Global Distribution Part III: Europe · Reverse solicitation and marketing through EU member states with lighter regulation and no gold-plating provisions is traditionally used by

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Global Distribution Part III: Europe

Philip Morgan, Partner, LondonSean Donovan-Smith, Partner, LondonPasquale Marini, Partner, MilanGiulio Sandrelli, Senior Associate, MilanChristian Büche, Partner, FrankfurtTill Fock, Partner, Berlin

Introduction: Non-UCITS Fund Distribution to Professional Investors in EEA AIFMD Article 42 becoming familiar: investor

reporting; regulator disclosure; regulator reporting; application/notification to regulator in each relevant jurisdiction Practical operation of passport less familiar because

still not many full-scope AIMFs have been authorised; home member state notification; 20 working day procedure; should work even in EU states that have not yet implemented AIFMD; passport only available to authorised AIFMs

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Introduction: Non-UCITS Fund Distribution to Professional Investors in the EEA Transitional relief, where it applies, expiring on 21

July 2014, except transitional relief applying in particular closed-end fund situations where fund closed to new investment (and query the position for late-adopters) Closed-ended funds with transferable securities –

passport provisions do not apply to marketing of shares the subject of an approved prospectus drawn up and published prior to 22 July 2013 for ‘the duration of validity of that prospectus’

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Introduction: Non-UCITS Fund Distribution to Professional Investors in EEA However both Prospectus Directive and AIFMD

requirements apply, e.g. in relation to disclosure requirements, in other cases In the UK, financial promotions regime preserved but

overriden by AIFMD in a case of the offering of an AIF to professional investors

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Examination of Cross-Jurisdictional Differences/Similarities of Approach Timeliness of AIFMD implementation UK – on time (but not early) with everything;

relatively loose interpretation of transitional period;likely large overhang of unresolved AIFM applications on 22 July 2014; presumably some applications will be late and it is not entirely clear what will happen in those cases Germany – on time as the first jurisdiction in the EU to

implement AIFMD; transitional period for private placements expires on 21 July 2014; only few authorisations for AIFMs granted by BaFin

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Examination of Cross-Jurisdictional Differences/Similarities of Approach Italy – AIFMD 1st level implementation decree came

into force on 9 April 2014 – 22 July 2014 is the term for existing AIFM to comply with new rules However, 2nd level implementation measures are

still in the making (expected by October 2014) Some pre-AIFMD rules continue to apply until 2nd

level measures come into force in respect of new AIFMs and marketing of new AIFs (e.g., on governance and capital requirements, remuneration conflicts of interest, marketing regulation)

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Examination of Cross-Jurisdictional Differences/Similarities of Approach What activity is understood to be ‘marketing’ in an

AIFMD sense? “a direct or indirect offering or placement at the

initiative of the AIFM or on behalf of the AIFM of units or shares of an AIF it manages to or with investors domiciled or with a registered office in the EU” UK – includes contractual offer and invitation to treat;

does not include secondary trading/listing; promotional presentation or pathfinder PPM not an offer unless investment can be made; financial promotion regime covers pre-offer phase; distribution through intermediaries can be indirect offering

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Examination of Cross-Jurisdictional Differences/Similarities of Approach

What activity is understood to be ‘marketing’ in an AIFMD sense? Germany – includes contractual offers and invitations

to treat; does not include secondary trading as long as not intended to circumvent marketing provisions; includes investors who are already invested; may include indirect marketing through intermediaries (to be assessed on case-by-case basis); AIF must already be established or ready to be offered, discussion of investment strategies is not a marketing of an AIF; broader scope if marketing relates to retail investors

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Examination of Cross-Jurisdictional Differences/Similarities of Approach Italy – No specific guidance issued by local authorities

so far; it is likely that Consob will adopt pre-AIFMD criteria, which are close to the UK current interpretation of ‘marketing’ In essence, promotional presentations and pre-offer

phase may fall within the concept of ‘marketing’, if investors are put in a position to make an offer / directly subscribe for investment Implementation decree clarifies that marketing

through intermediaries is an indirect offer

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Examination of Cross-Jurisdictional Differences/Similarities of Approach Approach to reverse solicitation Offering other than at the initiative of, or on behalf of,

the AIFM UK – investor is person who makes the decision to

invest therefore may need to look through intermediary/agent; FCA guidance that confirmation from the investor that offering made at investor’s initiative normally sufficient to evidence reverse solicitation unless “obtained to circumvent the requirements of AIFMD”

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Examination of Cross-Jurisdictional Differences/Similarities of Approach Approach to reverse solicitation Germany – no specific guidance yet, except that a

mere reaction to order by an investor will not constitute marketing; expected to be interpreted rather narrowly Italy – Consob has not issued express guidelines on

reverse solicitation However, this practice is informally accepted, provided

that it is “genuine” According to Consob precedents, reverse solicitation

following distribution of marketing materials in Italian and/or setup of websites in Italian might not be considered genuine

