The aim of the European Union’s (“EU”) Capital Markets Union (“CMU”) project is to deepen integration, sustain growth and promote competiveness in EU member states. As part of the CMU project, the European Council has published Directive (EU) 2019/1160 (“the Directive”) and Regulation (EU) 2019/1156 (“the Regulation”) on facilitating cross border distribution of funds on 12 July 2019. The Regulation and the Directive are designed to assist in the removal of barriers for cross border investments in the EU.
The Directive – Main Changes
The main changes to UCITS and AIFMD compliant products from the Directive, which must be enacted in each EU member state by 2 August 2021, are as follows:
Pre-marketing is generally considered to be “a direct or indirect provision of information on investment strategies or investment ideas by an AIFM or on its behalf to professional investors domiciled or registered in the EU in order to test their interest in an AIF which is not yet established.”
The European Council noted that fund houses face divergence between the legal approach of different member states towards pre-marketing. The European council stated that a harmonised definition of pre-marketing should be provided and the conditions under which an EU AIFM can engage in pre-marketing should be established.
The new parameters around which EU AIFMs may pre-market are as follows:
- The pre-marketing involves the provision of information on the investment strategy or investment idea in relation to an AIF which is not yet established.
- The pre-marketing activities must not amount to an offer or placement. Draft documents can be circulated to prospective investors but no subscription documents should be made available.
- Draft marketing documents should clearly indicate that they are in draft form and subject to change.
- It is important to note that AIFMs will be subject to an additional layer of compliance. They will be required to ensure that pre-marketing activities are properly documented, and will be required to send, within two weeks of engaging in pre-marketing, an informal letter or email to their home state regulator advising them of such pre-marketing activities.
Discontinuance of marketing within a member state
While currently the process for the discontinuation of marketing of a fund by AIFMs and UCITS managers differs between member states, the Directive introduces a harmonised, formalised process. According to the Directive, a de-notification request for AIFMs and UCITS managers will need to be submitted to the relevant home state regulator, which will forward it to the impacted host state regulators.
Local information/paying agents
The Directive states that the requirement to appoint local paying/information agents in various markets for the distribution of UCITS and AIFs (to retail investors) will no longer apply. AIFMs and UCITS managers will need to ensure that procedures for payments, fund documents, etc. are available to investors but a local market presence will not be required.
The Regulation – New Requirements
The new requirements in the Regulation, which is effective as of 1 August 2019, include:
- An extension of the deadline for UCITS and AIFs to prepare PRIIPs KIDs from 31 December 2019 to 31
- The creation of ESMA databases with details of the local requirements and regulatory fees applicable in each
member state. ESMA is expected to publish the databases by February 2022. There will also be a central UCITS
and AIF register, which will provide details of all funds which are distributed cross border and in which European countries they are marketed.
You can download your copy of Cross Border Distribution of Investment Funds here
KB Associates’ Services
KB Associates offers a range of services to investment funds and management companies including:
- The provision of UCITS/AIF management company services.
- The provision of fund registration services
- The provision of distribution support via the KB Associates MiFID firm
If you would like to discuss any issues raised in this article or related to KB Associates’ services in general, please feel free to contact Mike Kirby (+353 1 667 1980) or Andrew Kehoe (+353 1 613 6396).