A Closer Look at UCITS Marketing Notification
The Crossborder Distribution Directive, on the one hand, and the more recent ESMA Consultation on UCITS Crossborder Marketing Notification, on the other, offer the opportunity to take a closer look at the topic of UCITS marketing notification. We make reference to the changes – both recent and future – to the process of maintenance of UCITS marketing authorisations, the timing of the related notifications to home and host state authorities and the template letters to be used.
Ensuring that UCITS Marketing Notification is carried out correctly, timely and in line with the recent evolution of the regulation is more obviously important from a regulatory compliance perspective. It is as important – less obviously so – from a good governance standpoint too.
The recent evolution of the regulation, especially for what concerns changes to existing UCITS marketing notification and the introduction of the one-month advance notice with the Crossborder Distribution Directive, will require more coordination amongst the various departments – i.e., legal, marketing and operations – overseeing the process of ongoing changes to offering documentation and their notification to national competent authorities in the host Member State where marketing is carried out.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with UCITS Marketing Notification.
Why a One-Month Advance Notice?
Cross-contamination is a common feature across European regulation and even more so within financial services regulation. When a specific feature or mechanism is successful in one specific area, there is a tendency to transpose that same mechanism and apply it to a different environment, hoping to achieve the same results. This was the case, for instance, for the UCITS marketing passport, applied also to alternative investment funds as well as ELTIFs.
In the specific case of the Crossborder Distribution Directive we see the same principle of the advance notification of changes, until then a distinct feature of AIFMD, now applied also to notification of changes to UCITS marketing authorisations. The principle governing the one-month advance notification for changes to marketing notifications made under AIFMD is one of investor protection. In case a change triggers non-compliance with AIFMD, the fact that it was notified with a significant advance allows for national competent authorities in the host member states to be informed ex-ante and use their powers to halt the marketing of the alternative investment funds, for instance. The same exact principle is now applied for UCITS marketing notification. The Crossborder Distribution Directive introduced a blanket provision to notify, with a month in advance, all the changes to the information contained in the notification letter submitted for a marketing authorisation, including changes regarding the unit or share classes to be marketed.
Whilst we will not enter into the broader topic of what is a change to the information contained in the notification letter and what is not, we notice however that the Crossborder Distribution Directive did not cater for so-called unplanned changes in the lifecycle of UCITS. The corresponding provisions under AIFMD do provide for unplanned changes and the fact that these can be notified as soon as possible after these are implemented.
And whilst there is no corresponding provision introduced for UCITS to govern unplanned changes, we could assume that the same approach could be adopted as it allows for the same level of investor protection provided for under the AIFMD.
Letters for UCITS Marketing Notification
With the introduction of the one-month advance notification, the Crossborder Distribution Directive introduced also the requirement to notify changes to UCITS marketing notification not only to the national competent authorities of the host states where marketing takes place, but also to the respective home state authorities. This has triggered an additional requirement to produce a notification letter for each and any of these changes, where before a mere email was indeed sufficient.
On this particular point, the recent ESMA Consultation on UCITS marketing notification, in addition to presenting a new template of notification letter, which we discussed already, also hints at some more nuisances in the process of UCITS marketing notification, requesting that for each notification of changes, the letter to be used shows only the changes made with respect to the previously used notification letter.
Conclusions
The impact of these new requirements for UCITS marketing notification has been felt mostly for what concerns the changes related to new unit or share classes to be authorised for marketing. Here, the new template of notification letter introduced with the ESMA Consultation on UCITS crossborder marketing notifications, requiring more granular details on the amounts to be raised in a specific domicile, will possibly streamline the issue of the addition of new unit or share classes once a marketing authorisation has been obtained. As part of the more detailed planning required when considering to be authorised for marketing in a host Member State, it will make sense also to consider specific unit or share classes with particular fees or currency features.
It is of paramount importance to be able to factor the one-month advance notice for what concerns other planned changes to the offering documentation of UCITS, for instance. Whilst in real life no change would be implemented if that was to undermine non-compliance with the UCITS directive, it pays from a good-governance perspective to be able to show to the board of directors that internal systems and processes are up to date with the new regulation and that in case of planned changes to offering documentation, which is most often the case, it is possible to respect the one-month advance notice requirement.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with UCITS Marketing Notification.