On 22 June 2017, the European Commission issued an Inception Impact Assessment on “Reducing barriers to cross-border distribution of investment funds”.

The Inception Impact Assessment forms part of the Commission’s wider Capital Markets Union action plan, and follows on from (amongst other things) the consultation on the cross-border distribution of investment funds (UCITS, AIF, ELTIF, EuVECA and EuSEF) published in the summer of 2016.

The Inception Impact Assessment provides an interesting insight into options being considered by the Commission in an attempt to reduce regulatory barriers to fund distribution caused by fragmented approaches across Member States with respect to marketing funds under a passport.

We should be clear that the purpose of the Inception Impact Assessment is only to inform stakeholders about some of the options available to the Commission in order that stakeholders can comment. It is by no means a concrete indication of future legislative change. Many of the issues referred to would require a significant re-write of the legislation, and this work stream will have a degree of overlap with the upcoming review of AIFMD. It is nevertheless an interesting indication of the Commission’s current thinking, and gives insight as to what may lie ahead.

According to the Inception Impact Assessment, the following policy issues are under consideration by the Commission:

  • Marketing. Options include harmonization of national marketing requirements and practices, harmonization of what constitutes marketing, and sharing of best practices between Member States.
  • Administrative requirements. Options include prohibiting requirements in national legislation to appoint local agents in the host Member State, or prescribing conditions under which a local agent may be required. National disclosure requirements may also be harmonized.
  • Regulatory fees. Options include creating a central repository for information on regulatory fees, and introducing a principle of proportionality between fees and supervisory work undertaken.
  • Notification requirements. Options include simplifying the process for updating notifications under the marketing passport, establishing a central hub for notifications, and amending the criteria for when an updating notification is required. Procedures and/or conditions for de-registration may also be harmonized.
  • Online distribution. Options include providing clarity over the application of marketing rules for online distribution and taking steps to address other barriers, including national implementation of anti-money laundering rules and know-your-customer requirements.

In the context of AIFMD, there are two points of particular interest:

First, it is clear from the Inception Impact Assessment that the Commission is keen to expand the concept of “marketing”. Whilst it is true that the boundaries of “pre-marketing” vary from one Member State to the next, most EU managers (or at least their advisors) have a reasonable grasp on the boundaries of premarketing in key LP jurisdictions across the Union. There will be significant concern in some quarters that the push to increase harmonization in this area could lead to a tightening of the pre-marketing regime in some jurisdictions, and consequently hamper essential soft marketing activity.

Also of interest is the reference to simplifying the process for updating notifications under the marketing passport, and amending the criteria for when an updating notification is required. It is a little unclear, but if the Commission is referring here to AIFMD marketing material change notifications, then a relaxation of these requirements would be welcomed by EU managers. The requirement for managers to provide their local regulator with one month advance notice prior to implementing certain planned changes (including, in certain cases, changes negotiated by investors) has the potential to disturb the closing timeline, and often proves difficult in practice.