Cross Border Distribution Framework (CBDF) – rule change & impact
The result is the Cross Border Distribution Framework (CBDF), which comes into effect on 2 August 2021. The CBDF affects UCITS and AIFs across a number of activities outlined below:
|Activity||Main impact on|
|Marketing communications and materials||AIFs, UCITS|
|Local facilities provision||AIFs (retail), UCITS|
|Fund de-registrations||AIFs, UCITS|
Waystone will be conducting, and recommends that its clients conduct, a review of marketing materials and communications to be used after 2 August 2021 in order to identify any potential disparities between these documents and the provisions of Article 4 of the Cross Border Distribution Regulation (CBDR).
Waystone will also continue to monitor developments across the EU as each National Competent Authority (NCA) confirms how it will be applying the CBDF. Waystone will update clients when these communication processes and timelines are confirmed.
A link to the underpinning legislation (1) making up the CBDF is provided in the footnotes below.
CBDF Topics Covered
- Marketing communications and materials
- Pre-marketing for AIFs
- Facilities for retail investors
- De-registration of funds
Marketing communications and materials
From 2 August 2021, marketing communications must comply with the provisions set out in Article 4 of the CBDR. The associated ESMA Guidelines, which set out a non-exhaustive list of what could be considered ‘marketing communications’, will only apply on or around the date of 2 February 2022.
Key points of Article 4 of the CBDR
- Any item for communication considered to be marketing must be clearly labelled as such and must be ‘clear, fair and not misleading’
- Where rewards are referenced in marketing communications and materials, the risks should be similarly prominent
- Channels and communication types have been broadened to include online content and social media
- Translation of marketing material or communication may be required
- NCAs may implement a ‘pre-approval’ procedure for marketing materials intended for use within their jurisdiction to ensure that the material complies with the regulations
- When reviewing marketing material and communications, there is now a requirement to include the items below:
- A link from which the prospectus and KIID/KID can be accessed
- A hyperlink to a summary of investor rights, which must include information on access to collective redress mechanisms at EU level and national level
- A disclosure that the management company has the right to terminate the arrangements made for marketing.
It is possible that some jurisdictions will require that the materials be translated into the local language when marketing to retail investors. Waystone will provide further updates on this aspect once clarity is provided by the various NCAs.
What is likely to be considered as a ‘marketing communication’ within the CBDF?
We have set out below, what may be considered a form of marketing:
- Factsheets, press releases, sponsored articles, interviews, internet documents, webpages, videos, live presentations, and radio messages addressed to investors or potential investors
- Broadcasts on media such as blogs, social networks (Twitter, LinkedIn, Facebook, etc.), and discussion forums which refer to any characteristics, including the name, of a UCITS or AIF
- Individually addressed investor materials
- Marketing documents or presentations made available by a UCITS manager or AIFM
- Communications by a third party, for example a distributor, used by an investment manager for marketing purposes.
Pre-marketing for AIFs
The harmonisation of the pre-marketing requirements across the EEA is a broadly welcome development. It does, however, bring some nuances to be aware of, in particular, that of passporting a fund, where pre-marketing has resulted in an investment within 18 months of the pre-marketing having taken place.
- The definition of “pre-marketing” set out under AIFMD will be used across the EU rather than being determined by jurisdiction
- Information on established AIFs may now also be provided prior to passporting provided the communication does not amount to an offer to invest (2)
- Pre-marketing must be notified to the NCA, within two weeks of starting to pre-market
- Any subscription taking place within 18 months of pre-marketing is considered to be “marketing” and generates a requirement to passport the fund.
Facilities for retail investors
Under the new rules, appointing a locally based ‘facilities agent’ is no longer a pre-condition for a UCITS to market its shares in other jurisdictions. This change does not, however, remove the requirement to provide facilities, it simply allows for this to be done from outside the jurisdiction. AIF funds marketed to retail investors are subject to the same obligations as those outlined for UCITS.
There remains a lack of clarity as to whether member states will require facilities providers to be licenced and also in what language(s) facilities can be provided. Due to this, we will assess the best approach for our funds only when the majority of jurisdictions have confirmed how they will implement the change.
- Processing of subscription/redemption orders and payments to unit-holders
- Providing information on placing subscription/redemption orders and how redemption proceeds are paid
- Facilitating information handling and providing access to complaints procedures and other arrangements relating to the investors’ ability to exercise their rights
- Making available the current NAV per share, prospectus, KIID/KID and periodic reporting
- Ensuring investors can access, in a ‘durable medium’ (3) information on the tasks that the facilities perform
- A contact point for the competent authorities in the relevant member state.
De-registration of funds
Changes to the de-registration process within the CBDF will impact UCITS and AIFs in different ways.
For UCITS, de-registration can now be undertaken even where there are fund investors still located in the jurisdiction.
For AIFs, the same de-notification process as for UCITS must be followed, however, care must be taken as this brings with it the potential inability to pre-market new AIFs using ‘similar’ investment strategies or investment ideas for a period of 36 months from the date of de-registration in that jurisdiction. We recommend that de-registration filings are therefore very specific with regards the name and form of the AIF being de-registered.
Timelines and process
- A 30-business day blanket offer to redeem, free of fees or deductions, shares held by investors in the jurisdiction. The offer must be addressed individually to all investors whose identity is known whether directly or through financial intermediaries (4)
- Publicising the intention to terminate the marketing arrangements through a ‘publicly available medium’ is customary for marketing a UCITS or AIF
- Contractual arrangements with distributors or local intermediaries must be updated/terminated on the de-notification date, to prevent further marketing
- Once all of the above are complete, the home NCA must be notified and has a further 15 days in which to notify the host NCA.
Advance notification of post-authorisation changes
While UCITS have historically been required to notify the host member state of the changes to information included in their original notification letter, the UCITS must now notify both its home and all relevant host jurisdictions of such changes one month before implementing any such change (including the addition of a new share class).
We await further clarity from NCAs as to whether intended changes may be notified to home and host NCAs simultaneously (i.e. a true one month notification) or whether the home NCA must first approve the change before it can be notified to the host NCA (which would mean a two month pre-notification schedule).
There is no change to the AIF process, under which, only the home regulator need be notified and then only for material changes.
If you have any questions or would like to discuss this further, please reach out to your usual Waystone representative or contact us below.
2. i.e does not: enable investors to commit to investing; amount to a subscription form; or be a final form offering memorandum or PPM.
3. A ‘durable medium’ is simply one that: allows information to addressed personally to the recipient, enables information to be stored in a way that is accessible for future reference and for an adequate period of time and allows the unchanged reproduction of the information stored.
4. N.B. This obligation does not extend to close-ended AIFs