What do Investment Funds, Crowdfunding and Covered Bonds have in Common?

They are each the subject of new legislative proposals published by the European Commission as part of a package of measures aimed at deepening the Capital Markets Union (CMU).  The Commission has also published a proposal for a regulation applicable to third-party effects of assignments of claims, as well as a communication on the law applicable to cross-border securities transactions.

Capital Markets Union (CMU)

CMU, which is designed to increase and diversify funding sources by deepening European capital markets, is one of the Commission’s key objectives.  Since the Commission published its Action Plan on CMU in September 2015, it has adopted a range of measures designed to promote the CMU, including eight legislative proposals in addition to those adopted as part of the current package. Three of these legislative proposals have been adopted, namely, the Prospectus Regulation 2017/1129, the Securitisation Regulation 2017/2402 and Regulation 2017/1991 on European venture capital funds and European social entrepreneurship funds.

The latest legislative proposals (here) comprise:

  • a Regulation on facilitating cross-border distribution of collective investment funds; and
  • a Directive amending the UCITS Directive 2009/65 and the Alternative Investment Fund Managers Directive 2011/61 (“AIFMD”) with regard to cross-border distribution of collective investment funds;
  • a Regulation on European Crowdfunding Service Providers for Business;
  • a Directive on the issue of covered bonds and covered bond public supervision and amending the UCITS Directive and Directive 2014/59/EU;
  • a Regulation on amending Regulation (EU) No 575/2013 (“Capital Requirements Regulation”)  as regards exposures in the form of covered bonds; and
  • a Regulation on the law applicable to the third-party effects of assignments of claims.

As mentioned, the Commission has also published a Communication on the law applicable to cross-border securities transactions. 

Cross-border distribution of investment funds

The legislative proposals on cross-border distribution of investment funds seek to reduce the regulatory barriers to the cross-border distribution of investment funds.

The proposed Regulation aims to increase transparency of rules and procedures applicable to cross-border marketing of investment funds and regulatory fees and charges levied by national competent authorities. 

Specifically, it sets down principles which marketing communications must fulfil and provides for a centralised database for national provisions on marketing requirements.  It also provides that where competent authorities require systematic notification of marketing communications, the competent authorities must verify whether those communications comply with relevant national marketing provisions within 10 working days. Moreover, the verification cannot constitute a prior condition for marketing.

NCAs must publish and maintain on their websites central databases detailing fees or charges or relevant calculation methods. Any fees or charges imposed by competent authorities must be proportionate to the supervisory tasks carried out. 

The proposed Directive amends the UCITS Directive and AIFMD with regard to cross-border distribution of collective investment funds. In particular, it modernises the requirement to provide local facilities to investors set out in the UCITS Directive so that it will not be necessary to have a physical presence in the relevant member state, and extends this requirement to alternative investment fund managers (“AIFMs”) that are allowed to sell to retail investors.

The proposed Directive also amends AIFMD to define “pre-marketing” and lays down the conditions under which an EU AIFM can engage in pre-marketing activities. It amends both the UCITS Directive and AIFMD to provide clear and uniform conditions for the discontinuation of marketing of units or shares of a UCITS or alternative investment fund.


The proposal for a Regulation on European Crowdfunding Service Providers for Business establishes a European label for investment-based and lending-based crowdfunding platforms that comply with the authorisation, organisation and supervisory requirements set out in the proposed Regulation.

Crowdfunding service providers will have the option of applying to the European Securities and Markets Authority (ESMA) for a single Union-wide authorisation under the proposed Regulation and to exercise their activity in accordance with those requirements. Alternatively, they will be able to carry out crowdfunding activities in accordance with national law, which is not impacted by the proposed Regulation.

The proposed Regulation will not apply to certain types of crowdfunding activity, including crowdfunding services where the person seeking to fund its crowdfunding project is a consumer, and crowdfunding offers with a consideration of more than EUR 1,000,000 per crowdfunding offer.

Covered Bonds

The issuance of covered bonds and maintenance of cover pools is currently regulated at national level. Although these national codes are in practice greatly influenced by the parameters of the preferential treatment of qualifying covered bonds under the Capital Requirements Regulation, regulatory regimes differ widely across member states in terms of supervision, disclosure and other requirements. Moreover, EU law does not comprehensively address what constitutes a covered bond.

The Commission’s proposals aim to foster the development of covered bonds across the EU, including through the introduction of a “European Covered Bonds” label. They also seek to align more closely the various national regimes by introducing certain core requirements to be met by local implementation measures and to enhance the alignment of covered bond regulatory features in the EU. 

The proposed Directive will apply to covered bonds issued by credit institutions established in the EU. It lays down investor protection rules concerning:

  • the requirements for issuing covered bonds, maintaining cover pools and covered bonds' structural features;
  • covered bond public supervision; and
  • publication requirements for competent authorities in relation to covered bonds.

Once adopted, the proposed Directive will become the single point of reference for all EU legislation relating to covered bonds and replace the definition of covered bonds currently set out in the UCITS Directive.

Credit institutions which issue covered bonds in the EU that comply with the requirements set out in the proposals will be able to sell those bonds under the European Covered Bonds label, which will make it easier for both domestic and third countries’ investors to assess the quality of the covered bonds and should make them more attractive. The European Covered Bonds label will co-exist with national labels.

The proposed Regulation amends the requirements for covered bonds benefitting from preferential capital treatment under the Capital Requirements Regulation.

Law applicable to third-party proprietary effects of the cross-border assignment of claims

At the moment there is no legal certainty as to which national law applies when determining who owns a claim after it has been assigned in a cross-border case.  Moreover, the outcome of a conflict as to who owns a claim further to a cross-border assignment may vary depending on the national law of the court or authority assessing the dispute as a result of inconsistencies between the national rules.

The proposed Regulation is designed to determine the law applicable to the proprietary effects of cross-border assignments of claims.  It provides that, as a general rule, the law of the country where the assignor has its habitual residence will govern the third-party effects of assignments of claims.  However, the proposed Regulation also lays down exceptions which subject certain assignments to the law of the assignment claim where the general rule would not be suitable and also a choice of law possibility for securitisations aimed at expanding the securitisation market.

This proposed regulation will not affect matters governed by the Settlement Finality Directive 98/26, the Winding-up Directive 2001/24 or the Financial Collateral Directive 2002/47, to which the Commission Communication referred to under the heading “Cross-border securities transactions” relates.   Matters covered by the Registry Regulation 389/2013 are also not affected by this legislative proposal.

Cross-border securities transactions

At EU level, the law applicable to determining the ownership of securities in cross-border transactions is currently set out in the Settlement Finality Directive, the Winding-up Directive and the Financial Collateral Directive.

The relevant conflict of laws provisions apply on the basis of the place of the relevant register or account and, in the case of the Settlement Finality Directive and the Winding-up Directive, the centralised deposit system. However, the provisions differ in detail and are not applied consistently in the various member states. The Communication on the law applicable to cross-border securities transactions presents the Commission’s views as to how the relevant provisions of the Directives may be applied at present.  The Communication states that:

"National authorities and administrations should take into consideration the clarifications provided in this Communication when applying the conflict of laws provisions of the Settlement Finality Directive, the Financial Collateral Directive and the Winding-up Directive."


According to the Commission, it is committed to putting all the building blocks of CMU in place by mid-2019. The four most recent proposals will be followed by additional proposals by May 2018, and the Commission is seeking to have all CMU related legislative measures adopted before the European Parliament elections in mid-2019, at the latest.

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.