On 12 July 2019, the Official Journal of the European Union (OJ) published a new EU cross-border distribution directive and regulation. In Part 2 below, we discuss the new regulation, Regulation (EU) 2019/1156 of the European Parliament and of the Counsel of 20 June 2019 on facilitating cross-border distribution of collective investment undertakings and amending Regulation (EU) Nos 345/2016, 346/2013 and 1286/2014 (the “Cross-Border Distribution Regulation”). The latter regulation, 1286/2014, is on packaged retail and insurance-based investment products (PRIIPs) (the “PRIIPs Regulation”).
The Cross-Border Distribution Regulation includes the following significant features:
1. Requirements for marketing communications (applicable from 2 August 2021)
Each Alternative Investment Fund Manager (AIFM) must ensure that all marketing communications addressed to investors are identifiable as such and describe the risks and rewards of purchasing units or shares of an AIF or units of an Undertaking for Collective Investment in Transferable Securities (UCITS) in an equally prominent manner, and that all information included in marketing communications is fair, clear and not misleading.
For an AIF’s communications to fall under Article 23 (Disclosure to investors) Directive 2011/61/EU on Alternative Investment Fund Managers (the “AIFM Directive”), statements in marketing materials must not contradict the significance of information in other communications to investors. This means that such marketing material must comply with the issuing document/private placement memorandum issued by the AIF.
Luxembourg law applicable to Luxembourg AIFMs shall confirm whether marketing materials must also specify where, how and in which language investors or potential investors can obtain the issuing document/private placement memorandum and whether the marketing materials shall provide hyperlinks to or website addresses for the documents.
Similar rules shall apply to UCITS management companies.
The European Securities and Marketing Authority (ESMA) shall issue guidelines by 2 August 2021 on the application of the requirements for marketing communications, taking into account the on-line aspects of such marketing communications.
2. Ex-ante verification of marketing communication (applicable on 1 August 2019)
In order to verify compliance with marketing requirements, competent national authorities may require prior notification of marketing communications which AIFMs intend to use directly or indirectly in their dealings with retails investors.
In such instances, the competent national authorities shall inform the AIFMs of any request to amend their marketing communications within 10 working days following the authorities’ receipt of the marketing communications.
This prior notification may be required systematically or in accordance with any other verification practices. However, this requirement for prior notification shall not constitute a prerequisite for marketing and shall not be part of the marketing notification process.
Competent authorities that require prior notification of marketing communications shall establish, apply, and publish on their websites, procedures for such prior notification.
To date, the CSSF has not required prior notification of marketing communications. Neither has it published on its website any procedures for such prior notification.
As a reminder, since 2005 the CSSF has not required any prior control of advertising material. However, the CSSF has the authority to require the withdrawal of any misleading advertisement with regard to the services offered as well as any inappropriate communication of information on the Luxembourg legal framework.
3. New requirements for regulatory fees and charges of competent authorities (applicable on 1 August 2019)
Any fees or charges levied by competent authorities for AIFM cross-border activities, such as CSSF fees for cross-border marketing activities from Luxembourg, shall be consistent with that competent authority’s overall fees for the an AIFM’s marketing generally.
4. PRIIPs deadline extension from 31 December 2019 to 31 December 2021
UCITS shall continue to benefit from the exemption to produce a Key Information Document (PRIIPs KID) until 31 December 2021.
AIFs being advised on, offered or sold to retail investors must issue a PRIIPs KID unless they issue a UCITS-like KIID to benefit from the deadline extension until 31 December 2021.
5. Implementation of a new ESMA central database on cross-border marketing of UCITS and AIFs publicly accessible on its website by 2 February 2022
Such data base shall list all:
- AIFs that are marketed in a Member State other than the home Member State, their AIFM and the Member States in which they are marketed; and
- UCITS that are marketed in a Member State other than the UCITS home Member State, their UCITS management company and the Member States in which they are marketed
6. Commission to report on reverse solicitation
The Commission will be required to report to the Parliament and Council by 2 August 2021 on reverse solicitation and requests on investors’ own initiative , specifying the extent of that form of subscription to funds, its geographical distribution (including in third countries), and its impact on the passporting regime. The Commission will base the report on its consultation with the competent authorities, ESMA and other relevant stakeholders.
The Regulation will become applicable on 1 August 2019, except for the new requirements for marketing communications which shall apply from 2 August 2021.