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Cross Border Distribution of Funds rules in the EU

Insight 3 June 2021

Cross Border Distribution of Funds rules in the EU

The Cross Border Distribution of Funds Rules (CBDF Rules) are composed of two legislative texts (Regulation (EU) 2019/1156 and Directive 2019/1160) and focus on the regulation of cross border marketing and distribution of collective investment schemes within the EU.

A key aspect is the application of the regulation to EU AIFMs. By default, non-EU AIFMs will be able to continue to rely on the National Private Placement Regime or reverse solicitation already in existence [1]. This new regulatory framework will come into effect on 2 August 2021.

Regulations impacted:

  • AIFMD
  • UCITS
  • EuVECA
  • EuSEF

Key changes from an AIFMD perspective:

The CBDF Rules introduce a definition of pre-marketing, which “means provision of information or communication, direct or indirect, on investment strategies or investment ideas by an EU AIFM or on its behalf, to potential professional investors domiciled or with a registered office in the Union in order to test their interest in an AIF or a compartment which is not yet established, or which is established, but not yet notified for marketing in accordance with Article 31 or 32 of the AIFMD, in that Member State where the potential investors are domiciled or have their registered office, and which in each case does not amount to an offer or placement to the potential investor to invest in the units or shares of that AIF or compartment”.

Any information presented (as part of pre-marketing efforts) to investors by an EU AIFM must not:

  • be sufficient to allow investors to commit to investing in the units of a particular AIF;
  • include subscription forms or similar documents (whether in draft or final form); and
  • include the final form constitutional documents, prospectus or offering documents of a not-yet-established AIF.

Drafts of the constitutional documents and/or offering material can be circulated to professional investors provided that the documents:

  • do not contain sufficient information to allow the investors to ‘take an investment decision’;
  • clearly state that they do not constitute an offer or an invitation to subscribe for units in the AIF; and
  • confirm that the information should not be relied upon as it is incomplete and subject to change.

Within two weeks of having begun pre-marketing, EU AIFMs must send an informal letter [2] to their home member state specifying:

  • Member States where pre-marketing will take place;
  • periods of pre-marketing;
  • brief description on investment strategies being presented; and
  • where relevant, a list of AIFs and compartments of AIFs subject to pre-marketing.
    [2] Electronic or paper form
  • EU AIFMs will be unable to rely on reverse solicitation for a period of 18-months from the beginning of pre-marketing.
  • Investors being admitted by way of pre-marketing by an EU AIFM within the 18-month window will be treated as having joined as a result of marketing, which is notifiable under the AIFMD.

The CBDF mentions that it is possible for a third party to engage in pre-marketing on behalf of an EU AIFM if that third party is authorised as:

  • a MiFID II investment firm;
  • a credit institution;
  • a UCITS management company;
  • an AIFM; or
  • a tied agent.

AIFMs (as well as EuVECA managers, EuSEF managers and UCITs management companies) must ensure that all marketing communications addressed to investors are:

  • identifiable as such;
  • describe the risks and rewards of chasing units or shares of an AIF or units of a UCITs in an equally prominent manner, and
  • that all information included in marketing communications is fair, clear and not misleading.

The CBDF introduces new obligations for EU AIFMs to inform Member States of the de-notification of an AIF. These notifications obligations are subject to several requirements which will also need to be disclosed in the notification:

  • a blanket offer is made to repurchase or redeem, free of any charges or deductions, all such AIF units or shares held by investors in that Member State, is publicly available for at least 30 working days, and is addressed, directly or through financial intermediaries, individually to all investors in that Member State whose identity is known;

    o This obligation does not apply to closed-ended AIFs and European Long-Term Investment Funds (ELTIFs).
  • the intention to terminate arrangements made for marketing units or shares of some or all of its AIFs in that Member State is made public by means of a publicly available medium, including by electronic means, which is customary for marketing AIFs and suitable for a typical AIF investor;
  • any contractual arrangements with financial intermediaries or delegates are modified or terminated with effect from the date of de-notification in order to prevent any new or further, direct or indirect, offering or placement of the units or shares. Additionally, and as of that de-notification date, AIFMs will need to cease any new or further, direct or indirect, offering or placement of units or shares of the AIF in the Member State where such de-notification is being made. No pre-marketing of the de-registered AIF or in respect to similar investment strategies or investment ideas shall be conducted for a period of 36-months after the notification has been made in the Member State.

The CBDF mentions retail investors specifically, with several significant updates on physical locations. The regulation will require AIFMs to make available, in each Member State where it intends to market units or shares of an AIF to retail investors, facilities to:

  • process investors' subscription, payment, repurchase and redemption orders relating to the units or shares of the AIF in accordance with the conditions set out in the AIFs documents;
  • provide investors with information on how the orders referred previously can be made and how repurchase and redemption proceeds are paid;
    June 2021 Information on Sanne and details of its regulators can be accessed via sannegroup.com 04
  • facilitate the handling of information relating to the exercise of investors' rights arising from their investment in the AIF in the Member State where the AIF is marketed;
  • make the information and documents required pursuant to Articles 22 and 23 of AIFMD available to investors;
  • provide investors with information relevant to the tasks that the facilities perform in a durable medium [3]; and
    ▪ act as a contact point for communicating with the competent authorities.

Importantly, the above tasks do not require the AIFM to have a physical presence in the host Member State or to appoint a third party.


Additionally, the AIFM will need to ensure that the facilities to perform the tasks referred to above, including electronically, are provided:

  • in the official language or one of the official languages of the Member State where the AIF is marketed or in a language approved by the competent authorities of that Member State;
  • by the AIFM itself, by a third party which is subject to regulation and supervision governing the tasks to be performed, or by both.
    o Where tasks are to be performed by a third party, the appointment of that third party shall be evidenced by a written contract specifying which tasks are not performed by the AIFM and that the third party will receive all the relevant information and documents from the AIFM.
    [3] As defined in point (m) of Article 2(1) of Directive 2009/65/EC

What about the UK?

The CBDF has not been implemented in the UK and as such, pre-marketing and marketing are distinct, with the latter only constituting marketing if documents in a materially final form are shared with prospective investors. The FCA further adds that documents in draft form do not constitute marketing [4].

    [1] Please note however that CBDF Rules invite EU Member States to amend their National Private Placement Regimes so that national rules, notably on pre-marketing, ”should not in any way disadvantage EU AIFMs vis-à-vis non-EU AIFMs”. As a result and by way of example, the German draft implementing bill sets out that non-EU AIFMs will also be required to document their pre-marketing efforts and to notify the BaFin no later than two weeks after the pre-marketing has started, including with a list of relevant AIFs, the relevant time period and a brief summary of the AIF’s investment strategy.
    [4] FCA Handbook, PERG 8.37.6G

Sanne can assist with end-to-end services. For additional information, or to discuss any of the topics highlighted above, please get in touch with Christian or Paul directly.

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