With this focus on cross-border distribution of collective investment funds (in particular amending the AIFM directive and the EuVECA and EuSEF regulations), the European legal and regulatory framework applying to AIFs is being shaped further.
Both the directive and the regulation are providing for an entry into force by 2 August 2021. While this may be quite some time out, the industry should start focusing on the new rules as soon as possible.
AIFMs should in particular be prompted to review their marketing and distribution set-up in the not too distant future since this is where the new rules will impact most and rapidly. With the current and ongoing uncertainty around Brexit and its impact on pan-European distribution of investment funds at large, cross-border funds distribution and marketing should be the most important topics for the months to come. Main changes:
Harmonisation of pre-marketing concept
A harmonised pre-marketing definition has been introduced for the entire EU. Hence AIFMs will be able to test each market for investor appetite. This is a major improvement to the current non-harmonised environment where pre-marketing was even prohibited in certain countries (e.g., France, Italy or Spain).
The new rules require that any pre-marketing activity be disclosed via an informal letter to the home state regulator of the relevant AIFM with an obligation on that regulator to inform the pre-marketing host state regulator.
Tightening of pre-marketing and marketing activities, and third-country approach
If the duly authorised AIFM is to retain the services of a third party to engage into pre-marketing on its behalf (i.e., a placement agent or distributor), such third party will either have to qualify as an investment firm, as a credit institution, as a UCITS management company, as another authorised AIFM or as a tied agent.
Absent a harmonised approach at this point in time, this change could have a significant impact on the placement and marketing activities in general.
The new directive further states that the new rules on pre-marketing should not disadvantage an EU AIFM vis-à-vis a non-EU AIFM. It now remains to be seen how member states will construe this formal recommendation. This means that third-country managers (potentially soon UK-based managers) could soon again face some renewed uncertainty as a result of the further harmonisation at EU level.
Denotification of marketing activities
The new directive clarifies the process for denotification of the formal marketing activity into a specific country. The final text limits the repurchase offer to open-ended funds.
Common principles regarding fees and charges
Marketing across the EU comes at a certain cost which today varies on a member state by member state basis (some member states charging nothing). Also, the EuVECA and EuSEF regulations provide that no fees may be levied in relation to the cross-border distribution of such funds. The new regulation now provides that where fees and charges are to be levied by national competent authorities, these charges and fees need to be consistent with the cost of the overall performance of the functions by the competent authority. Competent authorities will have to clearly publish any such costs and charges and ESMA will keep monitoring.
ESMA central database on cross-border marketing and denotifications
As of 2 February 2022, ESMA will maintain a publicly available database for cross-border marketing of AIFs that will indicate all AIFs that are marketed in another member state, their AIFM, EuSEF or EuVECA manager and a list of member states where they are marketed. This means that the target markets of individual managers can be publicly known.
Conclusion
The implementation of these new requirements needs to be carefully monitored. While the intent was to facilitate cross-border marketing, managers need to be mindful that this alleged facilitation comes with additional strings and formalities attached. These additional formalities will put additional documentary obligations on managers, which should factor in these new obligations as early as possible.