Originally published 25th February 2011

Under the recast UCITS Directive which is due to come into effect in July 2011, the procedure for registering for sale the units of UCITS funds in other EU member states is due to undergo significant change. The new procedures have implications for both Irish authorised UCITS which are seeking to market their units in other EU jurisdictions and also for non-Irish authorised UCITS which are seeking to market into Ireland.

The existing UCITS cross-border notification procedures were included in the first UCITS Directive and were created so as to allow for the marketing of UCITS on a public basis to retail and institutional investors once a notification was effected. However, effecting and maintaining foreign country registrations has proved to be a costly and time consuming process and there are various inconsistencies in the rules that apply in the different EU member states. Under the new UCITS IV procedures, the process has been streamlined so as to enable a UCITS to register more quickly and efficiently in other EU Member States. However, although the new notification procedures significantly change the initial registration process the measures fall somewhat short of a complete overhaul of the foreign country registrations regime.

New Notification Procedures under UCITS IV

Under UCITS III, applications to market the units of a UCITS in another EU jurisdiction are made to the host state regulator of that jurisdiction. The processing of such applications can take up to 2 months depending on the capacity of the relevant regulatory authority. Under the UCITS III regime, it is often a requirement that the notification documentation be provided in the language of the host state and the preparation of translations can involve significant expense for funds which are registered in several different jurisdictions.

Going forward, the notification procedure under the UCITS IV Directive intends to simplify, expedite and reduce the costs involved in the registration process. The new notification procedure involves regulator-to-regulator communication (rather than UCITS-to-regulator) in the country in which registration is sought. The new procedures also relax the translation requirements which can prove costly and should significantly reduce the time periods involved in registration. In addition, the host regulator is precluded from imposing additional notification requirements to those which are set out in the Directive. However, the Directive envisages that host member states may also implement laws, regulations and administrative provisions falling outside the scope of the Directive which are specifically relevant to the arrangements made for the marketing of units of the UCITS in the relevant member states. Consequently the need to appoint local agents in some jurisdictions will continue.

Method of Communication

The notification procedure under UCITS IV requires the UCITS to submit a notification to the relevant regulatory authority in its home state. This notification is to be made electronically. It is then the responsibility of the home regulatory authority to review the documentation and make a notification to the host state regulator within 10 working days of the receipt of the documentation. The home state regulator is also required to provide the UCITS with confirmation that notification has been made to the host state regulator and secondly that marketing may commence immediately in that jurisdiction. It should be noted that the new regulator-to-regulator notification procedure only applies to the initial application to market the units of the UCITS and it is the responsibility of the UCITS itself to furnish the host regulator with details of any further updates to the documentation thereafter. This would include attending to the filing of any subsequent updates to the prospectus and the KIID as well as submitting the financial reports as and when these are issued. The actual procedures for making such subsequent notifications are not clearly prescribed in the draft UCITS IV Directive.

Notification Letter

In conjunction with the procedures set out under the UCITS IV Directive, EU Commission Regulation 584/2010 established the form and content of the standard model notification letter to be used in respect of cross-border notifications. The Commission Regulation also details the procedures for the electronic transmission of the notification file containing the registration documentation between the home and host state competent authorities.

The notification letter is divided into two sections; Part A and Part B. Part A contains specific information relating to the UCITS. The instrument of incorporation, prospectus, KIID and annual reports are also attached to this part of the letter. Part B relates to the arrangements for the marketing of the units of the UCITS in the relevant host member state. Information relating to the entity which will carry out marketing on behalf of the UCITS and arrangements for the provision of facilities to unitholders are set out in this section. In addition, any other information which is required by the regulatory authorities of the host member state to be disclosed to unitholders or their agents must be provided. This would include the type of information ordinarily included in a country supplement.

Translation Requirements

The UCITS III notification procedure requires that all notification documentation be translated into the language of the host state. Under the UCITS IV Directive, only the key investor information document (the "KIID") is required to be translated into the official language of the host state or into a language approved by the competent authorities of the host state. UCITS IV provides that the other documentation which is required to be submitted may be translated into "a language common in the sphere of finance". It is unclear which languages will be deemed to fall within the scope of this definition but, presumably, this would include English, French and German. However, it seems many promoters will continue to translate the relevant documentation as local distributors prefer to provide translated versions to investors. There is also some concern that providing documents in a language "common in the sphere of finance" rather than in the host state language may give rise to civil liability issues with retail investors claiming that they are unable to properly understand the relevant fund documentation.

Conclusion

While the proposed recommendations should reduce the initial cost of foreign fund registrations and improve the efficiency of the initial registration process, it would appear that the ongoing requirements will remain mostly unaffected. Notwithstanding the issues highlighted above the new measures are to be welcomed.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.