Work on the amendment of the Investment Funds Act is coming to an end. The changes include extending the range of fees in connection with distribution of participation units in Poland and introducing uniform rules for advertising information provided by funds and detailed rules for protection of investors in the event of cessation of marketing of participation units in foreign funds in Poland.
The draft amendment to the Act on Investment Funds and Management of Alternative Investment Funds of 27 May 2004 is in the final stages of government work. The changes are intended to align the current rules with the CBDF Directive (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 by collective investment undertakings) and help enable direct application of the CBDF Regulation (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, issued in connection with the directive).
The objective of the new CBDF Rules is to further harmonise markets of the member states and remove remaining disparities and barriers that may hinder fund managers from operating in the internal market, in particular by ensuring equal conditions of access to markets of the member states for managers from the EU, as well as to eliminate restrictions on the free circulation of participation units and shares in collective investment undertakings in the EU. The amendments also aim to introduce a uniform regime for protection of investors’ rights in the internal market.
The deadline for transposing the CBDF Directive into the national legal systems of the member states is 2 August 2021.
The group most affected by the changes will be foreign UCITS funds and EU-based AIF managers whose participation units are distributed in Poland, although some of the legislation proposed in Poland will also affect the position of domestic funds and managers. Among other things, the effect of these changes is to unify the existing different requirements for different types of funds. Below, we present what we believe to be the most important areas of the amended regulations.
So far, the requirements for advertising information published by funds have been an example of an area regulated differently for different types of funds. The CBDF Regulation breaks with this principle by introducing uniform rules for UCITS and AIFMs on advertising information, which is intended to ensure a high level of protection for both retail and professional investors.
According to the regulation, information of an advertising nature should be recognisable as such and describe the risks and rewards associated with the purchase of participation units or shares in an investment fund. All content included in advertising information directed to investors should be presented in a fair, transparent and not misleading way. Also, the advertising information should specify where, how and in which language investors can obtain abridged information about their rights. Also, they should make it clear that the fund manager has the right to withdraw from the marketing arrangements.
In addition, the regulation requires national authorities to make the provisions relating to rules on fund advertising available on their websites (together with a summary). The European Securities and Markets Authority (ESMA) was required to create a central database containing summaries of the national acts related to these requirements. Although EU law provides for this possibility, the Polish parliament has not decided to introduce a mechanism for prior verification of advertising information provided to investors in connection with the marketing of participation units in funds.
Paying agent and representative
In accordance with the amendments introduced by the CBDF Directive, member states do not require UCITS-type funds to be physically present in the host member state or to appoint a third party to carry out the tasks provided for in the directive (such as to process subscription, repurchase and redemption orders and make other payments, and to act as a contact point for communication with authorities and investors).
Accordingly, the proposed act removes the obligation for foreign UCITS-type funds to appoint a paying agent and representative in the territory of Poland, while at the same time leaving the possibility of appointing such an agent or representative if the fund deems it appropriate.
The UCITS investment funds present on the Polish market will still have the possibility to identify the end-investors without the need to use the services of intermediaries. So far, however, this obligation has been excluded in relation to funds whose participation units were admitted to trading on the Polish regulated market. There were doubts as to whether this exemption should be extended to participation units in funds listed on other regulated markets operating in the EU.
The amendment dispels this doubt. The provision will be clarified by stating that the exemption from the prohibition on use of the nominee structure by foreign UCITS also applies to cases where the participation units are admitted to trading on a regulated market, i.e. a regulated market in Poland or other EU member states.
Alternative investment funds (AIFs)
The new regulation also introduces a unified definition of activities preceding marketing and specifies conditions under which it will be possible to undertake such activities. Premarketing activities, i.e. provision of information on the concept of an alternative investment fund or strategy, will only be permitted to be made to potential professional investors to test their interest in investing in an AIF-type fund which has not yet been established or notified for cross-border marketing.
The regulation stresses the preliminary nature of the activities undertaken, stating that the information provided in the context of premarketing may not:
- Provide a sufficient basis to enable potential participants to commit to making an investment in the fund
- Take the form of a subscription form for fund participation rights or similar documents, including drafts thereof, or
- Present the final form of the articles of association or other constituent document or a prospectus or other offering document of a fund that has not yet been established.
If a professional investor subscribes to participation units in a fund within 18 months of the commencement of premarketing activities, such investment will be deemed to be a result of such activities, and therefore should be subject to the applicable notification procedures for the marketing of AIFs in the relevant EU member state.
A fund or its manager will be able to undertake activities preceding the marketing of a foreign AIF in Poland either directly or through licensed entities from the EU: an investment firm, an agent of an investment firm, a foreign investment firm, an agent of a foreign investment firm, a bank, a credit institution, a management company or other manager from the EU, an association, or an alternative investment company manager. Premarketing activities will have to be notified to the Polish Financial Supervision Authority (KNF) within 14 days of their commencement.
Register of EU AIFs and AIFs with a registered office in EEA states
So far, UCITS-type funds have been subject to entry in the register maintained by KNF in Poland. Under the proposed act, a separate register would be created for EU AIFs and AIFs with a registered office in EEA states notified for distribution in Poland. Registration of an AIF will be subject to a fee.
Discontinuation of marketing
So far, there have been a number of doubts regarding the procedure for discontinuing the marketing of foreign fund units on the Polish regulated market. In particular, these doubts have concerned the obligations of the funds towards investors who, when a fund ceased to operate in the Polish market, did not take advantage of the offer of a foreign fund to repurchase participation units from them.
The CBDF Directive assumes that the discontinuation of marketing of UCITS funds or AIFs in a given member state must not limit the protection afforded to investors under the UCITS Directive and the AIFM Directive, in particular the right of access to information on the continued operation of those funds.
Accordingly, the draft amendment to the Investment Funds Act introduces detailed rules under which the marketing of participation units or shares of foreign UCITS or AIFs may be discontinued. It also defines the obligations of the fund towards investors who previously invested in the fund and remained participants in the fund after marketing of the units of a given fund was discontinued in Poland.
The act provides that also after discontinuing the sale of units or shares in Poland, a foreign fund will have to provide such investors with information similar to that which it provided before discontinuing marketing.
There will be extensive changes in the fees that funds will incur in connection with the distribution of participation units in Poland.
In particular, the obligation to pay a fee for entry of a foreign UCITS fund in the register of foreign funds will be extended. The entry of each subsequent sub-fund subject to notification will require payment of a fee (the same rule will apply to the newly created register of foreign AIFs).
Both foreign UCITS and AIFs will also be required to pay an annual fee to cover the costs of supervision.
Monika Lutomirska, Marcin Pietkiewicz, Capital Markets & Financial Investments practice, Wardyński & Partners