Directive (EU) 2019/1160: Cross-border distribution of Collective Investment Undertakings

Therefore, in order to commercialize CISs in the EU, it is enough that its Management company is authorized to operate in any Member State. It will be able to do so both by a branch or by free provision of services. In both cases, a communication between the Regulators of both Member States (the authorizing country and the host country, respectively) will be necessary. Despite these advantages, there are still obstacles to the common cross-border distribution of CISs.

Directive EU 2019/1160 was born with the sole objective of eradicating these barriers to the cross-border distribution of CISs. Regulation (EU) 2019/1156, which develops the Directive, aims for the same objective. These obstacles, that will be later explained, prevent CISs from taking full advantage of the European single market.

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Problems addressed by the Directive.

There are four main issues that the Directive tries to end with:

1.- Different ways of communicating the authorization between the Regulators

As it was previously mentioned, CISs can be freely distributed in any other Member State whenever:

1. The Management Company of the CISs is authorized in another Member State; and
2. The communication between the Regulators of both Member States is done.

Up to now, that notification was done differently if we were looking at a UCITS or an AIFM. A UCITS are undertakings for collective investment in transferable securities. It is the European harmonized term for CISs. An AIFM are alternative investment fund, also known as Hedge Funds.

From the Directive 2019/1160, both notification procedures between authorities are aligned.

2. Obligation to provide services for investors

Directive 2009/65 forced CISs to have local physical services in order to serve the investors. However, the truth is that the most common way of communicating between investors and managers is telematic.

Thus, the Directive has eliminated this obligation of physical presence, being only sufficient the communication via the internet or telephone.

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European passport for ESISs, IICS and SGIICs

The European Passport is talking about authorization to market certain financial products within the territory of the EU. In addition, it is necessary to differentiate the type of financial product to be commercialized. The process for obtaining the authorization / European Passport is different depending on the case. Thus, it is necessary to speak separately of authorization for ESIs, IICs and SGIICs.

3. Lack of clear and uniform conditions for the discontinuation of cross-border marketing of CISs shares.

The previous regulation did not stablish how to proceed when the marketing of a CIS in another Member State stopped.

With this new Directive, this conditions and requirements are fixed. This way, the discontinuation of the cross-border marketing does not imply a cost for the investors, neither a limit of their rights.

4. Lack of regime and common definition of pre-marketing.

This is the most important item of the Directive 2019/1160. The previous regulation did not stablish uniform guidelines that regulated the pre-marketing activity. This generated a common legal uncertainty, due to the fact that this activity was unknown. Furthermore, premarketing was allowed in some Member States whereas in some other it was not.

In order to avoid this, the new Directive defines pre-marketing as:

The supply of information, either directly or indirectly, about investment strategies of the Management Company of the CISs to potential professional investors.

The requirements fixed in by the Directive for the premarketing are that:

• It must be directed towards potential professional clients.
• It must relate to an idea or an investment strategy.
• During the premarketing, investors will not be able to subscribe units from the CIS.
• The distribution of subscription forms is prohibited.
• Subscription can only be done in the marketing process.
• Subscriptions made 18 months after the pre-marketing, are considered result of the marketing.

What rules does it changes?

As previously mentioned, the Directive has had effects in the European regulation. Thus, it implements changes in two European Directives:

• Directive 2009/65 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities.
• Directive 2011/61 on Alternative Investment Fund Managers.

Member States must have adapted and transposed this Directive to their national legislation by August 2^nd 2021. This way, its transposition to the Spanish law is expected to amend the following Laws:

• Law 35/2003 of Collective Investment Undertakings
• Law 22/2014 regulating private equity funds, other closed-end investment funds and their management companies.

Finally, in order to be totally transposed, it is believed that the elaboration of a Royal Decree will be necessary. Due to the fact that the transposition will affect the RD 1082/2012 which developed the Law of Collective Investment Undertakings.

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