Marketing and Third Country Provisions

Overview

Current methods of marketing under the Directive

There are currently two methods for marketing to professional investors (see below for guidance on the definition of “marketing” and the approach taken in the UK) under the Directive: (i) the EU marketing passport and (ii) the Member States’ private placement regimes.  Whether a particular marketing method is available depends on the jurisdiction of the AIFM and the relevant AIF. The marketing passport is currently only available for EU AIFMs marketing EU AIFs. Any other combination of EU / non-EU AIFM and EU / non-EU AIF must rely on the private placement regimes in each EU state the AIFM wishes to market into (noting that private placement regimes are not available in all EU states).

EEA relevance

The Directive is marked “with EEA relevance”. This means that it can, and is intended to, be adopted under the agreement constituting the European Economic Area (“EEA”) and will, from the date of such adoption, have the same legal effect in non-EU countries within the EEA (i.e. Iceland, Liechtenstein and Norway) as it currently has in EU states. Some national legislation implementing the Directive, including UK legislation, already extends within its own jurisdiction the application of the Directive to all EEA countries. However not all EU jurisdictions have implemented the Directive in this way. As of 22 July 2015, Liechtenstein and Norway have already implemented the Directive into their domestic legislation, but Iceland is yet to implement the Directive. With that in mind we currently refer to “EU” and “non-EU” rather than “EEA” and “non-EEA”.

Extension of pan-European marketing passport

When enacted, the Directive envisaged that the pan-European marketing passport may be extended at a later date to cover both EU AIFMs and non-EU AIFMs in respect of both EU AIFs and non-EU AIFs. Once the passport is extended, a Non-EU AIFM will be required to be authorised by its “Member State of Reference” (see below for details). The non-EU AIFM will be required to comply with all of the provisions in the Directive (including the depositary requirements) and certain other requirements, depending upon whether the AIF is EU or non-EU, including: co-operation arrangements, tax information sharing, and the non-EU AIF must not be established in a jurisdiction that is designated as non-cooperative by FATF.

The Directive provided that ESMA would be required to review the marketing regimes two years after the Directive was implemented and that the process for extending the marketing passport would only be initiated upon receipt of positive advice from ESMA. ESMA has reviewed the existing marketing regimes permitted under the Directive and issued its advice on 30 July 2015. Please see our Client Alert for a summary of ESMA’s advice.

Phasing out the private placement regimes

The Directive also envisaged that the private placement regime could be phased out in future. As per the process for extending the marketing passport above, ESMA will undertake a review of the private placement regime three years after legislation is adopted by the European Commission to extend the marketing passport (i.e. likely to be 2019 at the earliest) and ESMA will ultimately issue technical guidance advising whether or not the private placement regime should be terminated.  In the event that passporting is made available so that non-EU AIFMs benefit from the marketing passport within the EU, certain countries may no longer offer the private placement regime. For example, legislation in connection with Germany’s implementation of the Directive would abolish Germany’s private placement regime where the marketing passport is extended to non-EU AIFMs.

The table below shows the marketing methods currently available for the various combinations of EU / non-EU AIFMs and AIFs:

AIFM / AIF

EU marketing passport currently available

Private Placement Regime

Earliest date EU marketing passport could be made available

EU AIFM & EU AIF

ü (Article 32)

n/a

n/a

EU AIFM & non-EU AIF

X

 ü(Article 36)

90 days from positive ESMA guidance (unlikely to be before 2016) (Article 35)

Non-EU AIFM & EU AIF

X

 ü(Article 42)

90 days from positive ESMA guidance (unlikely to be before 2016) (Article 39)

Non-EU AIFM & non-EU AIF

X

 ü(Article 42)

90 days from positive ESMA guidance (unlikely to be before 2016) (Article 40)

Passporting

Marketing and passporting by EU AIFM of EU AIFs to Professional Investors – Article 32

Under the Directive, managing an EU AIF and marketing an EU AIF to professional investors is permitted if the AIFM is authorised under the Directive and the relevant competent authority has given its approval. An EU AIFM may also benefit from an EU marketing passport in respect of EU AIFs that are marketed to professional investors, provided that certain conditions are met (see below).

For the purposes of the Directive, the term “professional investors” is defined as any investor that is considered as, or may be treated as, a professional client under MiFID.

