On 12 march 2018, the European Commission issued:
- A proposal for a Directive with regard to the cross-border distribution of collective investment funds, and
- A proposal for a Regulation aiming at facilitating the cross-border distribution of collective investment funds within the Union.
Both proposals follow the Capital Markets Union (CMU) initiative, including measures to reduce national regulatory barriers having a negative impact on UCITS and AIFM marketing passports.
The aim of the European Commission is to improve the transparency of national requirements, remove burdensome requirements and harmonise diverging national rules. Removing these inefficiencies shall reduce costs and accelerate the growth of cross-border distribution in the EU. In addition, it shall increase competition and provide more investment opportunities for investors while maintaining a high level of investors protection.
The harmonisation of rules for cross-border distribution are planned to be implemented on the basis of (i) amendments to the current UCITS and AIFM Directives and (ii) a new Regulation to facilitate cross-border distribution of investment funds inside the EU Single Market.
The European Commission proposed two drafts for :
- A Directive with regard to cross-border distribution of collective investment funds, and
- A Regulation on facilitating cross-border distribution of collective investment funds
This email alert aims at keeping you informed about the European Directive and Regulation process and giving you the opportunity to anticipate your strategy in this regard.
Proposal for a Directive with regard to cross-border distribution of collective investment funds in regard to the UCITS Directive (2009/65/ec)
The proposal suggests to introduce modifications to, inter alia:
- The notification of changes when UCITS management companies have established a branch in another EU Member State
- The notification letter when marketing units of UCITS in another EU Member State
- The establishment of local facilities when marketing units of UCITS in another EU Member State
- The discontinuation of marketing of units of UCITS in another EU Member State
Modification of the notification of changes when UCITS management companies have established a branch in another EU Member State
The proposal suggests the following changes to Article 17 governing the freedom of establishment and the freedom to provide services:
- The Home Member State competent authority of the management company would have a maximum delay of 10 working days to notify the management company that a change may not be implemented
- When a change does not affect the compliance of the management company, the Home Member State competent authority of the management company would have a maximum delay of 10 working days to notify the Host Member State competent authority of the changes
Modification of the notification letter when marketing units in another EU Member State
The proposal suggests the following changes to Article 93 governing the notification of changes to the initial notification letter of a foreign UCITS marketed in another EU Member State:
- The notification of changes would be filed via a written notice with the UCITS Home Member State competent authority at least one month before implementing the change.
Shall the change affect the compliance with the Directive, the UCITS Home Member State competent authority would have a maximum delay of 10 working days to notify the UCITS of its refusal, request for amendment of request for clarification.
Shall the change not affect the compliance with the Directive, the UCITS Home Member State competent authority would inform Host Member State competent authority without undue delay about such change.
Modification of Local facilities when marketing units in another EU Member State
The proposal suggests the following changes to Article 92 governing the provision of local facilities to investors:
- The management company of a UCITS would establish facilities in each Member State where units are marketed; Such facilities would perform the following tasks, inter alia :
- Member Sate may not require a UCITS management company to have a physical presence in its territory where they intend to market their units.
- To process investors’ subscription, redemption and payments
- To provide information to investors on how the orders are processed; including payments of redemption proceeds
- To facilitate the handling of information in relation to the investor’s exercise of their rights arising from their investment
- To make available to investors the fund rules and the latest annual report of the UCITS
- Member Sate may not require a UCITS management company to have a physical presence in its territory where they intend to market their units.
Modification to the discontinuation of the marketing UNITS in another Member State
The proposal suggests following changes in relation to the discontinuation of marketing; a new article is proposed as Article 93a as far as the discontinuation of marketing was not governed by UCITS Directive:
- The discontinuation of marketing units of UCITS would be permitted if all the following conditions are met:
- No unitholders/shareholders domiciled in the Member State holds units, or
no more than 10 unitholders/shareholders representing altogether less than 1% of the asset under management of the fund are invested in the UCITS - A free of any charge offer to repurchase all the units would be proposed to each unitholder/shareholder domiciled in the Member State. This offer would be (i) publicly available for at least 30 working days and (ii) personally addressed to all unitholders/shareholders whose identity is known; the offer must be written in one of the official language of the Member State
- The intention to discontinue the marketing would be made public via a medium suitable for a typical investor; such publication must be made in one of the official language of the Member State.
