Regulation (EU) No 346/2013 of the European Parliament and of the Council of 17 April 2013 on European social entrepreneurship funds Text with EEA relevance

CHAPTER I

SUBJECT MATTER, SCOPE AND DEFINITIONS

Article 1

This Regulation lays down uniform requirements and conditions for managers of collective investment undertakings that wish to use the designation ‘EuSEF’ in relation to the marketing of qualifying social entrepreneurship funds in the Union, thereby contributing to the smooth functioning of the internal market.

It also lays down uniform rules for the marketing of qualifying social entrepreneurship funds to eligible investors across the Union, for the portfolio composition of qualifying social entrepreneurship funds, for the eligible investment instruments and techniques to be used by qualifying social entrepreneurship funds as well as for the organisation, conduct and transparency of managers that market qualifying social entrepreneurship funds across the Union.

Article 2

This Regulation applies to managers of collective investment undertakings as defined in point (a) of Article 3(1) that meet the following conditions:

(a) their assets under management in total do not exceed the threshold referred to in point (b) of Article 3(2) of Directive 2011/61/EU;

(b) they are established in the Union;

(c) they are subject to registration with the competent authorities of their home Member State in accordance with point (a) of Article 3(3) of Directive 2011/61/EU; and

(d) they manage portfolios of qualifying social entrepreneurship funds.

Article 3

For the purposes of this Regulation, the following definitions shall apply:

(a) ‘collective investment undertaking’ means an AIF as defined in point (a) of Article 4(1) of Directive 2011/61/EU;

(b) ‘qualifying social entrepreneurship fund’ means a collective investment undertaking that: (i) intends to invest at least 70 % of its aggregate capital contributions and uncalled committed capital in assets that are qualifying investments, calculated on the basis of amounts investible after deduction of all relevant costs and holdings in cash and cash equivalents, within a time frame laid down in its rules or instruments of incorporation; (ii) does not use more than 30 % of its aggregate capital contributions and uncalled committed capital for the acquisition of assets other than qualifying investments, calculated on the basis of amounts investible after deduction of all relevant costs and holdings in cash and cash equivalents; (iii) is established within the territory of a Member State;

(c) ‘manager of a qualifying social entrepreneurship fund’ means a legal person the regular business of which is managing at least one qualifying social entrepreneurship fund;

(d) ‘qualifying portfolio undertaking’ means an undertaking that: (i) at the time of an investment by the qualifying social entrepreneurship fund is not admitted to trading on a regulated market or on a multilateral trading facility (MTF) as defined in point (14) and point (15) of Article 4(1) of Directive 2004/39/EC; (ii) has the achievement of measurable, positive social impacts as its primary objective in accordance with its articles of association, statutes or any other rules or instruments of incorporation establishing the business, where the undertaking: — provides services or goods which generate a social return; — employs a method of production of goods or services that embodies its social objective; or — provides financial support exclusively to social undertakings as defined in the first two indents; (iii) uses its profits primarily to achieve its primary social objective in accordance with its articles of association, statutes or any other rules or instruments of incorporation establishing the business and with the predefined procedures and rules therein, which determine the circumstances in which profits are distributed to shareholders and owners to ensure that any such distribution of profits does not undermine its primary objective; (iv) is managed in an accountable and transparent way, in particular by involving workers, customers and stakeholders affected by its business activities; (v) is established within the territory of a Member State, or in a third country provided that the third country: — is not listed as a Non-Cooperative Country and Territory by the Financial Action Task Force on Anti-Money Laundering and Terrorist Financing, — has signed an agreement with the home Member State of the manager of a qualifying social entrepreneurship fund and with each other Member State in which the units or shares of the qualifying social entrepreneurship fund are intended to be marketed to ensure that the third country fully complies with the standards laid down in Article 26 of the OECD Model Tax Convention on Income and on Capital and ensures an effective exchange of information in tax matters, including any multilateral tax agreements;

(e) ‘qualifying investments’ means any of the following instruments: (i) equity or quasi-equity instruments that are issued by: — a qualifying portfolio undertaking and acquired directly by the qualifying social entrepreneurship fund from the qualifying portfolio undertaking, — a qualifying portfolio undertaking in exchange for an equity security issued by the qualifying portfolio undertaking, or — an undertaking of which the qualifying portfolio undertaking is a majority-owned subsidiary and which is acquired by the qualifying social entrepreneurship fund in exchange for an equity instrument issued by the qualifying portfolio undertaking; (ii) securitised and un-securitised debt instruments, issued by a qualifying portfolio undertaking; (iii) units or shares of one or several other qualifying social entrepreneurship funds, provided that those qualifying social entrepreneurship funds have not themselves invested more than 10 % of their aggregate capital contributions and uncalled committed capital in qualifying social entrepreneurship funds; (iv) secured or unsecured loans granted by the qualifying social entrepreneurship fund to a qualifying portfolio undertaking; (v) any other type of participation in a qualifying portfolio undertaking;

(f) ‘relevant costs’ means all fees, charges and expenses which are directly or indirectly borne by investors and which are agreed between the manager of a qualifying social entrepreneurship fund and the investors therein;

