On 29 January 2021, the European Securities and Markets Authority (ESMA) published its final report on draft implementing technical standards (ITS) produced under Articles 5(3), 10(3) and 13(3) of the Regulation on the cross-border distribution of investment funds ((EU) 2019/1156).
The draft ITS focus on the publication of information by national competent authorities (NCAs) on their websites regarding the national rules governing marketing requirements for funds, and the regulatory fees and charges levied by NCAs relating to fund managers’ cross-border activities. They also cover the notification of information by NCAs to ESMA for developing and maintaining a central database listing Undertakings for the Collective Investment in Transferable Securities (UCITS) and alternative investment funds (AIFs) marketed cross-border on ESMA’s website.
Although the ITS specify information to be published by NCAs, the quality and transparency of information provided will have direct impact and implication for fund managers who market and offer funds across Europe. Current lack of transparency over marketing and fees creates a costly compliance burden for many fund managers, who manage dedicated internal resource and seek external advice to address divergences in Member State approaches. The ITS and the information required from NCAs form an important part of the package of measures targeting the Capital Markets Union aim of reducing barriers to the cross-border marketing of funds across Europe.
Across the publication of both marketing requirements and regulatory fees and charges, common themes emerging from respondents include the need for standardised, up-to-date and comprehensive information.
Looking at some of the approaches taken on the publication requirements:
- With respect to marketing information, ESMA recognises that clear, complete and comparable information across NCA websites is necessary to progress the aims of the publication. In this regard, the ITS provide standard form templates, including harmonised categories of rules governing marketing requirements, which have to be published, e.g. the rules on the format and content of marketing materials or the passporting process.
- ESMA also requires NCAs to make reference to domestic law which are not specifically aimed at the marketing of UCITS and AIFs but which may nevertheless impact marketing. This can be done in the form of an indicative list of the relevant laws and includes e.g. laws on the protection of consumers that may apply when marketing to retail investors. This goes beyond pure fund marketing requirements and may cover areas of domestic law that are not within the supervisory competence of NCAs in many jurisdictions. Although this list will be non-exhaustive, it will act as a useful sign-post to fund managers of the areas of law that need to be considered when launching marketing outside of their home Member State.
- When publishing fees and charges, the key requirement is that information should make it possible to determine the overall cost of cross-border activities in each Member State in advance. This covers both management as well as marketing fees and charges. The ITS specify the categories of fees and charges to be included in the NCA publications to ensure that information is as comprehensive as possible.
Respondents had suggested that NCA’s should be required to issue a disclaimers that no fees or charges other than those listed may apply. However, ESMA has not gone forward with this approach, acknowledging that there may be fees and charges levied by bodies other than NCAs which may apply, and that any disclaimer could not cover such external fees and charges.
Although respondents provided a number of suggestions on the central database to be created and maintained by ESMA, ESMA has not yet provided detailed information on the development of the central database and states that it will take note of responses on content and purpose of the database when developing the new tool.
The European Commission now has three months within which to decide whether to adopt ESMA’s draft ITS (though it may extend this period by a further month). The draft ITS will enter into force twenty days after publication in the Official Journal of the European Union (OJ), and will apply from the date of entry into force, with some exceptions: Articles 1 and 3(1) (publication of national provisions concerning marketing requirements) will apply from 2 August 2021, and Articles 5 and 6 (communication with the ESMA central database) will apply from 2 February 2022.