On 20 June 2019, the European Parliament and the Council introduced a more harmonised framework on cross-border distribution of funds. The aim of the new Directive 2019/1160 and the Regulation 2019/1156 is to reduce regulatory roadblocks or barriers that hinder cross-border distribution of funds within the EU and to enhance fund managers’ ability to fully benefit from the internal market. The new rules provide notably for a harmonised definition of pre-marketing, create a central database on cross-border marketing, modify the rules applicable to marketing communication requirements and specify new requirements regarding facilities available to investors.
The European investment funds market is still largely fragmented along national lines. According to figures collected by the European Commission, in 2017, 70% of assets under management in the EU were held by investment funds that were only active in their countries of origin. Only 37% of undertakings for collective investment in transferable securities (“UCITS”) and 3% of alternative investment funds (“AIFs”) were registered in more than three Member States. Divergent regulatory and supervisory approaches to the cross-border distribution of UCITS and AIFs, including European venture capital funds (“EuVECA”), European social entrepreneurship funds (“EuSEF”), and European Long-Term Investment Funds (“ELTIF”), result in fragmentation and barriers to cross-border marketing. While the previous regulations were already aimed at removing restrictions to the free movement of units and shares of collective undertakings in the EU, certain barriers still hamper the ability of fund managers to fully benefit from the internal market. Against this background, the following new Directive and Regulation were adopted by the European Commission in June 2019:
- EU Directive 2019/1160 with regard to cross-border distribution of undertakings for collective investment amending both the UCITS Directive and the AIFM Directive (the “Directive”); and
- EU Regulation 2019/1156 on facilitating cross-border distribution of collective investment funds and amending the EuVECA, the EuSEF and the PRIIPS Regulation (the “Regulation”).
The new Directive and Regulation provide for:
- A harmonised definition of “pre-marketing” for AIFs (including EuVECA and EuSEF), but none is provided for UCITS. The new Directive allows AIFMs to engage in pre-marketing activities to test an investment strategy or an investment idea with EU professional investors in order to test their interest in an AIF or a “compartment” that either has not yet been established, or has been established, but not yet been notified for marketing in that Member State where the potential investors are domiciled or have their registered office.
Pre-marketing is, however, not permitted if the information presented to potential investors:
a. is sufficient to allow investors to commit to acquiring units or shares of a particular AIF;
b. amounts to subscription forms or similar documents whether in a draft or a final form; or
c. amounts to constitutional documents, a prospectus or offering documents in final form of an AIF that has not yet been established.
- A ‘de-notification’ process for the marketing of units or shares of AIFs/UCITS.
- New requirements with regard to changes made to the information or documentation contained in the marketing notification of AIFs/UCITs.
- New facilities to be made available to UCITS/AIF retail investors.
- Creation of a new central database on cross-border marketing of AIFs and UCITS. By 2 February 2022, ESMA shall publish on its website a central database, publicly accessible, listing all AIFs (including EuVECA and EuSEF) and all UCITS as well as the Member States in which they are marketed. On a quarterly basis, competent authorities of home Member States shall communicate to ESMA the information that is necessary for the creation and maintenance of the central database.
- Common principles concerning fees and charges levied by competent authorities for carrying out their duties in relation to cross-border activities of AIFs and UCITs. Competent authorities should then publish on their websites a list of the fees and charges as well as the calculation methodologies.
- New marketing communication requirements. Managers shall, amongst others, ensure that all marketing communications addressed to investors are identifiable as such and describe the risks and rewards of purchasing units or shares of AIFs (including EuVECA and EuSEF) and UCITS.
- Amendments to the PRIIPS Regulation in order to extend:
– the UCITS exemption to produce a PRIIPs KID to 31 December 2021; and
– the European Commission’s review of the PRIIP Regulation to 31 December 2019.
Entry into force and application
The new Directive and Regulation will enter into force on the twentieth day following their publication.
By 2 August 2021 at the latest, Member States shall transpose the Directive into national laws.
The Regulation shall apply as from 1 August 2019.