Marketing approval process

  • Under the Directive, when marketing under the “passport” regime: an EU AIFM must notify its home regulator of the AIF it wishes to market. This notification must include: (a) the AIF rules, (b) the identification of the depositary, (c) information on the AIF which is available to investors (see “Disclosure to investors” in the Disclosure and Reporting section), and (d) where relevant, information on arrangements to prevent the AIF from being marketed to retail investors. If the AIFM also wishes to market the AIF in other EU Member States, it must submit the identity of those Member States in the notification at this stage.
  • the home regulator must inform the EU AIFM within 20 working days of receipt of the notification above whether it may start marketing activities to professional investors in such Member States. The home regulator may only prevent such marketing if information provided in the notification demonstrates that the EU AIFM’s management will not be in accordance with the Directive.
  • Where the EU AIFM wishes to market in other Member States, the home regulator must transmit the notification documentation to the regulator of the relevant Member State within 20 working days. Upon transmission, the home regulator shall notify the EU AIFM ‘without delay’ of such transmission and the EU AIFM may market to professional investors in the relevant Member State from the date of such notification.
  • if there is any material change to any of the information provided by the EU AIFM, the EU AIFM must give one month’s prior written notice of such change to its home regulator. Click here for further details.

Extension of pan-European marketing passport

When the passport becomes available for non-EU AIFMs the process is expected to be similar, save that the regulator of the non-EU AIFM’s "Member State of Reference" shall carry out all home regulator duties referred to above.

A non-EU AIFM wishing to apply for a pan-European passport must establish a legal representative in an EU state to act as a contact with the relevant regulator. The relevant EU state (referred to as the “Member State of Reference”) is determined depending on a number of factors, including where the AIF in question is established and to whom the AIF will be marketed, and in more complex cases may require consultation amongst various EU state regulators and ESMA.

UK implementation

Whenever a UK AIFM wishes (i) to market a UK or EU AIF within the UK or (ii) to take advantage of the EU marketing passport, it must complete and submit an AIFMD Marketing Notification Form (accessible here).

The AIFMD Marketing Notification Form should be used by:

  • authorised UK AIFMs wishing to market a UK AIF or an EU AIF in the UK to professional clients and/or retail clients;
  • authorised UK AIFMs wishing to market a UK AIF or EU AIF to professional clients in another EU state by passporting under the Directive on a cross-border services basis; and

     authorised EU AIFMs wishing to market a UK AIF or an EU AIF in the UK to retail clients.     

A UK entity seeking authorisation as an AIFM from the FCA (see Authorisation Requirements) does not need to complete the AIFMD Marketing Notification Form as part of its application for authorisation. However an AIFM will need to complete this form if it wishes to market any UK AIFs or EU AIFs in the UK or on a cross-border services basis.

The AIFMD Marketing Notification Form consists of the following three sections and three annexes:

  • Section 1: the AIFM must attach a copy of the instrument constituting the relevant AIF and a list of the relevant information that is available to investors;
  • Section 2: if the UK AIFM is applying to benefit from the EU marketing passport, a template letter (accessible here) must be attached which will used by the FCA to notify the competent authorities in each EU state in which the UK AIFM has elected to market under the passport;
  • Section 3: a declaration must be signed by an authorised signatory of the UK AIFM confirming that the information in the form and the annexes is true and complete;
  • Annex 1: AIF details (accessible here) – a table setting out the identity and key details of each AIF being marketed;
  • Annex 2: schedule of cross-border marketing rights (accessible here) – a checklist indicating in which EU states the UK AIFM wishes to obtain the benefit of the marketing passport; and 
  • Annex 3: Article 23/Fund 2.2R disclosure cross-reference (accessible here) – a checklist providing a reference to the document in which each investor disclosure (see Disclosure section) is provided in respect of each AIF.

The FCA has published a note to assist with completing the AIFMD Marketing Notification Form.

Material change – a UK AIFM marketing AIFs in the UK or another EU state and EU AIFMs that market funds in the UK to retail customers must notify the FCA of material changes to the information provided with their marketing application. Please click here for further information on material change notifications.

Private placement

When implementing the Directive into national law, each EU state was entitled to decide whether or not to implement the national “private placement” regimes contained in the Directive (Articles 36 and 42). As such, some EU states have implemented marketing regimes as envisaged under Article 36 and Article 42 of the Directive, others have implemented a modified version of the regimes (e.g. imposing stricter requirements on AIFMs) and others have elected not to implement these provisions. AIFMs intending to market on the basis of these regimes should therefore be aware that: (i) they are not available in all EU states, (ii) where they are available, the legislation implementing private placement will differ in each applicable EU state and therefore the process for complying with these regimes will differ on a case by case basis, (iii) each EU state may charge upfront and ongoing fees for marketing in their state and (iv) the national private placement regimes may cease to be available in future.