(g) ‘equity’ means ownership interest in an undertaking, represented by the shares or other forms of participation in the capital of the qualifying portfolio undertaking issued to its investors;

(h) ‘quasi-equity’ means any type of financing instrument which is a combination of equity and debt, where the return on the instrument is linked to the profit or loss of the qualifying portfolio undertaking and where the repayment of the instrument in the event of default is not fully secured;

(i) ‘marketing’ means a direct or indirect offering or placement at the initiative of the manager of a qualifying social entrepreneurship fund, or on its behalf, of units or shares of a qualifying social entrepreneurship fund that is managed by that manager to or with investors domiciled or with a registered office in the Union;

(j) ‘committed capital’ means any commitment pursuant to which an investor is obliged, within the time frame laid down in the rules or instruments of incorporation of the qualifying social entrepreneurship fund, to acquire an interest in, or to make capital contributions to, that fund;

(k) ‘home Member State’ means the Member State in which the manager of a qualifying social entrepreneurship fund has its registered office;

(l) ‘host Member State’ means the Member State, other than the home Member State, where the manager of a qualifying social entrepreneurship fund markets qualifying social entrepreneurship funds in accordance with this Regulation;

(m) ‘competent authority’ means: (i) for managers as referred to in Article 2(1) of this Regulation, the competent authority referred to in point (a) of Article 3(3) of Directive 2011/61/EU; (ii) for managers as referred to in Article 2(2) of this Regulation, the competent authority referred to in Article 7(1) of Directive 2011/61/EU; (iii) for qualifying social entrepreneurship funds, the competent authority of the Member State in which the qualifying social entrepreneurship fund is established;

(n) ‘competent authority of the host Member State’ means the authority of a Member State, other than the home Member State, in which the qualifying social entrepreneurship fund is marketed;

(o) ‘pre-marketing’ means provision of information or communication, direct or indirect, on investment strategies or investment ideas by a manager of a qualifying social entrepreneurship fund, or on its behalf, to potential investors domiciled or with a registered office in the Union in order to test their interest in a qualifying social entrepreneurship fund which is not yet established, or in a qualifying social entrepreneurship fund which is established, but not yet notified for marketing in accordance with Article 16, in that Member State where the potential investors are domiciled or have their registered office, and which in each case does not amount to an offer or placement to the potential investor to invest in the units or shares of that qualifying social entrepreneurship fund.

With regard to point (c) of the first subparagraph, where the legal form of a qualifying social entrepreneurship fund permits internal management and where the governing body of the fund does not appoint an external manager, the qualifying social entrepreneurship fund itself shall be registered as the manager of a qualifying social entrepreneurship fund in accordance with Article 15. A qualifying social entrepreneurship fund that is registered as an internal manager of a social entrepreneurship fund shall not be registered as an external manager of a qualifying social entrepreneurship fund of other collective investment undertakings.

CHAPTER II

CONDITIONS FOR THE USE OF THE DESIGNATION ‘EuSEF’

Article 4

Managers of qualifying social entrepreneurship funds that comply with the requirements set out in this Chapter shall be entitled to use the designation ‘EuSEF’ in relation to the marketing of qualifying social entrepreneurship funds across the Union.

Article 4a

A manager of a qualifying social entrepreneurship fund may engage in pre-marketing in the Union, except where the information presented to potential investors:

(a) is sufficient to allow investors to commit to acquiring units or shares of a particular qualifying social entrepreneurship fund;

(b) amounts to subscription forms or similar documents whether in a draft or a final form; or

(c) amounts to constitutional documents, a prospectus or offering documents of a not-yet-established qualifying social entrepreneurship fund in a final form.

Where a draft prospectus or offering documents are provided, they shall not contain information sufficient to allow investors to take an investment decision and shall clearly state that:

(a) they do not constitute an offer or an invitation to subscribe to units or shares of a qualifying social entrepreneurship fund; and

(b) the information presented therein should not be relied upon because it is incomplete and may be subject to change.

Any subscription by professional investors, within 18 months of the manager of a qualifying social entrepreneurship fund having begun pre-marketing, to units or shares of a qualifying social entrepreneurship fund referred to in the information provided in the context of pre-marketing, or of a qualifying social entrepreneurship fund established as a result of the pre-marketing, shall be considered to be the result of marketing and shall be subject to the applicable notification procedures referred to in Article 16.

Article 5

Article 6

Managers of qualifying social entrepreneurship fund shall market the units and shares of the qualifying social entrepreneurship fund exclusively to investors which are considered to be professional clients in accordance with Section I of Annex II to Directive 2004/39/EC, or which may, on request, be treated as professional clients in accordance with Section II of Annex II to Directive 2004/39/EC, or to other investors that:

(a) commit to invest a minimum of EUR 100 000 ; and

(b) state in writing, in a separate document from the contract that is concluded for the commitment to invest, that they are aware of the risks associated with the envisaged commitment.

