The EU’s new regulatory framework facilitating the cross-border distribution of collective investment undertakings was published in the EU’s Official Journal on 12 July 2019. The new framework, which is intended to provide clarity for fund managers that want to market their products across the EU comprises:
- Regulation 2019/1156 on facilitating cross-border distribution of collective investment undertakings and amending the EUVECA Regulation 345/2013, the EUSEF Regulation 346/2013 and the PRIIPs Regulation 1286/2014 (the “Regulation”) (here); and
- Directive 2019/1160 which amends the UCITS Directive 2009/65 and the Alternative Investment Fund Managers Directive 2011/61 (“AIFMD”) in certain respects (the “Directive”) (here).
The new regulatory framework forms part of the European Commission’s (the “Commission”) goal to develop a Capital Markets Union in order to mobilise capital in the EU. It aims at promoting the cross-border distribution of investment funds by improving transparency and removing inefficiencies, thereby reducing costs for cross-border distribution and making it simpler, quicker and cheaper.
According to the Commission, in a press release dated 5 February 2019, only 37% of UCITS and about 3% of alternative investment funds (“AIFs”) are registered for distribution in more than 3 Member States. Moreover, over 70% of the total assets under management were held by investment funds authorised or registered for distribution only in their domestic market.
The main changes introduced by the new rules include amendments to the UCITS Directive and AIFMD, which are intended to:
- make it easier for EU AIF managers (“AIFMs”) to test the appetite of potential professional investors in new markets (so-called ‘pre-marketing’);
- clarify customer service obligations for asset managers in their host Member State;
- align procedures and conditions for managers of collective investment funds to exit national markets when they decide to terminate the offering or placement of their funds (so-called ‘de-notification procedure’);
- introduce increased transparency and create a single online access point for information on national rules related to marketing requirements and applicable fees.
The new regulatory framework is expected to result in substantial savings for funds marketed on a cross-border basis. According to the Commission:
For all investment funds currently marketed on a cross-border basis in the EU, the policy choices together are expected to save an annual EUR 306 to 440 million in costs (recurrent costs). The savings in one-off costs is expected to be even higher: EUR 378 to 467 million. These cost reductions should act as incentives to develop more cross-border activities and support a more integrated single market for investment funds.
The Main Changes
The Table below sets out the key changes included in the new regulatory framework:
The Directive amends AIFMD to provide for a harmonised definition of pre-marketing and to establish the conditions under which an EU AIFM can engage in pre-marketing. These amendments will come into force on 2 August 2021. The Regulation provides for identical amendments to the EUVECA Regulation and the EUSEF Regulation.
Discontinuation of marketing
The Directive sets out a new formalised process under which AIFMs and UCITS Managers will be able to discontinue marketing a fund in a particular Member State. These provisions come into force on 2 August 2021.
The Directive amends the requirements for notifying the relevant competent authority of changes to fund information filed for the marketing passport. These amendments apply from 2 August 2021.
Requirement to have local facilities
UCITS Managers may no longer be required to have a physical presence, or to appoint a third party (eg a facilities agent), in each Member State where the UCITS is marketed and may instead us electronic or other means of distance communication with investors.
An AIFM will be required to provide local facilities in each Member State where it intends to market units or shares of an AIF to retail investors. As in the case of UCITS Managers, a Member State may not require an AIFM to have a physical presence in the host Member State or to appoint a third party.
Each of these requirements will come into force on 2 August 2021.
Regulatory fees and charges
Fees and charges levied by the competent authorities for carrying out their duties in relation to cross-border activities must be consistent with the overall cost relating to the carrying out of those duties. A competent authority must also invoice the relevant fund manager for fees and charges incurred, and publish its fees or charges on its website. These provisions apply from 1 August 2019.
The Regulation imposes new requirements on fund managers regarding marketing communications which will apply from 2 August 2021.
ESMA must publish on its website a central database on cross-border marketing of AIFs and UCITS, listing specified information, by 2 February 2022.
The PRIIPS Regulation
The Regulation amends the PRIIPS Regulation to extend the transitional exemption for UCITS from the obligation to publish a PRIIPs Key Information Document, by 24 months, until 31 December 2021.
This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.
Mark White is Head of the Investment Management Group. He advises a wide variety of clients engaged in the promotion and management of all types of investment funds, including UCITS funds, money market funds, ETFs, hedge funds, real estate funds, infrastructure/real assets and private equity funds. Mark works with some of the largest fund managers in the domestic and international funds market, as well as with large institutional and seed investors. He also provides advice on investment business regulation and financial services law.
Iain Ferguson is a partner in the Investment Management Group. He has also practised in a leading international asset management and investment banking business. Iain has significant expertise in structuring, establishing and advising on a wide range of UCITS/AIFs including structured products, hedge funds, ETFs, loan/credit funds, real estate funds, private equity funds and infrastructure funds. He advises major global fund promoters and asset managers, investment banks, the Irish State, sovereign wealth funds, wealth managers, family offices, custodians and international prime brokers in connection with their Irish authorised fund activities.
Tony Spratt is a Consultant in the Investment Management Group and has worked in the funds industry, both in Ireland and the UK, for over 20 years. He advises clients on the structuring and establishment of every type of Irish fund, particularly in the alternative fund sector. He provides advice on regulatory and structural issues related to the establishment process, including alternative investment funds, UCITS and structured products. Tony also advises on the authorisation of investment business firms and is also head of McCann FitzGerald’s Listing department.
Darragh Murphy is a partner in the firm’s Investment Management Group, specialising in regulatory matters. In particular, he advises on regulatory and commercial matters relevant to financial services businesses, including fund promoters, banking and investment management operations. Darragh’s clients include some of the most significant financial services institutions operating in or from Ireland.
Hugh Beattie is Head of McCann FitzGerald's London office and has been a partner in the Investment Management Group for several years. He is one of Ireland’s most experienced Funds, Debt Capital Markets, Structured Finance and Financial Regulation lawyers. He has been involved in the sector since Ireland’s development as a financial services centre. In addition to his extensive range of funds work for clients, he builds on his extensive banking, financial services and structured finance experience to offer a range of solutions to clients, reflecting increasing demand for expertise in relation to combined funds management and debt related solutions.
Anna Moran is a Consultant in the Investment Management Group and has specific expertise in advising domestic and international fund promoters, asset managers and fund service providers on Irish law, financial services regulation and practice related to investment funds. She has recent experience in the structuring, establishment authorisation and ongoing management of a wide range of investment funds, including UCITS funds, AIFs, hedge funds, feeder funds, real estate funds and money market funds.
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