Article 42 interactive map

Please click here to view a map providing a high-level overview of the Article 42 regimes available  across the EEA.

NB: The private placement regimes may be (i) phased out across the EU from 2018/2019 and (ii) may be abolished sooner in certain EU states to coincide with the extension of the pan-European marketing passport to non-EU AIFMs and non-EU AIFs, as discussed further in the Overview section above.

Non-EU AIFM marketing Non-EU AIFs to professional investors - Article 42 requirements

Under the Directive:

  • A non-EU AIFM may market a non-EU AIF to EU professional investors under Member States’ private placement regimes. However, the non-EU AIFM must comply with the Disclosure and Reporting, requirements on portfolio company disclosure and asset stripping, there must be co-operation agreements in place between the relevant regulators (between the home regulator and the relevant third country regulator), and the non-EU AIFM and, where relevant, the non-EU AIF must not be established in a country designated as non-cooperative by FATF (see below for links to the latest lists). Member States may also impose stricter marketing requirements on the non-EU AIFM.

In the UK:

  • Article 42 form (accessible here): For above-threshold non-EU AIFMs marketing AIF(s), whether UK, EU or non-EU AIF(s).
  • The relevant AIFM is technically permitted to start marketing under the UK private placement regime as soon as it has submitted the relevant marketing notification to the FCA. In practice however, it is prudent to wait for the FCA to confirm receipt of the notification (an automatic email is usually received on the day the form is submitted) before marketing commences, to ensure that the FCA does not consider the notification to be incomplete.

Non-EU AIFM marketing EU AIFs to professional investors – Article 42 requirements

The Directive requirements are the same as for a non-EU AIFM marketing a non-EU AIF (see above).

EU AIFM marketing Non-EU AIFs to professional investors – Article 36 requirements

Under the Directive, an EU AIFM is able to market non-EU AIFs to professional investors under Member States’ private placement regimes. The EU AIFM must comply with all of the provisions in the Directive except for the depositary requirements. However, the EU AIFM will be responsible for ensuring that an entity is in place to perform certain duties of a depositary, as set out in the Directive. Additionally, there must be co-operation arrangements in place  and the non-EU AIF must not be established in a jurisdiction that is designated as non-cooperative by FATF. Member States may also impose stricter marketing requirements on the EU AIFM.  

A list of those jurisdiction with a co-operation agreement can be found here and a list of non-cooperative countries by FATF can be found here.

In the UK:

  • Article 36 form (accessible here): for authorised UK and EU AIFMs marketing non-EU AIF(s) (or feeder AIFs that are UK AIFs or EU AIFs where the master AIF is managed by a non-EU AIFM or is a non-EU AIF);
  • A full-scope UK AIFM intending to market an AIF under the private placement regime in accordance with Article 36 must first notify the FCA of its intention to manage the AIF (see Authorisation Requirements) and only subsequently apply for approval to use the private placement regime, once the FCA has confirmed that the AIFM has been recorded as the AIFM to the Article 36 AIF.
  • The relevant AIFM is technically permitted to start marketing under the UK private placement regime as soon as it has submitted the relevant marketing notification to the FCA. In practice however, it is prudent to wait for the FCA to confirm receipt of the notification (an automatic email is usually received on the day the form is submitted) before marketing commences, to ensure that the FCA does not consider the notification to be incomplete.

AIFMs are required to notify the FCA of any changes to the information previously submitted to the FCA in respect of the marketing of AIFs under the private placement regimes. Please click here for further information on material change notifications.

Marketing to retail investors

Each Member State may allow an EU and non-EU AIFM to market an AIF to retail investors on its territory irrespective of whether the AIF is marketed on a domestic or cross-border basis or where it is established. However, in such cases, the Member State may impose stricter or additional requirements on such marketing (as compared to the requirements applicable to professional investors in their territory) but may not impose stricter requirements on the marketing of an AIF to retail investors on a cross-border basis than for an AIF marketed to retail investors domestically.

Member States are required to notify the European Commission and ESMA of the types of AIF which an AIFM may market to retail investors on their territory and any additional requirements that the Member State imposes on the AIFM.

