AIFMD and the impact to your EEA marketing
This week saw the end of the transitional provisions of the Alternative Investment Managers Directive (AIFMD), which will now have an impact on how AIFs are able to market in the EEA.
UK full scope AIFMs
A UK full scope AIFM has different routes for marketing, depending on the domicile of the AIF and whether the firm is actively marketing within a particular EEA jurisdiction.
1. AIFMD Marketing Passport
UK full scope AIFMs managing EEA AIFs can only market to EEA investors by way of the AIFMD marketing passport. For marketing in the UK a notification of intention to market an AIF in the UK form should have been included with the VoP/authorisation application; if not, it should be submitted to the FCA before the firm begins marketing. For marketing elsewhere in the EEA, a passport notification must be submitted to the FCA one month before the firm wishes to market the AIF.
Whilst it is mandatory for EEA member states to transpose the AIFMD passport into national law, there has been a delay in certain jurisdictions; in these circumstances the host nation’s regulator should be contacted for further details.
Please note, some competent authorities are charging a fee upon application.
2. National private placement
UK full scope AIFMs managing non-EEA AIFs (or EEA feeder-AIFs of non-EEA master AIFs), wishing to market in the EEA are only able to do so utilising a National Private Placement Regime (NPPR). In the UK, the NPPR involves submitting an Article 36 notification to the FCA before it is possible to market the AIF to UK investors; marketing is possible as soon as the notification has been submitted. A similar system is in place for many European countries although their Article 36 notification processes vary.
However, it is important to note that not all jurisdictions have implemented a NPPR, in which case it will not be possible to market there. Local legal advice should be taken.
Please note, some competent authorities are charging a fee for processing NPPR applications.
3. Reverse solicitation
The reliance on reverse solicitation, whilst possible, is inherently risky in a number of EEA jurisdictions. In the UK an AIFM is able to send fund newsletters to existing investors, as long as they refrain from encouraging further investment. However, across Europe there are a number of differences, with concerns that certain jurisdictions may class informative newsletters to existing investors as marketing material and even deeming an AIF to be marketing by default, should they exceed a predefined number of investors from their jurisdiction. We strongly urge firms to obtain advice for each jurisdiction where they have investors to ensure that they do not compromise their claim to reverse solicitation.
Small UK authorised AIFMs
The FCA does not have any form of notification process for small UK AIFMs marketing an AIF in the UK. However, these firms are required to comply with existing rules and legislation on the marketing of unregulated collective investment schemes, including section 238 of the Financial Services and Markets Act 2000, COBS 4.12 and the Promotion of Collective Investment Schemes (Exemption) Order. Marketing elsewhere in the EEA will depend on local rules so appropriate legal advice should be sought.
As the UK has implemented an NPPR it is possible for non-EEA AIFMs to market in the UK. The process will depend on their size. An Article 42 notification should be submitted for above-threshold managers. A small third country form should be submitted for sub-threshold managers. These managers should ensure that they comply with other marketing requirements in place including the Financial Services and Markets Act 2000, and the Financial Promotion Order.
- Distribution of communications
We recommend that AIFMs review their marketing database to ensure they know to whom information will be sent, whether they are an existing or prospective investor and where they are located. Firms must ensure that they do not send marketing materials to potential investors in jurisdictions where they are not permitted to market. For firms relying on reverse solicitation in a jurisdiction where they have existing investors we recommend seeking local legal advice to be sure that you do not compromise this position.
- Third party marketers
AIFMs that utilise the services of third party marketers should make provisions to inform them of their strategy with regard to marketing under AIFMD. The third party must comply with the Directive’s marketing requirements and any subsequent national law in the same way that the AIFM is required to comply. Any infringement by a third party could see the AIFM held responsible, unless they are able to clearly demonstrate that provisions were made to inform the third party of the AIFM’s strategy, and suitable action was taken upon the realisation that the third party was acting beyond their remit.
Firms marketing third party funds should liaise with the AIFM, as legal action may be taken by a firm where a third party fails to meet regulatory obligations.
How can Kinetic Partners help?
Kinetic Partners has assisted a number of investment managers to apply to the FCA to become UK AIFMs and to implement AIFMD-compliant policies and procedures.