Has consultation clarified the premarketing rule?

1st August 2019 3634 - Blog Posts

Premarketing of an AIFM has been a subject of contention for some time. The lack of clarity is partly caused by the varying rules that apply to premarketing across different jurisdictions. Up to now there has been no uniform approach to the subject across the EU, and different types of pre-marketing have triggered regulatory reporting requirements in some countries but not others.

By premarketing we mean communication with potential investors before they subscribe for fund interests, which could encompass anything from teaser documentation to draft fund documents.

The Cross-Border Distribution Directive

After a period of consultation which started last December, a new EU directive and clarification has been published on premarketing and reverse solicitation. The main aim of the Cross-Border Distribution Directive, which amends the Alternative Investment Fund Managers Directive, is to eliminate the current regulatory barriers and harmonize the rules on the verification of marketing rules across different jurisdictions.

A unified definition of pre-marketing

One of the key changes which will achieve this aim is the introduction of a unified definition of pre-marketing. The definition clearly outlines that it includes “provision of information or communication, direct or indirect, on investment strategies or investment ideas by an EU AIFM or on its behalf, to potential professional investors”

It also clarifies the notification process required for premarketing, stating that an EU AIFM must either send an informal letter to the authorities of its home Member State within two weeks of having begun pre-marketing.

Following this, the home regulator will inform the authority in each relevant jurisdiction that pre-marketing is or has taken place.

This represents a change for UK AIFMs who typically undertake promotional activities under FSMA, without notifying the FCA.

Reverse solicitation

Reverse solicitation will also be affected by the new rules. Currently investors are free to invest in AIFs on their own initiative but when the new rules come into force any subscription that falls within 18 months of an EU AIFM beginning pre marketing will be classed as marketing and the EU AIFM will be required to submit a marketing notification to the relevant regulator following pre marketing.

Do the new rules add clarity?

While the new regulations add clarity to some aspects of the process, for example, by providing a unified definition of premarketing, there is still some ambiguity about some areas such as reverse solicitation. Lawson Conner’s outsourced compliance service could assist with preparing market-sounding documentation and sharing it with regulators, as well as managing all aspects of the new premarketing regulations, including the 18-month rule.

 

Joe Woodbury
Director, Investment Management Solutions

E: jwoodbury@lawsonconner.com
D: +44 (0) 203 696 2560