Directive to Facilitate Cross-Border Distribution of Investment Funds

On 16 April 2019, the European Parliament adopted legislative resolutions on the proposal for a directive of the European Parliament and of the Council amending directives 2009/65/EC and 2011/61/EU with regard to cross-border distribution of collective investment undertakings (the “Proposal”). The Proposal was signed on 20 June 2019 and should be published soon.

The Proposal aims to remove the current regulatory barriers to the cross-border distribution of investment funds in order to make their cross-border distribution simpler, faster and cheaper.

The final draft of the Proposal (the “Final Draft”) contains the following changes from the last amended proposal dated December 2018 (see our newsletter dated January 2019):

Concerning the amendment of the notifications related to the use of the marketing passport

The Final Draft introduces a new “sanction”. Where, pursuant to a change to the information in the notification letter, the UCITS would no longer comply with Directive 2009/65/EC and, where the competent authorities of the UCITS home Member State informed the UCITS that it is not allowed to implement that change, the competent authorities of the home Member State of the UCITS shall take all appropriate measures, including, the express prohibition of marketing of the UCITS.

Concerning the provisions on pre-marketing

1. The Final Draft clarifies the exceptions for pre-marketing in the EU by an EU AIFM. An authorised EU AIFM can’t engage in pre-marketing in the EU where the information presented to potential professional 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 of a not-yet-established AIF in a final form.

2. The Final Draft requires one more special mention in the draft prospectus. Draft prospectus shall clearly state that they do not constitute an offer or an invitation to subscribe to units or shares, and, that the information should not be relied upon because it is incomplete and may be subject to change.

3. The Final Draft imposes formal requirements upon an AIFM to inform the competent authorities of its home Member State of the start of the pre-marketing: the AIFM should send, within two weeks of it having begun pre-marketing, an informal letter, in paper form or by electronic means.

4. The Final Draft foresees one more new condition to de-notify arrangements made for the marketing of units or shares of some or all EU AIFs. The de-notification requires that any contractual arrangements with financial intermediaries or delegates are modified or terminated with effect from the date of de-notification. Thus, (i) as of the date of de-notification the AIFM shall cease any new or further, direct or indirect, offering or placement of units or shares of the AIF it manages in the Member State and, (ii) for a period of 36 months from the date of de-notification the AIFM shall not engage in pre-marketing of units or shares of the EU AIFs referred to in the notification, or in respect of similar investment strategies or investment ideas, in the Member State identified in the notification.