EU proposals: cross-border distribution of investment funds

The investment funds scenery changes

The current "passporting" regime seems inadequate. As was underlined in the Press release document of the European Commission, 70% of all assets under management in the EU are held by investment funds registered for sale in their domestic market, and only 37% of UCITS are registered for sale in more than three Member States. Hence, there is a much lower cross-border distribution activity.
We will not get into details regarding all the changes proposed for the Directive and the Regulation, but we will focus on the cornerstones of these Proposals.
- The marketing communication requirements for the investment funds will be harmonised and they will apply unanimously to both UCITS and AIFs and all asset managers. The Proposal also does not differentiate between retail and professional investors.
- The national authorities of the Member States will be bound to publish online all applicable national laws, regulations and administrative provisions governing AIFs and UCITS. Moreover, the national authorities will have to publish all the fees, charges or relevant calculation methodologies used. ESMA will maintain a central database with all this information and an interactive tool in order to calculate online the amounts that must be paid.
- ESMA will also have to maintain a central database including information for all the AIFMs, UCITS management companies, AIFs and UCITS.
- One of the significant changes the Proposal will bring about is the introduction of the definition of "pre- marketing". For some countries, this may not be a tremendous change as they already have the notion of pre-marketing included in their legislation, but it is the first time that this definition is included in a Directive. In this way both AIF managers and UCITS managers can test if the fund will attract investors or not, and they will avoid the high costs of producing full documentation and submitting a notification file.
- Art. 92 of Directive 2009/65/EC is proposed to be amended: The Member State that imposes UCITS to have local physical facilities will be punished.
- Amendments regarding the de-notification process of both UCITS and AIFs. Asset managers are allowed to de-notify the marketing of their UCITS only if a maximum of 10 investors who hold up to 1% of assets under management of this UCITS have invested in this UCITS in a Member State. The same rule will apply for AIFs.

Impact assessment of the EU proposal

From an impact assessment perspective, the Proposals seem to be a good effort for the further facilitation of the cross-border distribution of investment funds. Provisions like the one for pre-marketing and de-notification will cover matters that currently are almost unknown in the existing framework.

• de-notification: harmonising the requirements for de-notification will boost marketing in different EU jurisdictions as the Managers will have clear rules of what to do in case of the unsuccessful marketing of a fund.
• pre-marketing: the same definition for all EU Members puts harmonisation a step further. However, the fact that according to the new Proposal subscriptions to an AIF that was pre-marketed will be considered the result of marketing must still be clarified.

On the other side, associations like the City of London Law Society ("CLLS"), have expressed their concerns regarding the Proposals as according to them "Certain aspects of the proposals do not appropriately recognise the difference between UCITS as a pre-packaged retail product and AIFs as a negotiated institutional investor product".

The Proposals will be discussed by the European Parliament and the Council, and we will wait for the outcome of these discussions.