- The UCITS must notify its Home Member State competent authority with the above information. Within 20 working days following receipt, the UCITS Home Member State competent authority would transmit the notification to the Host Member State competent authority and to the European Securities and Markets Authority (ESMA). All marketing activities would cease on the termination date notified by the UCITS to the UCITS Home Member State competent authority.
- All investor communication obligations remains in full force for the remaining investors after termination.
Source: European Commission, 12 March 2018
http://ec.europa.eu/info/law/better-regulation/initiatives/com-2018-92_en
Proposal for a Directive WITH REGARD TO cross-border distribution of collective investment funds in regard to the AIFM Directive (2011/61/EU)
The proposal suggests to introduce modifications to, inter alia:
- The establishment of local facilities when marketing units of AIFs to retail investors in another EU Member State
- The discontinuation of marketing of units of AIFs in the Host Member State
- The pre-marketing option for EU AIFM towards professional investors only
Proposal for the provision of Local facilities when marketing units of AIFs to retail investors in another EU Member State
Similarly to the proposal made above in the UCITS sphere, the European Commission suggests the following changes in relation to the provision of local facilities when marketing units of AIFs to retail investors into another Member State; a new article is proposed as Article 43a as far as such facilities were not provided by the AIFM Directive:
- The AIFM would establish facilities in each Member State where units are marketed; Such facilities would perform the following tasks, inter alia :
- To process investor’ subscription, payment, repurchase and redemption
- To provide information to investors on how the orders are processed; including the repurchase and redemption proceeds are paid
- To facilitate the handling of information in relation to the investor’s exercise of their rights arising from their investment
- To make available to investors the fund rules, the latest annual report of the AIF
- Member Sate may not require an AIFM to have a physical presence in its territory where they intend to market their units.
Proposal for the Discontinuation of the marketing units AIFs to retail investors in another Member State
Similarly to the proposal made above in the UCITS sphere, the European Commission suggests the following changes in relation to the discontinuation of marketing; a new article is proposed as Article 32a as far as the discontinuation of marketing was not governed by the AIFM Directive:
- The discontinuation of marketing units of AIF to retail investors would be permitted if all the following conditions are met:
- No unitholders/shareholders domiciled in the Member State holds units, or
no more than 10 unitholders/shareholders representing altogether less than 1% of the asset under management of the fund are invested in the AIF - A free of any charge offer to repurchase all the units would be proposed to each unitholder/shareholder domiciled in the Member State. This offer would be (i) publicly available for at least 30 working days and (ii) personally addressed to all unitholders/shareholders whose identity is known; the offer must be written in one of the official language of the Member State
- The intention to discontinue the marketing would be made public via a medium suitable for a typical investor; such publication must be made in one of the official language of the Member State.
