Distribution of UCITS and AIFs 

UCITS Passport

UCITS benefit from the ‘passport’ introduced under the UCITS V directive, by allowing them to be freely marketed on a public basis within all EU Member States, without additional authorisation from the competent regulatory authority of each host Member State after successful completion of a streamlined notification process. Outside the EU, distribution of UCITS funds into selective jurisdictions remains via private placement and thus must satisfy local regulations that are significantly more complex and time consuming than the EU passport notification process.

The EU regulator-to-regulator notification 

• a UCITS authorised in Cyprus proposing to market its units/ shares in a Member State other than Cyprus, must submit an advance notification to CySEC
• the notification must include, among others, information on arrangements made for marketing units of the UCITS in the host Member State, including where applicable, the categories of units/ shares to be marketed
• in the case that the units/shares of a UCITS are marketed by
  its Management Company, in the context of its cross- border business within the territory of the UCITS’ host Member State, either through the establishment of a branch or under the freedom to provide services, accordingly the notification shall include an indication of this fact

Notification documents required by UCITS 

• constitutional documents
• prospectus
• latest annual and half-yearly report (if applicable)
• Key Investor Information Document (KIID)

 Cyprus UCITS units marketed via private placement 

This country-by-country strategy by way of private placement is adopted by UCITS that seek to target a small number of larger institutional investors outside the EU. However, there are no harmonised rules within the EU surrounding private placement and thus fund promoters must contend with the specific local regulations governing each jurisdiction of intended distribution.

AIFM Passport

Similarly, the AIFMD introduced a ‘passport’ for the distribution of units of AIFs managed by Alternative Investment Fund Managers (AIFM) to professional investors in the EU. Cyprus AIFMs can market their EU AIFs to professional investors in other targeted Member States, using the simplified regulator-to-regulator notification mechanism as opposed to having to seek permission from the regulatory authority in each Member State and comply with local national laws. The AIFMD provides a more complex and delayed transposition schedule applicable to non-EU AIFMs and non-EU AIFs wishing to raise capital in the EU. In this case and in view of the uncertainty as to when and if the passport will be extended to third countries, the so-called National Private Placement Regimes (NPPRs) still remains applicable.

Cyprus AIFM marketing an EU AIF in the EU 

EU regulator-to-regulator notification: The cross-border marketing by a Cyprus AIFM of an EU AIF addressed to professional investors is subject only to a notification procedure, under which relevant information is provided to the host Member State by the AIFM’s regulator (the notification procedure is similar to that for UCITS operators under UCITS V).

Cyprus AIFM marketing a non-EU AIF in the EU 

Through Private Placement: a Cyprus AIFM may market a non-EU AIF to professional and other types of investors in the EU under the national private placement regimes (and those EU AIFs which are feeders of a non-EU AIF master-fund) provided that:

• it is authorised under, and complies fully with the AIFM Law 56(I)/2013
• the third country where the non-EU AIF is established is not listed by the Financial Action Task Force (FATF) as a Non-Cooperative Country and Territory (NCCT)
• appropriate cooperation arrangements are in place between CySEC and the regulator in the country of establishment of the non-EU AIF

Key Developments

Since 2 August 2021, Directive (EU) 2019/1160 (CBDD) has been in force across all EU Member States. This directive is designed to streamline and harmonise the regulations governing the cross-border distribution of collective investment undertakings within the EU. It specifically targets the distribution practices of EU Alternative Investment Fund Managers (AIFMs) and aims to simplify and standardise how Alternative Investment Funds (AIFs) are marketed across the EU.

Key aspects of the directive include:

• Uniform distribution rules: The directive makes it easier for fund managers to market AIFs across the EU by harmonising regulations, reducing the complexity of dealing with different national rules.
• ‘Pre-marketing’ regime: Fund managers can now test market interest in a fund before its official launch, allowing them to assess investor interest without meeting full regulatory requirements upfront.
• Clearer information for investors: The directive ensures that marketing materials for AIFs provide clear, accurate, and consistent information about the risks and benefits of investing.

In Cyprus, Directive (EU) 2019/1160 was implemented through two laws published on 23 July 2021: (i) the UCI (Amendment) Law of 2021 (Law 124(I)/2021 which updated the UCI Law of 2012 to include the changes required for UCITS and (ii) the AIF (Amendment) Law of 2021 (Law 125(I)/2021) which updated the AIF Law of 2018 to include the necessary provisions for AIFs.

Additionally, Regulation (EU) 2019/1156 (CBDR) which simplifies cross-border distribution of collective investment undertakings, directly applies to all EU Member States, including Cyprus.

Scope of the Regulation includes:

• Uniform rules: It standardises the rules for distributing investment funds across the EU, removing the need for separate national regulations.
• Simplified processes: It makes it easier for fund managers to market their products in different EU countries with fewer administrative steps.
• Clearer information: It ensures that marketing materials provide transparent and comparable information to investors.
• Streamlined reporting: It simplifies reporting and compliance requirements for fund managers.

The European Securities and Markets Authority (ESMA) published a report on 3 July 2023 titled ‘Marketing Requirements and Marketing Communications under the Regulation on Cross-Border Distribution of Funds’. This report builds on the earlier Guidelines issued on 27 May 2021 and provides updated guidance on marketing communications for funds. The report emphasises that marketing materials must:

• Be clearly identifiable as marketing materials
• Equally present the risks and rewards associated with purchasing units or shares of an AIF or units of a UCITS
• Provide information that is clear, fair, and not misleading, especially in online contexts

Read the 2024-2025 CIFA Investment Funds Guide

November 2024