What is the Marketing Memorandum?

What is the Marketing Memorandum?

A collective investment scheme (CIS) that wants to distribute its units on a cross-border basis it must follow certain steps. The main one is the submission of certain information on the fund to the supervisory authority of its home State. This is what the European regulations call “notification letter”.

Thus, in accordance with EU Directive 2009/65, the home supervisor must forward this letter to the host state supervisor. The host supervisor notifies the CIS of the receipt of this letter. Upon notification of receipt, the CIS may distribute its units in the host State.

But within the notification letter, two parts can be distinguished:

• Part A: This is the part harmonised at European level and whose content and form are developed in Regulation (EU) 584/2010.
• Part B: non-harmonised part. Each Member State has the discretion to specify its content. In Spain it is developed and included in the CNMV Circular 2/2011.

Thus, the marketing memorandum is this part B of the notification letter.

Regulatory basis

There are therefore three rules that apply to this document:

• DIRECTIVE 2009/65/EC on the coordination of regulations relating to undertakings for collective investment in transferable securities (UCITS)
• REGULATION (EU) 584/2010 laying down implementing measures for Directive 2009/65/EC. These Rules develop the content and form of Part A of the notification.
• CNMV Circular 2/2011, on information on foreign CIS registered in the CNMV’s Records. This Circular develops Part B of the notification letter, the Marketing Memorandum.

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Pre-marketing

Pre-marketing is a technique introduced to remove barriers to the cross-border distribution of funds. The aim in harmonising this practice is to increase its transparency and legal certainty.

The essential Directive 2009/65/EC

This Directive provides the basis for information requirements for the cross-border marketing of CIS in the EU.

It determines the obligation of States where a UCITS/CIS wishes to distribute its funds to allow such distribution. To this end, a notification procedure must be followed between the supervisory authorities of the home and host states. This Directive empowers the Commission to determine the content and form of such notification. The European Commission implements this delegation of powers with the aforementioned Regulation 584/2010.

The Directive states that UCITS host Member States shall ensure that UCITS can market their units. This reference enables States to regulate part B of the notification at their discretion. This is done in Spain by means of the Circular 2/2011 already mentioned.

In addition, Member States must take necessary measures to allow the sale and purchase of shares in foreign CIS. However, the rules in force in the Member State in which the shares are marketed must be respected. They should also allow for the dissemination of information to be provided by UCITS, in accordance with Article 92.

What is the notification procedure?

Article 93 of the Directive governs this procedure. A CIS wishing to market its units in another Member State must submit the notification letter. This document must be filed with the authorities of your home State. The authority of the home State shall forward this letter to the authorities of the host State. The CIS may market its units as soon as the host State authority reports the receipt of the notification letter.

Who must submit and complete the notification letter?

There are, as has been said, two parts to the notification. Part A, harmonised for the whole of the EU, is developed in Regulation EU 584/2010. There is no doubt who should fill it out and submit it. The CIS seeking to market its units in another Member State. And he must do so before the authority of his home country.

However, the doubt arises with regard to Part B of the submission.  Since it is up to each Member State to develop its content. This Part B, or Marketing Memorandum, must be submitted to the authority of the State of origin. And it is the authority of the State of origin that refers it to the host State. However, the content of the latter shall be determined by the authority of the host State.

In accordance with Spanish regulations, the CNMV regulates this issue in Circular 2/2011, which has already been mentioned. This Circular establishes the obligation of the foreign CIS to submit this Part B. Despite this, the CNMV allows the foreign CIS to delegate the submission of certain information to an entity. This entity will represent the foreign CIS before the CNMV. However, as mentioned above, this regulation is only applicable when a foreign CIS distributes its holdings in Spain. The difficulty lies in knowing the regulations of each of the Member States. In particular when a CIS wants to distribute its units or shares across borders in more than one Member State.

What is the content of the notification letter?

The content of the notification also differs in the two parts. Thus, the content of Part A is harmonized, thus being the same for all States. The content of Part B will depend on each Member State. So let’s just look at the contents of Part A. The main content of this Part, set out in Annex I to Regulation 584/2010, is as follows:

• Name of the CIS
• Home Member State of the CIS
• Legal form of the CIS
• Define whether the IIC has compartments or not
• Name of the Management Company of the CIS
• Management Company’s home Member State
• Address and registered office of the CII and the Management Company

Conclusions

The cross-border marketing of CIS is an essential part of the European financial industry. That is why the EU has been working to harmonise the rules in this area. This includes the procedures for communicating information on CIS between supervisors. An essential document in this procedure is the Marketing Memorandum. But European regulations have left the States with the discretion to regulate their content and form. In addition, it is not clear who should fill it out and submit it to the competent supervisor. This generates some controversy when a CIS decides to market its units in another Member State for the first time.

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