The pre-marketing option for EU AIFM towards professional investors
The proposal suggests to implement a pre-marketing option for AIFM towards professional investors only. A new article is proposed as Article 30a as far as the pre-marketing option was not implemented by the AIFM Directive:
- EU AIFM might provide information on investment strategies or investment ideas of a not yet established AIF to professional investors domiciled in a EU Member State. An authorised AIFM might not perform pre-marketing activities in the Union where the information presented to potential professional investors:
- Relates to an established AIF
- Contains references to an established AIF
- Enables investors to commit to purchase units or shares of a particular AIF
- The fund documentation is in draft or final versions which enables potential investor to make an investment decision
- Subscription by professional investors to units or shares of an AIF established following the pre-marking activity or to the units or shares of AIFs managed or marketed by the EU AIFM engaged in pre-marketing of a not-yet-established AIF with the similar features shall be considered the result of marketing (no reverse solicitation option)
Source: European Commission, 12 March 2018
http://ec.europa.eu/info/law/better-regulation/initiatives/com-2018-92_en
Proposal for a Regulation on facilitating cross-border distribution of collective investment funds
The proposal introduces requirements on; inter alia:
- Marketingcommunications
- Common principles on fees and charges
- Possibilities to perform pre-marketingactivities for European Venture Capital Funds
- Possibilities to perform pre-marketingactivities for European Social Entrepreneurship Funds
Proposal for Requirements applicable to marketing communications
The proposal suggests the following requirements:
- AIFMs and UCITS management companies might ensure that all marketing communication related to an AIF or a UCITS :
- Be identifiable as marketing communication
- Disclose the risks and rewards in an equally prominent manner
- Be fair, clear and not misleading
- Ensure that all information presented does not contradict or diminish the information contained in the prospectus, key investor information document (KIID) or required fund documentation which must be disclosed to investors
- Indicates that a prospectus exists and that the KIID is available; where, how and in which language these documents can be obtained
- ESMA shall develop guidelines on the application of these requirements taking on-line aspects of marketing communications into account
- Competent authorities might require systematic notification of marketing communications for UCITS and retail AIFs. Shall competent authorities opt for such requirement, they will have a maximum delay of 10 working days to request any amendment in marketing communications to UCITS management companies or AIFMs
Proposal for Common principles on fees and charges
The proposal suggests that fees and charges levied by competent authorities shall be proportionate to the expenditure relating to the authorization or registration and the performance of the supervisory and investigatory powers.
Competent authorities shall invoice the AIFM or the UCITS management company and indicate the means of payment and the date when payment is due.
Proposal for Transparency of fees and charges
The proposal suggests that competent authorities shall notify ESMA on the level of fees and charges. ESMA shall therefore develop a public on-line database listing the fees or charges applicable by each competent authority. This online interactive database shall be accessible in at least a language customary in the sphere of international finance.
Proposal for pre-marketing activities of European Venture Capital Funds (“EuVeCa”)
Managers of qualifying EuVECA might engage in pre-marketing activities provided that those do not:
- relate to an established qualifying EuVECA
- contain references to an established qualifying EuVECA
- enable investors to commit to purchase units or shares of a particular qualifying EuVECA
- provide the fund documentation in draft or final versions which enable potential investor to make an investment decision
Subscription by investors to units or shares of qualifying EuVECA registered following the pre-marking or to the units or shares of qualifying EuVECA managed and marketed by managers of qualifying EuVECA that engaged in pre-marketing of not-yet-registered qualifying EuVECA with the similar features shall be considered the result of marketing (no reverse solicitation option).
Proposal for Pre-marketing activities of European Social Entrepreneurship Funds (“EuSEF”)
The proposal suggests that managers of qualifying EuSEF may engage in pre-marketing activities provided that:
- It does not relate to an established qualifying EuSEF
- It does not contains references to an established qualifying EuSEF
- It does not enables investors to commit to purchase units or shares of a particular qualifying EuSEF
- It does not provide the fund documentation in draft or final versions which enables potential investor to make an investment decision
Subscription by investors to units or shares of qualifying EuSEF registered following the pre-marking or to the units or shares of qualifying EuSEF managed and marketed by managers of qualifying EuSEF that engaged in pre-marketing of not-yet-registered qualifying EuSEF with the similar features shall be considered the result of marketing (no reverse solicitation option).
Source: European Commission, 12 March 2018
https://ec.europa.eu/info/law/better-regulation/initiatives/com-2018-110_en
Next steps
Both proposals are subject to political agreement between the European Parliament and the Council of the European Union. Shall the EU institutions have a strong political commitment, an agreement on both proposals may be foreseen in 2018.