After one year of negotiations, the Cross-border Distribution Directive (CBDD) amends the Alternative Investment Fund Managers Directive (AIFMD) and introduces new rules for the pre-marketing of alternative investment funds (AIFs) in the European Union (EU).
The Directive ((EU) 2019/1160) and Regulation ((EU) 2019/1156) introduce a new regime for investment funds with the aim to: eliminate current regulatory barriers to the cross-border distribution of funds, improve transparency by aligning marketing requirements and fees, harmonise national rules for the verification of marketing material by national authorities, enable ESMA to monitor investment funds and allow to pre-market a fund.
One of the main criticisms of the existing AIFMD marketing framework has been the different interpretation of the term “marketing” across Member States. For example, the UK and Luxembourg interpret the marketing concept as applying at a relatively late stage, being when the offer of interests in an AIF is capable of being accepted by investors on final form subscription documents. Whereas in other countries AIFMD marketing activity is interpreted as taking place much earlier.
The new pre-marketing rules apply to authorised EU AIFMs in respect of which an AIF is: (i) established but not yet notified for marketing; or (ii) not yet established at all. There is a definition of pre-marketing that would allow EU authorised fund managers to market a new fund to potential professional investors without a marketing application provided that they comply with the requirements included in the Directive.
It should be noted, however, that where a professional investor in a Member State subscribes for units/shares in a pre-marketed AIF within 18 months of the AIFM starting to pre-market, this will be deemed the result of marketing and would be subject to notification. As such, reverse solicitation becomes potentially more problematic.
Ultimately, the European Commission hopes that, by removing perceived inefficiencies, the cost for cross-border distribution will be reduced and made simpler and quicker, thereby allowing for more marketing of funds across the EU. It remains to be seen whether this will be the case.
How this impacts UK managers and distribution of funds between the UK and EU 27 is still largely dependent on the outcomes to Brexit negotiations. The Regulation will apply from August 1, 2019 and the Directive will be fully transposed from 2 August 2021.
