The MIP proposes changes to different pieces of EU legislation and is comprised of three proposals, being:

  • a proposed (main) Regulation amending various EU regulations (including, inter alia, the Cross Border Distribution of Funds Regulation (Regulation (EU) 2019/1156, the CBDFR));
  • a proposed Directive amending the Undertakings for Collective Investment in Transferable Securities Directive (Directive 2009/65/EC, the UCITS Directive), the Alternative Investment Fund Manager Directive (Directive 2011/61/EU, the AIFMD) and the Markets in Financial Instruments Directive (2014/65/EU, MiFID II); and
  • a proposed Regulation replacing the Settlement Finality Directive (Directive 98/26/EC) and amending the Financial Collateral Directive (Directive 2002/47/EC).

In this article we will provide a high-level overview of the relevant changes for alternative investment fund managers (AIFMs) and UCITS managers that follow from the MIP proposals only. However, the MIP proposals amend a broad range of EU legislative acts and therefore the proposals will also be of interest to other financial market participants.

(Pre-)marketing of AIFs and UCITS

Harmonisation of the (pre-)marketing requirements

First of all, the proposed main Regulation introduces several changes to the CBDFR aimed at removing barriers to cross-border (pre-)marketing of funds (both AIFs and UCITS). The main Regulation aims to reduce national divergences and strengthen supervisory convergence by deleting the provisions on cross border marketing of UCITS funds and EU AIFs and moving them into the directly applicable CBDFR.

Host Member State national competent authorities (NCAs) will (i) prohibited from imposing any additional requirements on marketing communications other than the requirements set out in the CBDFR and (ii) not be allowed to require prior notification of marketing communications. Member States will be prevented from imposing additional requirements on the content and format of marketing communications, and the provision of information beyond what is explicitly required by legislation. The European Commission will be empowered to define what constitutes a marketing communication, its content and format, and arrangements for ESMA to charge fees for cross-border marketing activities in a Delegated Act.

Improvements to the passporting regime

In order to streamline notification and de-notification processes across Member States, ESMA will develop a data platform that includes information on AIFs and UCITS marketed on a cross-border basis, the documentation provided as part of their marketing notification and any changes thereof, and the de-notifications of marketing arrangements. Host Member State NCAs will have immediate and direct access to the documentation in connection with the AIFs and UCITS marketed in their territory.

AIFs and UCITS will need to indicate their intention to market funds in Host Member States and submit marketing documents at authorisation. After which the Home Member State NCA will transmit that information to the ESMA data platform, and marketing can begin from the transmission date.

De-notification is also centralised, meaning that AIFs and UCITS will be able to notify their intention to terminate marketing activities in a Host Member State to their Home Member State NCA, who will in turn notify the relevant Host Member States and ESMA through the data platform.

The existing 36-month prohibition of pre-marketing of units or shares of EU AIFs with similar investment strategies in the Member States identified in the de-notification will be removed.

ESMA powers in respect of cross border issues

ESMA will publish and maintain up-to-date information on the regulatory fees and charges imposed by Member State NCAs for marketing AIFs or UCITS in their territories and will analyse whether those fees or charges are consistent with the overall cost relating to the performance of the functions of the NCAs and report to the European Commission. In addition, ESMA will charge AIFMs and UCITS managers a fee when they avail of the passporting based on authorisation procedure.

Where ESMA identifies divergent, duplicative, redundant or deficient supervisory practices, ESMA will be empowered to pursue actions to address these irregularities. To be able to do so, ESMA can utilise its convergence and intervention powers, including suspending the right to market AIFs or UCITS on a cross-border basis.

Harmonisation of operational requirements

In addition to the proposed amendments to the (pre-)marketing regime, the proposed Directive introduces changes to the UCITS Directive, AIFMD and MiFID II with the aim to harmonise the cross-border operations of AIFMs and UCITS managers. These most important changes relate to:

  • Harmonised authorisation procedures: the authorisation procedure for AIFMs and UCITS managers will be harmonised through Regulatory Technical Standards (RTS) setting out the information to be provided to the NCA as part of the authorisation as well as the timelines to be adhered to.
  • EU groups and intra-group delegation: a simplified framework for EU groups of AIFMs and UCITS managers is introduced, where entities within the EU group are able to share and rely on each other’s resources and allocate functions within the group, without triggering delegation requirements under the AIFMD or the UCITS Directive. The ultimate responsibility for the functions or services carried out by other entities within the same group, however, remains with the AIFM or manager of UCITS. The AIFM and manager of the UCITS should ensure that this reliance does not result in the AIFM or manager of UCITS becoming a letter box entity.
  • Harmonisation of conduct and prudential requirements: Member States will no longer be able to interpret, supplement, or derogate from core requirements, to ensure harmonisation of conduct and prudential requirements for AIFMs and UCITS mangers across the EU. For instance, instead of the annual reporting requirement specifying that AIFMs and UCITS mangers must disclose at least certain information, this is being updated so that it refers to a fixed list of content that is required to be included. In addition, ESMA is empowered to develop guidelines on these requirements.
  • EU Depositary passport: this will enable AIFMs and UCITS managers to appoint a depositary for their funds located anywhere in the EU, to the extent that such depositary qualifies as a credit institution authorised under the Capital Requirements Directive (Directive 2013/36/EU) or as an investment firm authorised under MiFID II. The ability of EU AIFMs of closed-ended AIFs with private equity and/or real estate strategies to appoint a “lite-depositary” will also be widened, given that this option will no longer be subject to Member State discretion.
  • Reduced timelines for management company passports: to enable AIFMs and UCITS managers to exercise their management company passporting rights faster, the timelines for the NCAs for transmitting the notifications will be shortened to 15 days and Host Member States may not impose additional information requirements.
  • UCITS investment limits: the limits on debt securities will be increased from 10% to 15% for UCITS investing in securitisations, and the 20% issuer limit will be extended from index-tracking UCITS to UCITS that are managed by reference to ESMA-recognised indices.
  • ESMA supervisory powers in respect of large EU groups: ESMA will gain supervisory powers to maintain a list of large asset management groups (i.e., groups where the net asset value of the entire group exceeds 300 billion) and conduct annual reviews over such groups. However, ESMA will not directly supervise AIFMs and/or UCITS managers or the AIFs and UCITS they manage; they will continue to be supervised by NCAs. The proposals aim to strengthen ESMA's role in fostering supervisory convergence in the asset management sector and in improving cooperation between Home and Host Member State NCAs. ESMA will also be empowered to address inconsistencies in supervisory practices or actions hindering the operations of asset managers and depositaries in relation to their cross-border activities and intervene when Member State NCAs fail to apply EU rules.

Next steps

The MIP proposals are now subject to the ordinary EU law process. The Commission's proposals have been submitted to the Council of the EU and the European Parliament for scrutiny. The three of them will then hold trilogue negotiations in order to reach agreement on a final text. The agreed text will then be published in the Official Journal and will take effect 12-24 months after entry into force. This phased implementation will likely start mid 2027.

Contact

Should you require any assistance with assessing the impact of the MIP proposals, we are here to support you. Please contact your trusted adviser at Loyens & Loeff or one of our colleagues mentioned below.