Cross-Border Distribution of Collective Investment Schemes
The EU’s new regulatory framework facilitating the cross-border distribution of collective investment schemes is set to apply from 2 August 2021. Fund managers will need to consider whether the new framework requires them to make any changes to their existing cross-border distribution arrangements, if they have not already done so. This briefing focuses on the new provisions relating to fund managers’ cross border activity regarding marketing communications, investor information and pre-marketing.
Overview of the Cross Border Distribution Framework (“CBDF”)
The CBDF introduces new rules aimed at facilitating the cross-border distribution of both UCITS and Alternative Investment Funds (“AIFs”). This includes new rules governing marketing communications, and cross-border investors’ access to information. The CBDF also harmonises the conditions under which AIFMS, EuSEF Managers and EuVECA Managers can engage in pre-marketing in the EU. For more information on the CBDF, see our previous briefing here.
The primary legislation comprising the CBDF is set out in:
- 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 “CBDF Regulation”) (here); and
- Directive 2019/1160 which amends the UCITS Directive 2009/65 and the Alternative Investment Fund Managers Directive 2011/61 in certain respects (the “CBDF Directive”) (here).
ESMA published its “final report on Guidelines on marketing communications under the Regulation on cross-border distribution of funds”, (the “Guidelines”) on 27 May 2021, which will apply 6 months after the date of the Guidelines’ publication on ESMA’s website in all EU official languages.
Two further measures are as of yet outstanding, namely a draft Implementing Regulation and the domestic measures to transpose the CBDF Directive into Irish law.
ESMA has submitted the draft Implementing Regulation to the European Commission for endorsement. It focuses on the publication of information by National Competent Authorities (“NCAs”) on their websites regarding the national rules governing marketing requirements for funds, and the regulatory fees and charges levied by NCAs relating to fund managers' cross-border activities. It also covers the notification of information by NCAs to ESMA for developing and maintaining a central database listing UCITS and AIFs marketed cross-border on ESMA's website.
In order to transpose the CBDF Directive into national law, each Member State will need to amend its transposing legislation for the UCITS Directive 2009/65 and the Alternative Investment Fund Management Directive 2011/61. In this respect, we anticipate that the Minister will publish regulations, on or before 2 August, amending respectively, the:
- European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011; and
- European Union (Alternative Investment Fund Managers) Regulations, 2013.
Pursuant to the CBDF Regulation, fund marketing communications must:
- be identifiable as such;
- describe the risks and rewards of purchasing units or shares of an AIF or units of a UCITS in an equally prominent manner; and
- contain clear, fair and not misleading information, taking into account the on-line aspects of marketing communications.
UCITS Managers, including self-managed UCITS, must ensure that marketing communications:
- that contain specific information about a UCITS do not contradict or diminish the significance of the information contained in the prospectus or the Key Investor Information document (the “KIID”);
- indicate that a prospectus exists, that the KIID is available, specify where, how and in which language the prospectus can be obtained and provide hyperlinks to or website addresses for those documents;
- provide a summary of investor rights, including information on access to collective redress mechanisms at EU and national level, provide a hyperlink to the summary and specify where, how and in which language it can be obtained;
- provide clear information that the UCITS Manager may decide to terminate the arrangements made for the marketing of its collective investment undertakings.
AIFMs, EuVECA managers and EuSEF managers must ensure that marketing communications comprising an invitation to purchase units or shares of an AIF that contain specific information about the AIF do not contradict the information which is to be disclosed to the investors in pre-contractual disclosures. The requirements set out above apply to AIFs which publish a prospectus or apply rules on the format and content of the key investor information set out in the UCITS Directive.
The CBDF Guidelines provide further guidance on the requirements on marketing communications. While funds will need to review their marketing communications to ensure that they comply with the above requirements by 2 August 2021, the Guidelines themselves will not apply until some time later, meaning that fund managers have some additional time to make any necessary amendments to their marketing communications.
NCA’s may require prior notification of marketing communications aimed at retail investors.
Access to information
Pursuant to the CBDF Directive, a fund manager must not be required to have a physical presence in a member state where it is marketing a fund on a cross-border basis. However, both UCITS Managers and AIFMS must make available facilities to perform the following tasks, including electronically:
- process subscription, repurchase and redemption orders and make other payments relating to the units of the UCITS/shares in the AIF;
- provide investors with information on how orders referred to in point (a) can be made and how repurchase and redemption proceeds are paid;
- facilitate the handling of information and access to procedures and arrangements relating to the investors' exercise of their rights arising from their investment in the UCITS/AIF in the Member State where the fund is marketed;
- make required information and documents available to investors under Chapter IX of the UCITS Directive and Articles 22 and 23 of AIFMD, for the purposes of inspection and obtaining copies thereof;
- provide investors with information relevant to the tasks that the facilities perform in a durable medium; and
- act as a contact point for communicating with the competent authorities.
The UCITS Manager/ AIFM must ensure that the facilities to perform the tasks referred above, are provided:
- in an official language of the Member State where the UCITS/AIF is marketed or in a language approved by the Member State’s competent authorities;
- by the UCITS/AIF itself, by a third party which is subject to regulation and supervision governing the tasks to be performed, or by both.
Where a third party is performing the tasks referred to above, its appointment must be evidenced by a written contract, which specifies which of those tasks are not to be performed by the UCITS Manager/AIFM and that the third party will receive all the relevant information and documents from the UCITS Manager/AIFM.
The CBDF Directive amends AIFMD to establish the conditions under which an EU AIFM can engage in “pre-marketing”. The CBDF Regulation amends the EuVECA and EuSEF Regulations in this regard.
In the case of an AIF, for the purposes of the CBDF, to constitute “pre-marketing”, an activity cannot amount to an offer or placement to the potential investor to invest in the relevant unit, shares or compartment of an AIF. Moreover, the relevant activity must involve:
- the provision of direct or indirect information or communication on investment strategies or investment ideas by an EU AIFM or on its behalf;
- to potential professional investors domiciled or with a registered office in the EU;
- in order to test their interest in an AIF or a compartment which is not yet established, or which is established, but not yet notified for marketing;
- in that Member State where the potential investors are domiciled or have their registered office.
In keeping with this definition, in order to carry out pre-marketing, the information provided to potential investors must not be:
- sufficient to allow investors to commit to acquiring units or shares of a particular AIF;
- amount to subscription forms or similar documents whether in a draft or a final form; or
- amount to constitutional documents, a prospectus or offering documents of a not-yet-established AIF in a final form.
Moreover, where a draft prospectus or offering document is provided, it must not contain information sufficient to allow investors to take an investment decision and must clearly state that:
- it does not constitute an offer or an invitation to subscribe to units or shares of an AIF; and
- the information presented therein should not be relied upon because it is incomplete and may be subject to change.
An AIFM must ensure that pre-marketing is adequately documented. Moreover, within 14 days of commencing pre-marketing, an AIFM must send an informal letter to its NCA setting out details of that pre-marketing.
As set out above, fund managers should review their marketing documentation and their cross-border facilities to ensure that they comply with the above requirements. As mentioned, from 2 August, fund managers must comply with the CBDF Regulation with respect to their marketing communications, although over the longer-term they will also need to comply with the Guidance.
While the CBDF Directive has yet to be transposed into Irish law, the requirements around the provision of facilities appear sufficiently clear to permit a fund manager to commence a gap analysis of its existing facilities, even absent the transposing legislation.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.
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