Wed. Sep 30th, 2020

Planet Compliance

Innovation & Regulation in Finance

Everything you need to know on the new rules for Cross-Border Distribution of Investment Funds

4 min read

The clock is ticking: with less than a year left until the new rules on Cross-Border Distribution of Investment Funds become applicable, there is no time to lose to make sure you are prepared for the new framework and have the right processes in place. Here is an overview on the new rules for Cross-Border Distribution of Investment Funds in the European Union.

 

The Upcoming Rules on Cross-Border Distribution of Investment Funds

The rules on the cross-border distribution of investment funds in the European Union have been changed. The changes have been made by a directive and regulation amendment, creating the framework of the European Commission.

It has been in force since July 2019 but will apply in each member-state starting from 2 August 2021. Most of the amendment provisions have not applied yet, therefore fund and fund management companies have enough time to align their processes with the new rules. If you are up for doing the work sooner than later, here is a short summary of what you should prepare for in the next 12 months.

 

No requirement for physical presence for UCITS

The current requirement. According to Article 92 of the Directive, UCITS must have a physical presence in each host member-state to provide local facilities to investors. The requirement applies for each host member-state where the funds are marketed.

The upcoming requirement. The amendments remove the physical presence requirement. The NCAs cannot require UCITS to appoint a third party for providing local facilities to investors anymore.

 

Cross-Border Notification Letter

The current requirement. Article 93 of the Directive prescribes the procedure for notifying the NCA on the UCITS marketing in the host member-state. It contains all the steps a UCITS needs to take in the process.

The upcoming requirement. The amendments bring additional requirements regarding the content of the notification letter and set time limits for submission. In addition to the current requirements, notification letters from 2 August 2021 will have to contain the necessary UCITS details for invoicing or communicating regulatory fees or charges, including address.

In the case of change of information, the notification letter has to be sent at least one month prior to implementing the changes.

 

De-Registration

The current requirement. De-registration is not regulated currently.

The upcoming requirement. UCITS that no longer want to market their units in a member-state can de-register by notification to the home member-state, which then has 15 days to send the notification to the relevant host member-state. There is a whole process for de-registration, fully outlined in the new Article 32a.

 

 

Marketing Communications

The current requirement. The marketing communications are regulated in detail throughout the Directive.

The upcoming requirement. In addition to the existing requirements, NCAs may, if they want, require fund management companies to notify the NCA on the marketing communication that they intend to use with investors. However, such notification cannot be a requirement for conducting marketing activities.

In addition, NCAs will be required to publish information on national laws, while ESMA will be required to publish summaries of all the national requirements on marketing communications.

 

Central Database on Cross-Border Distribution of UCITS and AIFs

The current requirement. There is no current requirement for such a database.

The upcoming requirement. ESMA now has to establish a database listing:

  • all AIFs that are marketed in another Member State
  • their AIFM and a list of the Member States in which they are marketed,
  • all UCITS that are marketed in another Member State, their management company and a list of Member States in which they are marketed

Local NCAs are obliged to provide ESMA with the information necessary to establish and maintain the list on a quarterly basis.

 

There is enough time for funds and fund management companies to align their practices with the new requirements. Having in mind the streamline and unburdening of processes, it is clear that they will be glad to adjust their work to the upcoming rules.

 

 

 

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