Article 7

Managers of qualifying social entrepreneurship funds shall, in relation to the qualifying social entrepreneurship funds they manage:

(a) act honestly, fairly and with due skill, care and diligence in conducting their activities;

(b) apply appropriate policies and procedures for preventing malpractices that can reasonably be expected to affect the interests of the investors and the qualifying portfolio undertakings;

(c) conduct their business activities in such a way as to promote the positive social impact of the qualifying portfolio undertakings in which they have invested, the best interests of the qualifying social entrepreneurship funds that they manage, the investors therein and the integrity of the market;

(d) apply a high level of diligence in the selection and ongoing monitoring of investments in qualifying portfolio undertakings and the positive social impact of those undertakings;

(e) possess adequate knowledge and understanding of the qualifying portfolio undertakings in which they invest;

(f) treat their investors fairly;

(g) ensure that no investor obtains preferential treatment, unless such preferential treatment is disclosed in the rules or instruments of incorporation of the qualifying social entrepreneurship fund.

Article 8

Article 9

Managers of qualifying social entrepreneurship funds shall identify in particular those conflicts of interest that may arise between:

(a) managers of qualifying social entrepreneurship funds, persons who effectively conduct the business of those managers, employees of, or any person who directly or indirectly controls or is controlled by, those managers, and the qualifying social entrepreneurship fund managed by those managers, or the investors therein;

(b) a qualifying social entrepreneurship fund or the investors therein, and another qualifying social entrepreneurship fund managed by the same manager, or the investors therein;

(c) the qualifying social entrepreneurship fund or the investors therein, and a collective investment undertaking or UCITS managed by the same manager, or the investors therein.

The Commission shall be empowered to adopt delegated acts in accordance with Article 26 specifying:

(a) the types of conflicts of interest referred to in paragraph 2 of this Article;

(b) the steps that managers of a qualifying social entrepreneurship fund must take, in terms of structures and organisational and administrative procedures, in order to identify, prevent, manage, monitor and disclose conflicts of interest.

Article 10

Managers of a qualifying social entrepreneurship fund shall employ for each qualifying social entrepreneurship fund that they manage, procedures to measure the extent to which the qualifying portfolio undertakings, in which the qualifying social entrepreneurship fund invests, achieve the positive social impact to which they are committed. The managers shall ensure that these procedures are clear and transparent and include indicators that may, depending on the social objective and nature of the qualifying portfolio undertaking, include one or more of the following subjects:

(a) employment and labour markets;

(b) standards and rights related to job quality;

(c) social inclusion and protection of particular groups;

(d) equal treatment, equal opportunities and non-discrimination;

(e) public health and safety;

(f) access to and effects on social protection and on health and educational systems.

Article 11

Article 12

Article 13

The annual report shall at least include the following:

(a) details, as appropriate, of the overall social outcomes achieved by the investment policy and the method used to measure those outcomes;

(b) a statement of any divestments in relation to qualifying portfolio undertakings that have occurred;

(c) a description of whether divestments in relation to the other assets of the qualifying social entrepreneurship fund which are not invested into qualifying portfolio undertakings occurred on the basis of the criteria as referred to in point (f) of Article 14(1);

(d) a summary of the activities that the manager of a qualifying social entrepreneurship fund has undertaken in relation to the qualifying portfolio undertakings as referred to in point (l) of Article 14(1);

(e) information on the nature, value and purpose of the investments other than qualifying investments referred to in Article 5(1);

(f) a description of how environmental and climate-related risks are taken into account in the investment approach of the qualifying social entrepreneurship funds.

Article 14

Managers of qualifying social entrepreneurship funds shall, in relation to the qualifying social entrepreneurship funds that they manage, inform their investors, prior to the investment decision of the latter, in a clear and understandable manner, of the following:

(a) the identity of that manager and of any other service providers contracted by that manager in relation to their management, and a description of their duties;

(b) the amount of own funds available to that manager for maintaining the adequate human and technical resources necessary for the proper management of its qualifying social entrepreneurship funds;

(c) a description of the investment strategy and objectives of the qualifying social entrepreneurship fund, including: (i) the types of qualifying portfolio undertakings in which it intends to invest; (ii) any other qualifying social entrepreneurship fund in which it intends to invest; (iii) the types of qualifying portfolio undertakings in which any other qualifying social entrepreneurship fund, as referred to in point (ii), intends to invest; (iv) the non-qualifying investments which it intends to make; (v) the techniques that it intends to employ; and (vi) any applicable investment restrictions;

(d) the positive social impact being targeted by the investment policy of the qualifying social entrepreneurship fund, including, where relevant, projections of such outcomes as may be reasonable, and information on past performance in this area;

(e) the methodologies to be used to measure social impacts;

(f) a description of the assets other than qualifying portfolio undertakings and the process and the criteria which are used for selecting these assets unless they are cash or cash equivalents;

(g) a description of the risk profile of the qualifying social entrepreneurship fund and any risks associated with the assets in which the fund may invest or the investment techniques that may be employed;

(h) a description of the qualifying social entrepreneurship fund’s valuation procedure and of the pricing methodology for valuing assets, including the methods used for valuing qualifying portfolio undertakings;

(i) a description of how the remuneration of the manager of a qualifying social entrepreneurship fund is calculated;