ECON votes on amendments to cross border distribution proposals and to extend the delay to UCITS KIDs

At a meeting held on 03 December 2018, the European Parliament’s Economic and Monetary Affairs Committee (ECON) adopted the amendments it would wish to see to the proposals of the European Commission (Commission) for the cross-border distribution of investment funds. ECON also agreed to push for a two-year extension of the exemption on UCITS from providing Key Information Documents (KIDs) under the PRIIPs Regulation.

Introduction

A meeting of the ECON Committee held on Monday 03 December 2018 led to a vote which has potentially significant implications for asset managers in two areas.

Cross-border distribution of investment funds

The ECON vote adopted the amendments that the Committee would wish to see to the Commission’s proposals on the cross-border distribution of investment funds.

A summary of these changes can be found in the subsequent press release issued by the European Parliament (Parliament).

The ECON vote marks an important step as the adopted amendments appear likely to form the Parliament’s opening position for the trilogue negotiations with the Council of the EU (Council) and the Commission. These negotiations will, in turn, lead to an agreed Level 1 text in due course.

The Council has already adopted its opening position (known as its general approach) in respect of both the proposed directive and the proposed regulation.

For a summary of the Commission’s original proposals, see our elexica articles here (looking at changes to the UCITS Directive) and here (written primarily from the perspective of the AIFMD).

ECON agrees for UCITS KIDs to be delayed by two years

Among the amendments adopted, ECON voted to extend by two years the transitional exemption whereby investment companies advising on or selling UCITS would not need to provide the much-criticised PRIIPs KID to investors.

The exemption is currently available until 31 December 2019 - the ECON amendment would extend this to 31 December 2021.

Although the ECON vote in favour of an extension does not, of itself, change anything, it is further evidence of the likelihood of a delay being formally agreed, the Commission having already put on record its agreement to such a proposal (see our elexica article here).

What happens next?

The Council, Parliament and Commission will meet together in trilogue meetings, which will lead to an agreed final texts for a Directive and for a Regulation.

Once formally adopted and endorsed by the Parliament and Council, the texts will be published in the Official Journal.
The Commission has proposed a two year period for Member States to transpose the Directive into national law. (The Regulation, on the other hand, will have direct effect in Member States and will not need to be transposed.)

It seems inevitable, then, that the final rules will not be applicable until after 29 March 2019, the date on which the notice expires of the UK’s intention to leave the EU. It is possible even that the rules will not be in force even before any transitional period which might be agreed has ended.

The specific impact that these rules will have as far as UK ManCos and AIFMs will depend, to a large degree, on the final form of any agreement reached on Brexit. In any event, though, UK firms should take heed of the proposed changes as they may, in time, set a standard for third country managers seeking to market into the EU.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.