Draft amendment to the Act on investment funds and management of alternative investment funds aimed at adapting national legislation to harmonized rules for cross-border distribution of collective investment undertakings within the EU
Since 14 September 2020, the Polish Government Legislation Centre has been working on a draft law amending the Act on investment funds and management of alternative investment funds, which aims to transpose the Directive (EU) 2019/1160 of the European Parliament and of the Council of 20 June 2019 amending Directives 2009/65/EC and 2011/61/EU with regard to cross-border distribution of collective investment undertakings and to enable direct application of the Regulation (EU) 2019/1156 of the European Parliament and of the Council of 20 June 2019 on facilitating cross-border distribution of collective investment undertakings and amending Regulations (EU) No 345/2013, (EU) No 346/2013 and (EU) No 1286/2014. Bearing in mind that the new regulations should come into force on 2 August 2021 (due to the expiration of the deadline for transposition of the Directive's provisions by EU Member States on that date), i.e. in just over 3 months, it is worth summarizing their most important assumptions.
As the purpose of the amendment is to seek to ensure a level playing field for collective investment undertakings (CIUs) across the EU and to remove restrictions on the free movement of units and shares in CIUs in the EU, the amendment will most affect foreign UCITS and managers of EU AIFs that are distributed in Poland. The most important changes for the indicated market participants include:
- the establishment (in addition to the existing register of foreign UCITS distributed in Poland) of a register of EU AIFs and AIFs domiciled in EEA countries notified for distribution in Poland, an entry into which will be subject to a fee of up to €2,500, and in the case of AIFs with separate sub-funds, a fee will be payable for the entry of each sub-fund notified for distribution,
- extension of the obligation to pay a fee (so far one-off) for the entry of a foreign UCITS in the register of foreign funds distributed in Poland, also to the entry of each subsequent sub-fund subject to notification, which until now was not associated with the obligation to pay any fees,
- imposition on both foreign UCITS and AIFs of a new obligation to pay an annual fee to cover supervisory costs, which will be capped at €2,000 and will increase by a maximum of €500 for each (second and subsequent) sub-fund of those UCITS and AIFs notified for distribution in Poland,
- imposition of an obligation on EU AIFs that are marketed on the territory of Poland among retail investors to implement analogous organisational and technical solutions that have so far applied only to foreign UCITS selling their units on the territory of Poland, ensuring Polish investors at least the same level of protection as in the home country of the EU AIF,
- removal of the obligation to appoint a representative and paying agent for foreign UCITS on the territory of Poland, leaving such possibility as optional,
- extension of the exemption from the prohibition of use of nominee structure by foreign UCITS also to cases in which units of a given UCITS are admitted to trading on an EU regulated market other than in Poland,
- clarification that foreign UCITS are obliged to notify the PFSA of changes in the manner of distribution of participation titles on the territory of Poland at least 1 month prior to their introduction, which so far has not been subject to any specific deadline,
- introduction of detailed rules on the cessation of marketing in Poland of participation units or shares of foreign UCITS or EU AIFs,
- introduction of harmonized conditions for carrying out activities in the territory of Poland prior to the introduction of foreign UCITS or EU AIF to trading among professional investors (introduction of pre-marketing rules).
Some of the changes to be introduced by the proposed law should undoubtedly be considered positive. This is particularly the case for amendments that introduce or clarify areas that currently raise concerns for market participants, such as those relating to the previously unclear rules on cessation of marketing of foreign UCITS or EU AIFs or the scope and principles of permitted pre-marketing of foreign UCITS and EU AIFs prior to their official notification for distribution. It should be noted that the draft act also provides further facilitations for foreign funds in conducting their activities in the territory of Poland, primarily in the form of resignation from the obligation to appoint a representative or a payment agent - due to the fact that the possibility of appointing these entities will remain voluntary, after the amendment comes into force, foreign funds will be able to decide to terminate agreements with these entities which currently bind them, but we note that such a change will require notifying the PFSA.
The unfavorable changes from the perspective of foreign UCITS or EU AIFs undoubtedly include provisions introducing a number of new fees that these entities will be required to pay to the Polish supervisor. As estimated by the Polish legislator, on an annual basis, foreign UCITS and AIFs notify about 100 - 200 of their sub-funds for distribution in Poland, while fee-based notification of new UCITS or AIFs takes place only 1-2 times per year. In addition, the Polish legislator pointed to the need for foreign UCITS and AIF funds to cover the costs associated with an ongoing supervision of their activities in Poland - notifications of changes in the documents attached to the original notifications or fund transformations are about 1,000 cases per year, and in addition to changes in the notification documents, the PFSA is also required to supervise the activities of these entities on an ongoing basis, which applies to about 750 funds and sub-funds of foreign UCITS and about 450 funds and sub-funds of the EU AIF. Importantly, the draft amendment provides for postponement of the entry into force of the provisions introducing the obligation to pay the annual fee until 1 January 2022, so that the first fee of this type should not be due until 2022.
Although the amendment primarily concerns foreign collective investment undertakings distributing participation titles in Poland, the draft act introduces certain changes that are also relevant to domestic funds or managers of alternative investment companies (AIC) including:
- introduction, in place of the existing rules on advertising information of funds and AICs, of a reference to article 4 of Regulation 2019/1156, which from 2 August 2021 will apply directly to domestic investment funds and AICs in this respect,
- introduction of changes in the information obligations of domestic funds and AICs, which respectively sell their units, offer investment certificates or introduce AIC to trading on the territory of another EU Member State,
- determining the detailed conditions under which the funds and AIC managers may respectively cease to sell units, offer investment certificates or market AIC on the territory of another EU Member State,
- introduction of harmonized conditions for carrying out activities prior to the commencement of sale of specialized open-ended investment funds participation units, offering close-ended investment funds investment certificates or introduction of AIC to trading on the territory of another EU Member State among professional investors (i.e. the introduction of uniform rules for the so-called pre-marketing).
As may be seen, there are a lot of changes to currently binding Act on investment funds and management of alternative investment funds, and entities whose business activity may be affected by the new regulations should already start preparing to adjust to the new requirements. The MWW Capital Market Team led by Filip Suchta will be happy to answer any questions or doubts you may have regarding the amendment.