Asset Management | The PRIIPs Act and the Cross-Border Distribution of Collective Investment Fund rules enters into force 1 October 2024

The PRIIPs Act 

The PRIIPs Act transposes the PRIIPs Regulation (Regulation (EU) No. 1286/2014) into Norwegian law. The PRIIPs Regulation contain specific requirements for the key information that non-professional investors must receive prior to entering into an agreement to purchase packaged or insurance-based investment products, such as interest in an alternative investment fund (AIF). The objective is to ensure that investors are well-informed and can make more informed investment decisions. We recently published a newsletter that sets out further information about what considerations fund managers should make, please see our previous newsletter.

New rules on cross-border distribution of collective investment funds 

Introduction 

Simultaneously with the PRIIPs Act entering into effect, the new rules on the cross-border distribution and marketing of collective investment funds will also take effect on October 1, 2024. These provisions implement EEA rules corresponding to Directive (EU) 2019/1160 and Regulation (EU) 2019/1156.  

The primary objective of these new rules is to streamline the cross-border operations of funds, ensure a more consistent practice of notifications between national authorities and thereby enhance investor protection. The rules include the following key elements for fund managers:  

• Pre-marketing of AIFs  

• New requirements for de-registration of marketing of AIFs and UCITS funds 

• New rules regarding local facilities for AIFs and UCITS funds marketed to non-professional investors 

• Alignment of notification requirements for AIFs and UCITS funds 

Below, we will delve deeper into the new key requirements that apply to EEA fund managers.  

New pre-marketing regime for AIFs 

The implementation of the cross-border distribution of collective investment fund rules will result in the Norwegian AIFM Act governing the activity of pre-marketing. As of 1 October 2024, the Norwegian AIFM Act will contain a definition of “pre-marketing” and provide conditions for EEA authorized managers to conduct pre-marketing in Norway. To date, it has been generally accepted that both EEA and non-EEA managers may conduct pre-marketing activities in accordance with existing market practice and unwritten guidelines. The existing pre-marketing regime allowed for pre-marketing without notification to the Norwegian Financial Supervisory Authority of Norway (FSAN).  

Following the implementation of the new pre-marketing rules, EEA managers are eligible for pre-marketing following a pre-marketing notification to the FSAN, within two weeks after such pre-marketing activities have started. The pre-marketing notification is simplified compared to the general marketing notification, and requires only the following information: 

1. Name of the EEA member states where pre-marketing is conducted 
2. Short description of the pre-marketing and the investment strategy and ideas 
3. A list of the alternative investment funds or share classes that are pre-marketed 

The ability to pre-market alternative investment funds in Norway is only awarded to EEA managers. The pre-marketing regime excludes non-EEA managers from its scope, resulting in said managers having to apply for marketing authorisation (AIFMD article 42 or 36) to conduct activities that would otherwise fall within the definition of pre-marketing under the Norwegian AIFM Act.  

Another important effect of the new rules is that any investment made by a professional investor within 18 months of an EEA AIFM commencing pre-marketing of an alternative investment fund pre-marketing notification, or in an AIF established as a result of such pre-marketing, will be considered a result of marketing. Consequently, these investments will be subject to the standard marketing notification procedures and the EEA AIFM cannot rely on reverse solicitation for a period of 18 months after conducting the pre-marketing. 

Additionally, the new pre-marketing regime introduces a blackout period for AIFs that have been de-registered for marketing. An EEA manager is prohibited from conducting pre-marketing for a period of 36 months in any jurisdiction where a de-registration notification has been filed. The blackout period applies to the specific fund mentioned in the de-registration notification and any other fund with a similar investment strategy.  

De-registration of marketing notification (AIF and UCITS) 

The new rules set out certain requirements to be completed before an AIF or a UCITS fund can be de-registered for marketing: 

1. A blanket offer must be made to repurchase or redeem, free of any charges or deductions, all investments in the AIF/UCITS held by investors in that member state. This offer must be publicly available for at least 30 days and must be addressed individually to all known investors in the members state, either directly or through financial intermediaries. This condition does not apply with respect to close-ended AIFs or ELTIF. 
2. The intention to terminate marketing arrangements must be made public in that member state through a publicly available medium. 
3. Any contractual arrangements with financial intermediaries or delegates must be modified or terminated with effect from the date of de-notification to prevent new or further, direct or indirect, offering of the AIF/UCITS. 
4. The EEA manager must continue to provide remaining investors in the AIF/UCITS and the competent authorities in its home members state with the information required to be included in annual reports and prospectuses under the AIFMD or UCITS-directive. 

Marketing to non-professional investors and provisions regarding local facilities 

When marketing AIFs to non-professional investors, the manager shall offer facilities that ensure subscriptions, payments to unit holders, redemptions, and, if applicable, repurchases of units in the fund in accordance with the fund documentation. In addition, certain requirements regarding the information to be provided to the non-professional investors have been expanded.  

The facilities shall act as a contact point for FSAN.  

Services directed at investors in Norway must be provided directly from the manager’s head office, through a representative office in Norway, through an alternative investment fund manager, or through an investment firm authorised to provide the relevant services in Norway.  

BAHR Comments 

Since 1 January 2023, FSAN has required foreign UCITS marketed to retail investors in Norway to provide a Norwegian-language PRIIPs KID. The PRIIPs Act replaces existing requirements regarding sector-specific information. BAHR’s Asset Management group has developed a Norwegian standard form that complies with all requirements outlined in the PRIIPs Act, and which is currently being discussed with FSAN.  

In the EU, the Cross-Border Distribution Rules for Collective Investment Funds directive (EU) 2019/1160 and regulation (EU) 2019/1156 came into effect on 2 August 2021. So far, Norwegian fund managers have not been able to pre-market in the EU member states and the FSAN has not accepted to forward pre-marketing notifications to other EU member states, even though the cross-border distribution rules have been effective in the EU. This has placed Norwegian fund managers at a disadvantage. However, with the new pre-marketing regime coming into effect in Norwegian law on 1 October 2024 this disadvantage is finally eliminated.  

For non-EEA fund managers, it is important that any pre-marketing activities in Norway are stopped before the 1 October 2024. To continue pre-marketing activities in Norway, the non-EEA fund managers will have to apply for marketing authorisation in accordance with the Norwegian law implementing AIFMD article 42 or 36.  

The new rules regarding de-registration and the blackout period have raised concerns among fund managers across the EU since their implementation in August 2021. As fund managers often have to pay an annual fee for having funds registered for marketing in EU jurisdictions, fund managers will often de-register the fund for marketing as soon as possible after final closing. However, questions have been raised about whether the blackout period of 36 months will prevent fund managers from being able to pre-market successor funds with a similar investment strategy in this period. So far, ESMA has not taken any standpoint on the questions. Hence, it will be up to the regulators across the EU member states (including FSAN in Norway) to interpret the applicable law implementing the de-registration requirements until ESMA provides a clear answer/statement on the matter.