Distributing UCITS

EU Passporting & Regulatory Developments Impacting Fund Distribution

EU Passporting

UCITS

The UCITS product has been hugely successful since its inception in 1985. Over the last 30 years, UCITS have gone from strength to strength with Europe as the most popular market for distributing UCITS funds. Europe is therefore an important market for asset managers looking to raise assets. Many European investors look for the protection of the UCITS framework when making investments.

The UCITS Passport – How does it work?

UCITS funds benefit from a European Economic Area (EEA) wide “passport” which means that once they are authorised in one EEA member state, they can be sold in any other EEA member state without the need for any additional authorisation. This is called the notification procedure.

The home state regulator has 10 working days from the receipt of the notification file to notify the host state regulator. The host state regulator has at most 5 working days to confirm to the home state regulator that the notification file has been received and the documents are printable and readable.

Notification Procedure - List of documents to be provided

A notification letter - this is in a standard format and contains three sections of information relevant to the UCITS itself and the proposed marketing of UCITS in each host EEA member state. There must be a notification letter for each host EEA member state in which the UCITS wishes to publicly market its shares or units;

• Fund rules or its instruments of incorporation;

• Prospectus;

• Latest annual report and any subsequent half-yearly report; and

• Key investor information document (KIID)

The notification letter for the attention of the host regulator to market a fund in a particular country must provide the following information:

1. Type/name of the entity in charge of the marketing of UCITS in the particular country.

2. Details of the paying agent where applicable.

3. Details of any person from whom investors may obtain information and documents.

4. Name and place of the entity where the investors may obtain the net asset values, issue and redemption prices, the last prospectus, the last financial reports, the fund rules/ articles of incorporation and as far as enabled, access to the contracts arranged with the UCITS.

5. Any other information required by the host regulator in terms of details of any information disclosed to unit holder or their agents.

6. Details of the use of any exemptions that are available in a country in relation to marketing arrangements.

Under the new EU Cross-Border distribution framework, certain other conforming changes of a more technical nature have been made in respect of the notification procedures for obtaining marketing passports under the UCITS and AIFMD regimes. In particular the information and address necessary for the invoicing of fees/charges, and details of local facilities must be included in the cross-border notification letter. In addition, in the case of UCITS, changes in the original passport notification letter, or changes in share classes to be marketed, must be notified to the regulator in the home member state and the host member state at least one month in advance of such changes taking effect.

The new framework imposes less onerous requirements in respect of the maintenance of local facilities in host member states. This is intended to reduce differing practices and requirements in EU member states in respect of facilities agents, paying agents and similar service providers. These rules will apply to all UCITS management companies marketing UCITS and all AIFMs (EU or non-EU) marketing AIFs (EU or non-EU) to retail investors. The framework requires that they must establish local facilities in each of the host member states to perform certain tasks, including:

• processing investor subscription and redemption orders, and making other payments to investors;

• providing investors with information on how an order can be made and how redemption proceeds are paid;

• facilitating the handling of information relating to the exercise of investor rights;

• making investor disclosure documents, periodic reports, KIIDs etc. available for inspection; and

• acting as a contact point for communicating with the host member state regulator.

There is no requirement that UCITS management companies or AIFMs have a physical presence in the host member state and so such facilities may now be provided through the use of electronic means. Facilities may be provided by the UCITS management company or AIFM itself and/or by certain third parties that are subject to regulation in respect of the tasks which they perform. Assuming that member states faithfully implement the framework, it should allow management companies additional flexibility in terms of how they provide such local facilities without having a physical presence in the host member state.