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As part of the implementation of the Capital Market Union (“CMU”), most of the provisions of the EU Cross-Border Distribution of Funds (“CBDF”) legislation will come into effect on August 2nd 2021.

The aim of the CBDF is to reduce regulatory obstacles and enhance harmonisation in the cross-border distribution of investment funds. This applies to UCITS and AIFs marketed to retail investors. A summary of the key impacts of CBDF are outlined below.

1. Local Agents

CBDF prohibits the requirement for a physical presence in local jurisdictions where funds are registered. Thus, regulators may no longer require the appointment of local agents.

However, a UCITS fund must make the following facilities available to investors in the jurisdictions where it is registered:

  • process subscription, repurchase and redemption orders and payments facilities;
  • provide investors with information on payment of orders and redemptions;
  • facilitate any complaints;
  • make fund information and documents available;
  • provide investors with information relevant to the tasks that the facilities perform; and
  • act as a contact point for the local regulators.

These facilities must be made available in the local language of the relevant jurisdiction, or one approved by that jurisdiction. There is no physical requirement for these facilities – they can be provided electronically. These requirements apply to every jurisdiction across the EU, including those that previously had no requirement for local agents.

The implications are that UCITS funds must now choose how to make the above facilities available.

We expect further guidance from local regulators on how the requirements will be implemented before the August 2nd deadline.

2. Notification of Material Changes to UCITS

Any changes to the details outlined in the UCITS Notification Letter (the initial letter filed when passporting the fund) must be provided to the home state regulators at least a month in advance of taking effect. This includes changes to the fund’s management company, registered address, administrator or local agents. If a fund wishes to register new share classes in a jurisdiction, a notification of the intention to do so must be made to the home state regulator one month in advance.

3. Marketing Enhanced Disclosure Requirements

The CBDF introduces new harmonised requirements for marketing materials used across the EU based on the concept of fair, clear and not misleading marketing. Funds and management companies should ensure the parties drafting marketing materials undertake that they will adhere to these guidelines:

Disclaimers The term “Marketing Communication” should be prominent in the disclosure. The following template has been provided;
“This is a marketing communication. This is not a contractually binding document. Please refer to the [prospectus of the [UCITS/ AIF/] and to the [KIID/ KID](delete as applicable)] and do not base any final investment decision on this communication alone.”
Risk/Reward Marketing communications should not refer to the rewards without referring to the risks. Both rewards and risk should have the same font and font size.
Suitability for
Target Investor
The level of information and its presentation may be adapted depending on the target audience of retail or professional investors.
Consistency with
Marketing wording in a presentation should not be inconsistent or contradict the wording in regulatory documents of the relevant fund.
Fund Features The marketing communication should include a short description of the relevant fund’s investment policy and types of assets.
Investment Policy The marketing communication description of the investment policy should include:

  • in the case of index-tracking funds, the words “passive” or “passively managed” in addition to the words “index tracking”;
  • in the case of actively managed funds, the terms “active” or “actively managed”;
  • in the case of active funds which are managed in reference to an index, additional disclosure on the use of the benchmark index and an indication of the degree of freedom from the benchmark; and
  • in the case of active funds which are not managed in reference to any benchmark index, a disclosure outlining this.
Performance Marketing communication should refrain from the use of optimistic language. The reference period for past performance data should be clearly stated (i.e. not in footnotes).

Simulated past performance should be limited to marketing for new share classes of an existing fund and clearly stated.

Future performance should be preceded by the following statement;
“The scenarios presented are an estimate of future performance based on evidence from the past on how the value of this investment varies, and/or current market conditions and are not an exact indicator. What you will get will vary depending on how the market
performs and how long you keep the investment/product.”

Information should be based on the content of the Prospectus/Information Document. The sustainability related information should be commensurate with the extent the investment strategy of the fund promotes environmental or social characteristics, or sustainable investment objectives.

4. Harmonisation in De-Registering Funds

There will be a harmonised process for the cessation of cross-border marketing. The following should take place:

  • Issuance of 30 day standing blanket offer to repurchase, free of charge, all shares held by investors in the jurisdiction the fund is withdrawing from;
  • A public notification of the intention to de-register in the jurisdiction, by means of a publicly available medium (including electronically)
  • Notification of compliance of the above submitted to the home state regulator, who then has 15 working days to notify the host state regulator.

5. Pre-Marketing of AIFs Permitted

The provision of information to a prospective professional investor is now permitted for an AIF provided it does not amount to an offer to invest. This relates to an AIF which is not yet established and for an AIF which is not yet registered to market in a particular jurisdiction.

A notification must be made to the AIFM’s home authority within two weeks after any pre-marketing activity begins taking place. Third parties appointed to pre-market must take the form of a MiFID firm, CRD firms, UCITS Management Companies or AIFMs.

Download a copy of EU Cross-Border Distribution of Funds – 2021 Update

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

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).

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