched the largest reform of the U.K. asset management framework since Brexit, consulting on an entirely new U.K. AIFM regime alongside Treasury (HM Treasury) legislation. Rather than maintaining inherited EU rules, the FCA wants a more proportionate, simpler regime tailored to different manager sizes. It has also proposed simplifying remuneration requirements and reviewing fund reporting.
The U.K. regulator has a number of statutory objectives, including promoting the global competitiveness of the U.K. financial sector. However, “it remains to be seen whether the new framework will ultimately drive greater divergence or alignment with European regulation,” notes the study. Therefore, the firm asserts that for the market, the key point will be how a simpler and more proportionate U.K. regime operates alongside the requirements faced by managers operating in Europe.
