EU Legislative Proposals to Facilitate the Cross-Border Distribution of Investment Funds

On March 12th 2018, in the context of the Capital Markets Union action plan, the European Commission issued legislative proposals to amend the existing legal framework for the cross-border distribution of investment funds in the EU. These proposals contain a directive and a regulation (the “Proposals”). The purpose of the Proposals is to reduce regulatory barriers to the cross-border distribution of investment funds in the EU. These new measures are expected to reduce the cost for fund managers of going cross-border and should support more cross-border marketing of investment funds notably by reducing regulatory barriers, including those pertaining to marketing requirements, regulatory fees and notification requirements. The new directive aims at amending both the UCITS and AIFM directives with regard to the cross-border distribution of collective investment funds. The new regulation aims at facilitating cross-border distribution of collective investment funds and amending the European venture capital funds (“EuVECA”) regulation and the European social entrepreneurship funds’ (“EuSEF”) regulation.

The Proposals would introduce the following amendments:

  • A legal definition of “pre-marketing” will be introduced for alternative investment funds, EuVECA and EuSEF and would lay down the conditions under which an EU alternative investment fund manager may engage in pre-marketing activities. The Proposals will introduce more transparency as to the marketing requirements at national and EU level.
  • To foster transparency, the fees and charges as well as the calculation methodologies applied by national competent authorities will have to be made public by these regulators (already the case in most but not all of the EU jurisdictions).
  • No physical presence would be required in Member States where funds are marketed since the Proposals only refer to the provision of facilities to UCITS investors and retail investors investing in AIFs for the processing of their subscription and redemption orders as well as payments. Investors would have access to offering documents and annual reports in a durable medium and in the relevant jurisdiction’s official language.
  • Harmonisation of the procedures and requirements for updating notifications of the use of the marketing passport (or for de-registrations as the case may be) are suggested to be introduced both for UCITS and AIFs.
  • Establishment of a process in order to enable AIFs and UCITS fund managers to discontinue marketing activities once such activities have become insignificant in a specific jurisdiction.

The EU Parliament and the Council of the EU are now asked to review the legislative Proposals.