On August 2, 2021, the European Securities and Markets Authority (“ESMA”) published the Marketing Communications Guidelines (the Guidelines) under the Cross-Border Distribution of Funds Regulation, which applies new standards to marketing communications addressed to investors or potential investors.
WHAT IS COVERED BY THE GUIDELINES?
ESMA specifically declined to describe the criteria for companies to determine whether the material is covered, but did provide lists of examples of covered and uncovered material, the main examples of which are shown below (the full list can be found in Section 1 of The Guidelines):
In the perimeter
- All messages advertising the fund. This includes documents printed on paper or information made available in electronic format, press articles, press releases, interviews, advertisements, documents made available on the Internet, as well as web pages, video presentations , live presentations, radio spots or fact sheets.
- Legal and regulatory documents/information of a fund such as a prospectus or the information which must be disclosed to investors according to Article 23 of the AIFMD, instruments of incorporation, financial reports, KIID/KIID or annual and semi-annual reports and other material “required to legally establish a fund”; and
- Information or communication issued within the framework of ‘pre-marketing‘.
- It’s not clear from the above if an AIF’s PPM is covered, but the best (and safest) view is that it probably is. The first item above of excluded material is a reference to material that is produced under certain laws or regulations requirement who covers what must be disclosed; a PPM is not subject to such rules and the content is at the manager’s discretion. The reference to a “prospectus” is therefore likely to be a reference to a UCITS prospectus which is mandatory under the rules.
- The exclusion of pre-market material is a little odd in that the application of the Guidelines relies more on when the material is used rather than What material is used. The amended article 30a of the AIFMD allows managers to pre-market using almost any document except the subscription document or the partnership agreement. Managers, however, will need to ensure that the material meets the guidelines if they want to continue using it when pre-marketing becomes full-market.
Much of the guidelines will not be controversial or difficult for companies to adhere to since they will likely already be doing what the guidelines require. Below are the most substantive questions.
- Identification of marketing communications.
All marketing communications must include sufficient information to make it clear that the communication has a purely marketing purpose, for example by including prominent disclosure of the terms “marketing communication” so that anyone can easily identify it. In addition, ESMA proposes that all marketing communications include a disclaimer of the following type:
“This is a commercial communication. Please refer to [prospectus of the fund] and at the [KIID / KID] (if applicable) before making any final investment decision.”
- Description of risks and rewards in an equally important way.
When risk and benefit information is included in marketing communications, the following requirements should be met:
- Marketing communications referring to any potential benefit from buying units or shares of a fund must give a fair and prominent indication of the relevant risks;
- Marketing communications should describe the risks and benefits at the same level or one after the other and not describe the benefits without identifying the associated risks, or referencing another document for the description of the risks; and
- When disclosing risk and benefit information, the font and size used to describe the risks should be at least equal to the predominant font size used in all of the information provided, and its position should ensure that this indication is clearly visible.
This is less likely to be an issue in the PPM, where the risks are clearly displayed in a comprehensive and prominent manner, but could be an issue for teasers and other early-stage material where the risks may not be discussed or where there is simply a reference to the later PPM.
- Information on past performance and expected future performance.
Information on past performance should not form the main part of the marketing communication and should be based on the previous 10 years for funds using a KID or the previous five years for other funds or the entire period for which the relevant funds have been established if less. In all cases, past performance information should be based on full 12 month periods, but this information may be supplemented by current year performance updated to the end of the most recent quarter.
This information must be preceded by the following statement: “Past performance does not predict future returns”. If the information is based on figures denominated in a currency other than that of the Member State concerned, the relevant current must be clearly indicated, together with a warning that returns may increase or decrease due to currency fluctuations.
The guidelines will come into force on February 2, 2022. All EU regulators have indicated that they will follow them. The guidelines do not apply to non-EU countries (including the UK), but non-EU managers wishing to market in the EU should take note of them; it is possible that regulators reviewing marketing material as part of a Section 42 registration may identify material that clearly does not comply with the guidelines.