The UK has implemented the Directive in a way that permits an AIFM to market to retail investors in the UK, subject to certain additional restrictions, notably that the AIF must be an EU AIF and the FCA must either have (i) received a regulator’s notice in relation to the marketing of the AIF in accordance with Schedule 3 of the Financial Services and Markets Act 2000 ("FSMA") or (ii) the FCA has approved the marketing in accordance with Regulation 54 of the UK Regulation.

Whereas the marketing activities of an AIFM to professional investors in the UK need only comply with either the UK Regulation or the UK financial promotion regime (depending on when the marketing occurs, see the UK guidance below), where a person intends to market an AIF to a retail investor in the UK, the AIFM may be required to comply with both the UK Regulation and the financial promotion regime (notably Sections 21 (restrictions on financial promotion) or 238 (restrictions on promotion) of FSMA).

Small AIFMs

Sub-threshold AIFMs (please see the Small AIFMs section for more details) are not, unless they opt in, subject to the full compliance with the Directive. Such AIFMs cannot therefore avail themselves of a pan-European marketing in relation to the AIFs they manage and do not have the right to market AIFs they manage to investors in other EU states. To determine whether they are able to market AIFs to another EU state they will therefore need to consider the national law in such EU state.

Subject to fulfilling the relevant requirements, such small AIFMs may be able to access a pan-European passport under the EuVECA Regulation or the EuSEF Regulation (see below for further detail).

EuVECA and EuSEF regime

As indicated above, even if otherwise eligible for this mode of marketing, Sub-threshold AIFMs cannot avail themselves of the pan-European marketing passport unless they subject themselves fully to all of the requirements of the Directive. The ability for Sub-threshold AIFMs to stay outside the majority of the provisions of the Directive in the first place was a recognition by the European officials that such AIFMs will often simply not have the resources necessary to put in place all the various policies and procedures required by the Directive. In order not to create unduly high barriers to marketing for such funds undermining the benefits of the Directive light regulation, the EU has introduced separate pan-European marketing passports for European venture capital funds under the EuVECA Regulation and European social entrepreneurship funds under the EuSEF Regulation.

UK guidance on marketing under the Directive

The FCA has issued helpful guidance on the UK’s interpretation of key concepts of AIFMD marketing in the Perimeter Guidance Manual (PERG) 8.37. The guidance covers a range of topics, including: 

How is “marketing” interpreted in the UK: the Directive’s definition of marketing refers to an AIFM making a “direct or indirect offering or placement of units or shares…” to investors domiciled or with a registered office in the EU. The terms “offering” or “placement” are not defined in the UK Regulation but are considered to take place when a person seeks to raise capital by making a unit or a share of an AIF available for purchase by a potential investor (e.g. situations which constitute a contractual offer that can be accepted by a potential investor, such as supplying the investor with final documents and subscription materials).

Marketing using draft documents: communications with investors relating to draft documentation (e.g. promotional presentations, pathfinder prospectuses or draft transaction documents) would not constitute an offer or placement under the UK Regulation.

NB: there is no EU-wide guidance on the interpretation of “marketing” and therefore other EU states will interpret “marketing” differently and will likely consider “marketing” to occur at a much earlier stage in the marketing process.

Reverse solicitation: the UK Regulation does not apply to an offering or placement of units or shares of an AIF to an investor made at the initiative of that investor (i.e. reverse solicitation). UK guidance provides that an AIFM should obtain a confirmation from the investor, before the offer or placement takes place, that the offering or placement was made at the investor’s initiative in order to evidence the reverse solicitation. However, AIFMs should only rely upon such confirmation if it is genuine and has not been obtained purely to circumvent the requirements of the Directive.

Who is the Investor: the “investor” is the person who makes the decision to invest in an AIF. Therefore, it is not simply a case of identifying the person that subscribes directly to an AIF. An AIFM should “look through” the person subscribing for the units or shares where the ultimate purchaser has engaged such person to subscribe to the AIF on the ultimate purchaser’s behalf (e.g. through a nominee company).

Where must the marketing occur: the UK Regulation only applies to marketing that takes place (i) in the UK and (ii) to a investor domiciled in the EU or with a registered office in the EU (e.g. a US citizen cannot be “marketed” to in the UK, whereas a French company can).

Interaction with financial promotion rules: activities that do not constitute AIFMD marketing in the UK may still fall within the remit of the UK financial promotions regime (e.g. sending investors draft documentation or marketing presentations).