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New CBDF rules

September 14, 2020

What is happening?

On 16 April 2019, the European Parliament adopted a package of legislation amending the regulatory framework for the cross-border distribution of investment funds in the European Economic Area. The legislation takes the form of a Directive and a Regulation on the Cross-Border Distribution of Collective Investment Undertakings (respectively known as the CBDF Directive and the CBDF Regulation). These introduced new rules relating to the cross-border marketing and distribution of collective investment undertakings (AIFs and UCITS). While most of these rules will apply only from 2 August 2021, managers and distributors considering going to the market with alternative investment fund products are likely to face the new CBDF Rules and should be considering how they can ensure compliance.

The rules also amend the European Venture Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF) Regulations.

What do you need to do?

The CBDF rules introduced a new harmonised definition for “pre-marketing” in the AIFMD, which applies to authorised EU AIFMs in respect of EU AIFs, which are either not yet established or are already established but not yet notified for marketing in the EU under the AIFMD. This definition permits pre-marketing only where it is addressed to potential professional investors in the EU and provided that there is no offer or placement of the relevant AIF to the investors. This constitutes an important change, implying in practice that any activities going beyond the scope of “pre-marketing” will be considered as marketing activities subject to the formal marketing notification process required by the AIFMD.

In order to better protect investors, the CBDF Rules provide for new uniform requirements which apply to authorised EU AIFMs addressing marketing communications to investors (professional and retail) in AIFs.

Any subscription by professional investors in an AIF which occurs within 18 months after an EU AIFM engaged in pre-marketing activities for that AIF will be considered to be the result of marketing and will be subject to the applicable AIFMD marketing notification procedure. Consequently, an EU AIFM will not be able to rely on reverse solicitation for that period of 18 months

When AIFs are marketed to retail investors, regulators may require prior notification of the marketing communications that authorised EU AIFMs intend to use (directly or indirectly) in their dealing with AIFs’ investors.

The CBDF rules require that all AIFMs (EU or non-EU), which are marketing or intend to market any AIFs (EU or non-EU) to retail investors in the EU must establish local facilities in each of the host Member States where the AIFs are marketed to retail investors. Local facilities will have to perform the following tasks:

    • processing investors’ subscriptions, payment, repurchase or redemption orders relating to the AIF,
    • providing investors with information on how orders can be made and how redemption proceeds are paid,
    • facilitating the handling of information relating to the exercise of investors’ rights arising from their investment in the AIF in the Member State where the AIF is marketed,
    • making fund rules or instruments of incorporation and the latest annual report of the AIF available for inspection, or
    • acting as a contact point for communicating with regulators.

This does not require the AIFM to have a physical presence, nor to appoint any third-party representative in the host Member State(s), since these facilities may be provided through the use of electronic or other means of distance communication. These facilities can be provided by the AIFM and/or, under certain conditions, by a third party subject to regulation and supervision governing the tasks to be performed.

Incidentally, the expected amendments to the PRIIPs Regulation are also legislated for in the CBDF Regulation. The PRIIPs Regulation is amended so that the date of the UCITS exemption to produce and provide a PRIIPs KID is extended by two years to 31 December 2021.

How can we help you?

If you’d like to know more about how we can help you with your fund marketing arrangements or with any other aspect of FCA compliance, our expert team is here to help. Contact us today on 0207 436 0630 – or email