On 2 August 2021, the European Commission's new framework for the cross-border distribution of investment funds came into effect (the "CBDF"). This framework, comprising of a Directive1 and accompanying Regulation2, has the objective of removing regulatory barriers that were identified as significant disincentives to UCITS management companies and AIFMs ("Managers") who wish to avail of the marketing passports for both UCITS and AIFs. Our advisory series considers a number of the key changes being introduced by the CBDF legislation. This fourth part of our advisory series considers the new de-notification requirements being introduced in respect of both UCITS and AIFs (each a "Fund").
CBDF provides, for the first time, a harmonised set of provisions relating to the process for Managers wishing to cease marketing a Fund, and in the case of a UCITS a share class, in one or more member states in which it is registered for marketing purposes. A notification to de-register a Fund or share class, as relevant, for marketing in a specific jurisdiction can only be made to the competent authority of the home member state (for example, in the case of an Irish UCITS or an Irish AIFM, the Central Bank of Ireland (the "Central Bank")) where all the following conditions are fulfilled:
- blanket offer to investors in the relevant jurisdiction to repurchase/redemption free of any charges or deductions has been made at least 30 working days prior to the notification being submitted. This requirement doesn't apply in respect of closed-ended AIFs;
- public announcement in the relevant member state of the intention to stop marketing the Fund or share class in that jurisdiction should be made prior to the notification being submitted; and
- agreements with financial intermediaries and delegates relating to the marketing of the relevant Funds should be updated or terminated, as the case may be, to ensure no further offering of shares takes place.
Additionally, for UCITS, the communication relating to the blanket offer and the public announcement must:
- clearly describe the consequences for investors if they do not accept the offer to redeem or repurchase their shares in the relevant Fund; and
- be provided in the official language or in one of the official language(s) of the member state in which de-notification is being requested or in a language approved by the competent authority of that member state.
Once the de-registration notification has been submitted, the home competent authority must within 15 working days transmit the notification to the competent authorities in each of the relevant member states and to ESMA and promptly notify the AIFM or UCITS of the transmission.
For AIFMs, there is a three year "black-out" period prohibiting any pre-marketing: (i) of the relevant AIF; or (ii) in respect of similar investment strategies or investment ideas, in the relevant member state. This applies from the date of de-notification, although it would seem open to an AIFM to re-register for marketing purposes a de-notified EU AIF during the three year timeframe in that member state.
Managers should review and amend their marketing processes and procedures to reflect the changes detailed above. Additional time may now need to be factored by Managers into the process of withdrawing a product from the market in particular EU jurisdictions and additional care should be taken to ensure AIFMs by de-notifying arrangements are not hindered from undertaking pre-marketing efforts in the future. Where marketing is delegated to one or more third parties, Managers will need to liaise with those parties to ensure they are in a position to clearly document the discontinuation of the marketing relationship in order to comply with the new CBDF de-notification rules.
1 Directive (EU) 2019/1160, which has been transposed into Irish law by way of amendments to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 and the European Union (Alternative Investment Fund Managers) Regulations 2013.
2 Regulation (EU) 2019/1156
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