On 12 March 2018, the European Commission published a proposal (comprising a Regulation and a Directive) to harmonise national fund marketing rules across EU Member States. The Regulation seeks to ensure that regulatory fees levied by regulators for authorisation, registration and supervision are proportionate and publicly disclosed. The Regulation will also require regulators to maintain databases outlining applicable marketing rules for AIFs and UCITS funds.
The proposed Directive is more controversial, and aims to further “facilitate” cross-border marketing. The Directive clarifies the definition of “pre-marketing” compared to “marketing”. The proposed Directive states that “pre-marketing” excludes information that:
- Relates to an established AIF
- Contains reference to an established AIF
- Enables investors to commit to acquiring units or shares of a particular AIF
- Amounts to a prospectus, constitutional documents of a not-yet established AIF, offering documents, subscription documents or similar documents whether in draft or final form, allowing investors to take an investment decision
The proposals are intended to provide clarity and align marketing rules across the EU Member States but, if implemented, are likely to give rise to a number of serious difficulties for fund products where fund managers expect to negotiate their terms with potential investors.
As the rules are currently drafted, a fund manager discussing the terms of a limited partnership agreement would technically be ‘marketing’ to investors. This contradicts the FCA’s requirement for managers to be authorised to market funds only once they have reviewed final form documentation. If regulators do not take a practical approach to these rules, we could end up in the situation where the regulator rejects fund documents on the basis that they are not in final form, which then prevents the fund manager from negotiating with investors. These rules appear to be better suited to funds where the terms are not negotiated, and investors simply buy into an already established product (such as a UCITS fund). For more bespoke products, the proposal is likely to prove particularly challenging.
The proposed Regulation and Directive are now being discussed by the European Parliament and the Council. We will continue to monitor developments and provide updates on this.
More information on the text of the proposals can be found here.