The cross-border marketing requirements released in December are intended to foster reporting convergence and facilitate cross-border activities, but will almost certainly result in an increase in cost for all Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIF) that need to comply with them. Increased costs are expected not only in connection with filing, but also with collecting all of the information that will be required by the new standards.
In response to feedback and concerns voiced by stakeholders, the ESMA has made some amendments to its proposed regulatory technical standards (RTS), implementing technical standards (ITS) and model notification letters.
Some respondents complained that Article 3 of the draft RTS requiring the submission of information to host states was too detailed and “beyond the requirements set out in the UCITS Directive”. In response, Article 3 has been redrafted so that there is no longer an obligation to provide a copy of the contracts between the management company and the delegate. The need to list the functions subject to delegation, as well as the contact details of the delegate, have been retained however.
In its response to the feedback, the ESMA was careful to note that NCAs “may request the transmission of such agreements on an ad hoc basis when it is relevant.” So while the burden of providing the information has been reduced, the need to have the agreements available for inspection is still very much present.
Acknowledging the difficulties
In an important concession, the requirement to provide and to keep up to date information on the marketing strategies to be employed in host states, as well as the marketing targets connected with these, has been removed for both UCITS and AIF forms, with the ESMA acknowledging the difficulties of providing such information.
This will come as a relief to stakeholders, many of whom pointed out the difficulty not only of keeping such information up to date, but also to collecting it in the first place. One respondent to the consultation made a particularly interesting point in connection with this, suggesting that the determination of local distributors or marketing targets could “result in activities similar to pre-marketing, which are not allowed for UCITS under the Directive on cross-border distribution of funds.” It’s not clear whether this point swayed the ESMA, but the document includes an explicit clarification indicating that the ESMA’s draft proposal “did not aim at creating any obligation to determine a marketing strategy ex ante.”
The submission of legal entity identifiers (LEI) has been made mandatory in order to ensure a “consistent approach to the proper identification funds and fund managers”, with both the regulatory technical standards (RTS) and the model notification forms amended.
A slight tweak is being made, permitting the omission of an International Securities Identification Number (ISIN) code for the AIF if this is not available at the time of the notification. In another minor tweak, the reference to the duration of the UCITS has been made optional in the template notification letter; this change is being made in response to comments pointing out that UCITS were open-ended funds.
The AIF form has also been amended to make the following information and submissions optional:
- Duration of the AIF and its national identification code;
- Fund’s rules or instrument of incorporation; and
- Fund prospectus.
Adoption of the new standards and templates is expected within three months after their approval by the European Commission.