EU’s New Cross-Border Distribution Framework – Local Facilities in Member States
A legal update from Clerkin Lynch LLP and Sturgeon Ventures LLP.
The new EU Directive 2019/1160 and Regulation 2019/1156 (the “Directive” and the “Regulation”) (together the “CBDF”) on the cross-border distribution of collective investment funds took effect on 2 August 2021. In an earlier update, we specifically examined the changes these made for UCITS and AIFs at the pre-marketing stage. In this update, we address the impact of the CBDF on the requirement to maintain local facilities across Member States.
By way of background, Directive 2009/65/EC (the “UCITS Directive”) gave Member States discretion over whether to require the appointment of a local agent by a UCITS to provide facilities to local investors. These facilities would include providing availability of fund documents and payment of subscriptions, etc. In proposing the new Directive 2019/1160, the EC highlighted the limited practical value and burdensome nature of local agent requirements in Member States and the CBDF is intended to harmonise related EU rules and reduce differing practices and requirements across the Member States.
The new framework requires that all UCITS management companies marketing UCITS and AIFMs (EU or non-EU) marketing AIFs (EU or non-EU) to retail investors must establish local facilities in each of the host Member States to perform certain tasks. These tasks include:
- facilitating the handling of information relating to the exercise of investor rights and entitlements;
- making investor disclosure documents, periodic reports, etc. available for inspection;
- providing investors with information on how to place an order and how redemption proceeds will be paid; and
- processing investor subscription and redemption orders and making other payments to investors.
Importantly, there is now no requirement for UCITS management companies or AIFMs to have a physical presence in host Member States as such facilities may be provided remotely from another Member State. In addition, facilities may be provided by the UCITS management company or AIFM itself and/or by certain qualified third parties. This provides for increased flexibility for the provision of such facilities and a number of different models may now be employed to facilitate distribution.
The streamlining and harmonisation of the new rules concerning the maintenance of local facilities can be seen as an important and welcome change to the previous framework which varied significantly across Member States. However, fund managers should be aware that, while the key obligation has been removed, a variety of technical requirements potentially remain to be met, including for example local language capabilities, so compliance may require further detailed specialist advice.
Should you wish to discuss the above changes, or any of the new requirements of the CBDF, please do not hesitate to contact us.
For Educational and Discussion Purposes Only: The information contained in this article has been derived from publicly available sources and is not intended as an offer or solicitation for the purchase or sale of any investment in any jurisdiction. No advice is being offered nor recommendation given, and any examples are purely for illustrative purposes.
Mark Browne has over fifteen years experience of advising the asset management industry and is a regularly published author on regulatory topics impacting the sector.
Ben Lynch, Partner Trainee Solicitor