As a consequence of the second, of three, Consultation Paper issued by the FSA (now the FCA) on implementing the AIFMD in the UK (and reconciling this back to HMT’s paper issued in January 2013 in regard to the proposed implementing laws as a consequence of AIFMD) we can now be a little more certain as to the interpretation of the AIFMD and its Regulations in the context of what constitutes Marketing of an AIF.
One of the two key aspects which bring the AIFMD to bear is whether an Alternative Investment Fund (either one established in the EEA or in a non-EEA State) is Marketed to an EEA investor. The other key driver is whether an AIF is Managed (as defined by AIFMD) in the EEA; however this is not the focus of this note.
This note is intended to clarify whether Marketing, in the context of AIFMD, is taking place. This will allow firms to establish whether, or not, AIFMD applies to them as a consequence of their marketing activities.
What constitutes Marketing an AIF? Very helpfully the FCA states the following: AIFMD Marketing is the activity of ‘making a unit/share [or other means of holding an interest in] an AIF available for purchase to an investor’. Exemptions from this may be available.
To whom is Marketing directed and then subject to the provisions of AIFMD? It applies when Marketing to any EEA investor whose Domicile or Registered Office is in the EEA. AIFMD allows the Marketing of AIFs to Professional Investors (i.e. MiFID Professional Clients) but also allows Member States discretion to allow AIFs to be Marketed to Retail Investors (i.e. Retail Clients) so long as the EEA State obligations are at least those which apply to Professional Investors.
How does the Domicile or Registered Office impact how an AIF may be Marketed to an EEA Investor? Until 22 July 2013 it remains possible to market based on the obligations laid down in each EEA State in which the marketing activity is taking place. For the avoidance of doubt, for example, if a non-UK EEA national is marketed to in the UK, then the UK marketing obligations apply. From 22 July this year the Domicile or Registered Office of the EEA Investor will dictate which EEA State’s AIFMD implementing legislation applies. For example:
- From 22 July 2013 it will not be possible for a Swiss Manager, as this will be a Non-EEA AIFM, to Market an AIF to a French national if that French national’s Domicile is in France, as the French AIFMD implementing law does not permit Private Placement. Then it is not possible to Market the AIF Managed by the Swiss Manager under the Swiss Private Placement Regulations where the Marketing is taking place.
- Therefore, until the Third Country AIFMD Passport becomes effective (and it may never become effective, but if it does, it will not be before July 2015), the only way a French Domiciled (or Institution’s Registered Office) Investor may have an AIF Marketed to them will be under the AIFMD Passport (which can only apply, from 22 July 2013, where the AIF and the AIFM are both located in the EEA and the Passport for that EEA AIF has been permitted).
Does the AIFMD Passport, from 22 July 2013, only apply when Marketing to Professional Investors? Yes, the AIFMD Passport only expressly permits the Marketing of AIFs to Professional Investors. However, AIFMD does permit Member States discretion to allow Marketing of AIF to Retail Investors under the AIFMD Passport.
What do AIFMs have to do in order to Market AIFs to Professional Investors? In order to be permitted to Market an AIF to Professional Investors in the EEA, the AIF (which is intended to be Marketed in the EEA) must:
- Appoint an AIFM (this can be an EEA or a non-EEA AIFM);
- The appointed AIFM must notify each EEA State Competent Authority in which it intends to Market the AIF it Manages, that it is the appointed AIFM (in the case of an EEA AIFM they need to be formally Authorised by their Home State Competent Authority or, if taking advantage of the Transitional, the application for Authorisation as an AIFM must be made no later than 22 July 2014);
- The AIFM must notify each EEA State Competent Authority in which it intends to Market a non-EEA AIF the details of each of these non-EEA AIFs (in the UK each non-EEA AIF will be scheduled in either the Article 36 Register, where it is an EEA AIFM Managing a non-EEA AIF, or the Article 42 Register, where it is a non-EEA AIFM Managing either an EEA AIF or a non-EEA AIF);
- An EEA AIFM, which must be formally Authorised, which intends to Market EEA AIFs under the AIFMD Passport, will be required to notify their Home State Competent Authority of their intention to Market EEA AIFs in certain EEA States. The EEA AIFM’s Home State Competent Authority will then be required to notify, within 20 business days, these other EEA Competent Authorities, where it is the EEA AIFM’s intention to Market the scheduled EEA AIF under the AIFMD Passport. The EEA AIFM’s Home State Competent Authority must notify the AIFM within the same 20 wording day period confirming they have notified the respective non-UK EEA State Competent Authorities – immediately the AIFM is notified it may commence Marketing under the Passport.
- There are post Marketing activity obligations on AIFMs, but this is not covered by this note.
When does a Marketing Exemption apply? The FCA has clarified that the only situation where the Marketing of an AIF to a prospective EEA Investor would not be deemed to have taken place is if the approach was at the initiative of that potential investor and that potential investor has had no previous involvement with that AIFM. Therefore:
- The FCA has confirmed that if a potential investor was to approach the AIFM as a consequence of seeing any marketing material produced, e.g. on the AIFM’s website, or as a consequence of a general marketing campaign, this could not be deemed as Passive Marketing.
- That if, as has been suggested, an AIFM had contact prior to 22 July 2013 with that potential investor, further marketing contact on or after 22 July 2013 could not be regarded as Passive Marketing. For example, it is thought that this will prevent marketing activities which bridge 22 July 2013 from being classified as Passive Marketing.
- However, the FCA has confirmed that while certain aspects of the Financial Promotion Rules (COBS 4) will apply to UK AIFMs in the event of post sales, i.e. after the investment has been decided but while paperwork still needs to be completed, it is thought that these subsequent activities do not then constitute Marketing AIFs.
Which entities are permitted to Market AIFs (in the UK) with the Consent of the FCA? The following types of entity may Market AIFs, in the UK, in accordance with the appropriate requirements laid out above, or may do so as the AIFM’s delegate, and while the Third Country Passport does not exist:
- Full Scope UK AIFM;
- Incoming EEA AIFM (those Marketing EEA AIFs in accordance with the AIFMD Passport);
- EEA (non-UK) AIFM (those permitted to market non-EEA AIFs in accordance with the UK PPR regime);
- Small Authorised UK AIFMs (of Authorised UK AIFs, e.g. NURS or QIS);
- Small Registered UK AIFMs (of [unauthorised] AIFs); and
- Non-EEA AIFMs (Third Country AIFMs).
It is worth noting that entities not acting as the AIFM’s delegate may also Market AIFs, described as ‘Distributors’, in the UK as long as:
- The AIFM of that AIF is permitted to Market the AIF to Professional Investors; and
- The ‘distributor’ is permitted to make Financial Promotions to that investor (i.e. under COBS 4.12 or as a consequence of a UK Act).
In what circumstances may an entity Market an AIF without the FCA’s consent? Entities other than the AIFM, its delegate or as an independent Distributor (described above). These circumstances are:
- Via Passive Marketing; or
- With the consent of another, non-UK, EEA Competent Authority (e.g. via the AIFMD Passport).
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