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Approach to marketing by intermediaries and the use by investors of consultants UK – PERG 8.37; AIFMD A.42 compliance necessary

where offering at the initiative of, or on behalf of AIFM, by MiFID investment firm; but marketing via another intermediary probably indirect offering; question whether investor consultants are acting on behalf of either (i) managers, or (ii) investors

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Examination of Cross-Jurisdictional Differences/Similarities of Approach Germany – Marketing Guidance by BaFin generally

allows marketing by third persons if no acting on behalf of the AIFM; BaFin will make assessment by reviewing on case-by-case basis

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Italy – When AIFs are marketed via intermediary to non-professional investors, Italian “financial promoter” regulation applies (i.e. intermediaries must be MiFID firms, other AIFMs or consultants enrolled in a special register); marketing via intermediary to professional investors may be construed as indirect offering, at least if consultant clearly acts on behalf of investors and reverse solicitation occurs

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Examination of Cross-Jurisdictional Differences/Similarities of Approach Has there been, or is there likely to be, any local

gold-plating of AIFMD? UK – Not much; notification procedure re. Article 42 not

strictly required but not unduly onerous; NB No regulator approval or authorisation required under Article 42 procedure; fees; criminal consequences of breach of promotion rules Germany – yes, like other jurisdictions (e.g. Austria,

Denmark) Germany requires depositary (light) function to be implemented

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Examination of Cross-Jurisdictional Differences/Similarities of Approach Italy – While gold-plating measures are not relevant in

the marketing regulation, significant gold-plating concerns Italian AIFs Exempt AIFs below Euro 100M/500M threshold

must be registered with the Bank of Italy, even if AIFMD art. 3 exemption applies Draft 2nd level regulation requires high minimum

investment thresholds (Euro 500k) for retail investors participating in AIFs dedicated to professional investors (so called “reserved AIF”)

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Other ideas as to how funds/investment managers can get access to the local market E.g. ways to structure around AIFMD; marketing

investment services not funds; no AIF Effect of other non-AIFMD local rules UK – extensive guidance on AIFMD perimeter can help Germany – long-standing tradition for repackaging

funds into structured products; other ideas, e.g., registered-only feeders still untested

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Examination of Cross-Jurisdictional Differences/Similarities of Approach Italy – Reverse solicitation and marketing through EU

member states with lighter regulation and no gold-plating provisions is traditionally used by non-EU investment managers to reach Italian investors Although authorities are taking a strict approach on

the AIFMD perimeter, certain types of “investment companies” currently operating in Italy could be exempt (e.g., real estate companies, SPAC and private equity entities subject to listing on a regulated market)

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Examination of Cross-Jurisdictional Differences/Similarities of Approach Treatment of closed-ended funds subject to

Prospectus Directive UK – comply with both regimes for disclosure; need

FCA to approve prospectus per Prospectus Directive regime Germany – same position as in the UK except that

closed-ended funds established under German law usually do not issue securities Italy – both regimes apply (as in the UK); however,

notification to Consob under AIFMD is also valid as request for prospectus approval under PD

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What is the local approach to AIFMD remuneration regulation, for example the proportionality test? UK – extensive guidance on proportionality test and

application to delegates; size (NB £1bn and £5bn AuM thresholds); guidance on assessment of complexity; examples used helpfully e.g. carry in typical private equity structure Germany – currently no specific local approach in

Germany, rather ESMA guidelines are declared applicable

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Italy – Regulation on this point still to be implemented; at present, Italian AIFMs are not subject to extensive regulation on remuneration

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What is the local approach to AIFMD’s jurisdictional scope? UK – AIFMD A.42 compliance only necessary where

AIFMD ‘marketing’ takes place in the UK; marketing to UK investor in New York not covered; interpretation seems consistent with AIFMD A.42 Germany – similar position as UK; however, A.42

might apply, if intermediaries are used that market in Germany

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Italy – Consob must be notified if Italian AIFM markets AIFs to professional investors in Italy or within the EU; no authorisation required for marketing outside EU borders

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Is the AIFMD marketing passport being respected locally? UK – yes. NB. ESMA opinion that recognises the right

of firms to be able to exercise passport rights in Member States that have not yet transposed the Directive. MiFID services performed by AIFM can be passported into other EU jurisdictions under AIFM passport – but query whether all EU Member States currently agree. Under MiFID II, the position is made clear

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Examination of Cross-Jurisdictional Differences/Similarities of Approach Germany – yes Italy – Passport respected also in the transitional

period (while 2nd level implementation is adopted – see ESMA opinion); Italy agrees with performance of MiFID services by authorised EU AIFM under AIFM passport

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Questions

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Documents

Global Distribution Part III: Europe · Reverse solicitation and marketing through EU member states with lighter regulation and no gold-plating provisions is traditionally used by