ESMA Consultation on UCITS Crossborder Management Notifications

There is more than meets the eye in the ESMA consultation on UCITS crossborder management and marketing notification. Far from being exclusively confined to matters related to AIFs and UCITS crossborder marketing in Europe, the scope of the recentESMA consultation encompasses also AIFMs and UCITS management companies’ cross-border activities in Europe, including the management of AIFs and UCITS, established in the other EU Member States and carried out either directly or through the establishment of a branch.

From a technical standpoint, with this consultation, ESMAis developing regulatory technical standards to specify the actual information to be notified to national competent authorities in case of AIFs and UCITS crossborder management either via a branch or on the freedom to provide services basis.

Along with these regulatory technical standards, ESMA is also issuing implementing technical standards in order to deliver the template letters for AIF and UCITS crossborder management notification.

Get in touch here with your contacts at Veneziano & Partners to see how we can help with AIF and UCITS crossborder management notification.

Branch, Freedom to Provide Services, and UCITS Crossborder Management Notification

Both the AIFMD and UCITS directives contain provisions to empower ESMA to develop the regulatory and implementing technical standards related to AIF and UCITS crossborder management notification. Largely inspired by an existing Commission delegated regulation issued in the context of MiFID, which deals more broadly with European cross-border activities of investment firms and other market operators, the regulatory technical standards now developed by ESMA have necessarily a narrower focus than the delegated regulation. Considering that the process requirements for these applications are already provided for by the AIFMD and UCITS directive, with the regulatory technical standards ESMA is just expanding these existing requirements, giving an official interpretation of detailed information to be provided in order to fulfill them when making these applications.

For what concerns the European cross-border activities of AIFMs and UCITS management companies, the regulatory technical standards will cover the information required when making notifications related to i) establishment of a branch; ii) cross-border activities on the freedom to provide services basis; as well as iii) management of AIFs and UCITS established in another Member State.

It is noteworthy to mention that the process under i) and ii) above is a regulator vis-à-vis regulator process, where the notification will have to be made to the national competent authority of the home member state of the AIFM or UCITS management company. In the case of cross-border management, instead, the notification will have to be made directly to the national competent authorities of the host member state.

With the implementing technical standards containing the templates of the letters for AIF and UCITS crossborder management notification, ESMA nevertheless takes the opportunity to weigh in on the process related to these notifications. According to the ESMA consultation, submission of the notification letters in all the cases above will have to be electronic and email-based, with national competent authorities having to allocate dedicated email addresses for the submission of the notifications and related correspondence.

Lastly, the regulatory technical standards do not cover specifically the issue of the regulatory delays involved in the approval of any of these notifications, which, same as the respective requirements, remain entirely governed by the respective provisions of the UCITS Directive and AIFMD.

Information required and template notification letters

For what concerns notifications made by UCITS management companies intending to establish a branch in another Member State under article 17 UCITS directive, the regulatory technical standards expand on the notion of programme of operations, the organizational structure of the branch, description of risk management process and systems and controls required to be put in place as well as specify the level of information to be provided when making these notifications. The same approach is adopted for what concerns the notifications of cross-border activity of UCITS management companies on the freedom to provide services basis under article 18 UCITS directive, where the regulatory technical standards expand on the notion of programme of operations. Lastly, the regulatory technical standards also cover the information required in case of termination of the branch.

For what concerns cross-border activities of AIFMs, the details provided by the regulatory technical standards are not divergent from the ones related to UCITS management companies, but contain some necessary adaptations. In particular, the concept of programme of operations is enriched with details related to clients and investors to be approached in the host Member State. The technical regulatory standards require that the specific categories of targeted clients and investors in the host Member States and how it is intended to deal with these is described within the relevant application.

The related implementing technical standards contain templates of letters for crossborder management that can be apparently used interchangeably for both UCITS management companies as well as AIFMs.

Conclusions

Contrary to the proposed template letters for AIF and UCITS crossborder marketing notification, where there seems to be more than one potential controversial item, which feedback is expressly required as part of the consultation, more general feedback is required both on the information to be notified and on the template letters for AIF and UCITS crossborder management notification. This in part reflects the understanding that practice already evolved in these applications over time.

These regulatory technical standards represent a welcome clarification on the process for AIF and UCITS crossborder management and we see them supporting the overall aim of the Capital Markets Union to foster more efficient dynamics for European cross-border distribution. More specifically, the fact that the details on these requirements for AIF and UCITS crossborder management notification are now defined at the European level will give more certainty to these processes going forward, with a reduction of the extent of involvement of local counsels to provide ad hoc interpretation of the AIFMD and UCITS directive, depending on the domicile of the AIFM or UCITS management company or else the host Member State where cross-border management activities are intended to take place.

Get in touch here with your contacts at Veneziano & Partners to see how we can help AIF andUCITS crossborder management notification.