The law of 21 July 2021 implementing Directive (EU) 2019/1160 with regard to the cross-border distribution of collective investment undertakings and amending the amended law of 17 December 2010 on undertakings for collective investment and the amended law of 12 July 2013 on alternative investment fund managers (AIFMs) ("Cross-Border Distribution Law") was published in the Luxembourg official gazette.
As from 2 August 2021, the Cross-Border Distribution Law will introduce a pre-marketing regime for AIFMs, new facilities available to retail investors and requirements for the discontinuation of the marketing of some or all shares/units in undertakings for the collective investment in transferable securities (UCITS) or alternative investment funds (AIFs).
On 2 August 2021, the new requirements for marketing communications introduced by Regulation (EU) 2019/1156 on facilitating cross-border distribution of collective investment undertakings and amending Regulations (EU) No. 345/2013 on European venture capital funds ("EuVECA"), (EU) No. 346/2013 on European social entrepreneurships funds ("EuSEF") and (EU) No. 1286/2014 on key information documents for packaged retail and insurance-based investment products ("Regulation") will become fully applicable.
Key change: a pre-marketing notification process
The Cross-Border Distribution Law introduces a pre-marketing regime pursuant to which the pre-distribution of UCITS/AIF units is subject to a notification to the Commission de Surveillance du Secteur Financier (CSSF) to be made within two weeks of the beginning of the activities.
EU AIFMs will be allowed to engage in pre-marketing activities to test an investment idea or an investment strategy with potential professional investors domiciled or with a registered office in the EU in order to test their interest in an AIF or a compartment, not yet established and benefiting from the Alternative Investment Fund Managers Directive (AIFMD) passport regime.
Pre-marketing in the EU is, however, not permitted where the information presented to potential professional investors meets any of the following conditions:
- is sufficient to allow investors to commit to acquiring units or shares of a particular AIF
- amounts to subscription forms or similar documents whether in a draft or final form
- amounts to constitutional documents, a prospectus or offering documents of a not-yet-established AIF in final form
In such case, the current marketing regulatory framework should apply. The normal process to benefit from the marketing passport should be complied with within the 18 months of the beginning of the pre-marketing activities should the idea of a fund so tested be successful. The pre-marketing notification does not grant any derogation right to the marketing regime under the AIFMD.
The Cross-Border Distribution Law also provides for the following:
- new facilities available to retail investors
- requirements for the discontinuation of the marketing of some or all shares/units in a UCITS or in AIFs
- the possibility, under specific conditions, for AIFs to use for the establishment of their accounts, either to Luxembourg standards (LUX GAAP), international financial reporting standards (IFRS) or to equivalent accounting standards of certain third countries
Clarification on the identification of the marketing communications versus the actual sale of fund units
- The Regulation specifies that AIFMs, EuVECA managers, EuSEF managers and UCITS management companies must ensure that all marketing communications addressed to investors are identifiable as such and describe the risks and rewards of purchasing units or shares of an AIF or units of a UCITS in an equally prominent manner, and that all information included in marketing communications is fair, clear and not misleading.
- In accordance with the Regulation, on 27 May 2021, the European Securities and Markets Authority (ESMA) published its final report on its guidelines on the application of these requirements for marketing communications, taking into account the online aspects of such marketing communications. The ESMA outlines the following points that fund managers must satisfy to ensure compliance with the Regulation:
- The identification as such of marketing communications: All marketing communications must include sufficient information to make it clear that the communication has a purely marketing purpose, is not a contractually binding document or an information document required by any legislative provision, and is not sufficient to take an investment decision, and of a specific disclaimer clearly displayed in the marketing communication.
- The description of risks and rewards in an equally prominent manner: Marketing communications that reference any potential benefit of investing should be accurate and always give a fair and prominent indication of any relevant risks. As such, the disclosure of relevant rewards and risks must follow the same format and presentation, both risks and rewards must be mentioned at either the same level or one immediately after the other.
- The fair, clear and not misleading character of marketing communications: The information presented in the marketing communication should be consistent with the legal and regulatory documents of the promoted fund. Marketing communications promoting funds open to retail investors should refrain from using excessively technical wording, provide an explanation of the terminology used, be easy to read and, where relevant, provide an adequate explanation on the complexity of the fund and the risks arising from investment to assist investors' understanding of the characteristics of the promoted fund.
What you should do as a fund manager
- Draw a list of all current new fund formation projects and inform your sales team about the new pre-marketing requirements; and
- Inform and start educating your marketing team on the content and disclaimer language to use in any fund marketing communication.