EU rules on PRIIPs and cross-border distribution of funds enter into force in Norway on 1 October 2024 – a brief overview and some key takeaways

PRIIPs in a nutshell

On 1 October 2024, the new Act on Key Information Documents for Packaged Retail and Insurance-based Investment Products (the PRIIPs Act) will come into force, transposing regulation (EU) 1286/2014 into Norwegian law.^[1]

The PRIIPs Act will from the outset apply to the following products for non-professional investors:

• investments where, regardless of its legal form, the amount repayable to the retail investor is subject to fluctuations because of exposure to reference values or to the performance of one or more assets which are not directly purchased by the retail investor; and 
   
• Insurance based investment products, which offer maturity or surrender value and where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations. 
   

UCITS funds, alternative investment funds and ETFs will for example be covered by the PRIIPs Act, in addition to various unit linked insurance products. 

Anyone offering a product covered by the PRIIPs Act to non-professional investors in Norway must from 1 October 2024 present such investors with a key information document (KID) before the conclusion of any transaction. A KID is a pre-contractual, stand-alone and standardized informative document prepared for each product covered by the PRIIPs Act. The purpose of the KID is to provide the non-professional investor with essential information about costs, potential risks and performance to enable the non-professional investor to better understand the product and make an informed investment decision. 

PRIIPs and the impact for asset managers

From 1 October 2024, the KID will replace the information document referred to in Section 7-2 of the Norwegian Alternative Investment Fund Managers Act with respect to alternative investment funds. From the same date, the KID will replace the information document referred to in Section 8-3 (2) of the Norwegian Investment Funds Act with respect to UCITS funds. 

In particular with respect to alternative investment funds, the introduction of the KID will hopefully make it easier for non-professional investors to compare different products, and hopefully also both simplify and standardize the approval process with the Norwegian FSA (Finanstilsynet).

Managers that are currently planning an offering of products covered by the PRIIPs Act to non-professional investors this autumn must therefore start preparing the new KID. 

The rules in a nutshell

EU-law lays down rules on cross-border distribution of alternative investment funds and UCITS funds through directive (EU) 2019/1160 and regulation (EU) 2019/1156. These rules came into effect in the EU on 2 August 2021. 

The purpose of the EU rules is to increase the harmonization of cross-border marketing between both the AIFMD and UCITS regimes, and harmonize different practices adopted by Member States. 

The rules include regulation of:

• Pre-marketing of alternative investment funds;
   
• Provision of local facilities for alternative investment funds and UCITS funds marketed to non-professional investors;
   
• Notification to de-notify marketing of alternative investment funds and UCITS funds in a host Member State; 
   
• Alignment of certain notifications with respect to marketing alternative investment funds and UCITS funds in a host Member State; and
   
• Common principles concerning fees and charges. 
   

Pre-marketing is defined as the direct or indirect communication of investment strategies or investment ideas by a manager or on its behalf to potential investors. Current market practice in Norway is that such activities can be carried out without notification or any formal requirements, provided that no investor may subscribe or commit based on the information or documentation provided. ¨

Certain takeaways

The delayed transposition of the pre-marketing rules into Norwegian law has caused certain issues for Norwegian managers wishing to pre-market in EU states as the Norwegian FSA (Finanstilsynet) did not accept pre-marketing notifications or forward such notifications to host Member States, resulting in uncertainties with respect to the ability of Norwegian managers to pre-market in the EU.

Unfortunately, the new pre-marketing regime in Norway does not apply to non-EU managers. These managers will therefore have to apply for a marketing authorization to conduct activities that would otherwise fall within the definition of "pre-marketing". This is unfortunate and could result in that the range of potential products offered to Norwegian investor is reduced compared to what would be the case if also these managers were allowed to pre-market. 

EU managers may market alternative investment funds to non-professional investors in Norway subject to prior authorization from Finanstilsynet. In the initial proposal, the pre-marketing regime did not include non-professional investors. However, following a response from Schjødt during the public consultation process, this was amended. The pre-marketing regime in Norway that comes into force on 1 October 2024 therefore allows for pre-marketing to non-professional investors, provided that certain conditions are met. 

^{[1] See also our newsletter https://schjodt.com/news/the-norwegian-government-proposes-new-bill-to-implement-the-priips-regulation-requirements-for-investment-product-information}