Snapshot. Marketing Funds and Investment Management & Advisory Services in Europe. aosphere.com

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Norah Washington
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1 Snapshot Marketing Funds and Investment Management & Advisory Services in Europe 2017

2 Rulefinder MARKETING RESTRICTIONS Asset management Snapshot: Marketing Funds and Investment Management & Advisory Services in Europe Any firm wishing to market or provide funds and investment management & advisory services on a cross-border basis into the EEA, will need to understand the interplay between European and national legislation and become familiar with an array of acronyms, from AIFs to UCITS. This guide introduces the main pieces of European law applicable to the marketing and sale of funds and investment management & advisory services, and explains some of the key terms that you will encounter.

3 Rulefinder MARKETING RESTRICTIONS Asset management 1. UCITS Funds vs AIFs UCITS FUND A fund that complies with the UCITS Directive Structure and strategy: Subject to detailed rules, therefore not suitable for certain fund structures or strategies (for example, UCITS Funds must be open-ended). Marketing passport: UCITS Funds benefit from a marketing passport allowing them to be offered to Retail and Professional Investors across the EEA, subject to a notification process (such funds are known as Passported UCITS Funds). National law: National law may permit UCITS Funds to be marketed in a Member State without a marketing passport (as a Non-Passported UCITS Fund), for example, in response to a reverse enquiry or pursuant to the national private placement regime (PPR), if any. AIF An alternative investment fund Structure and strategy: Essentially, all funds other than UCITS Funds. Captures a wide range of different fund structures and strategies (open-ended and closed-ended). Marketing passport: EEA AIFMs benefit from a marketing passport allowing EEA AIFs to be offered to Professional Investors across the EEA, subject to a notification process. The passport may be extended to non-eea AIFMs and non-eea AIFs in the future. National law: If either the AIF or the AIFM is based outside the EEA, the marketing passport is not currently available and the national PPR (if any) will apply. National law may also permit marketing in response to a reverse enquiry, and/or marketing to Retail Investors, subject to certain conditions. 2. Retail vs Professional Investors Professional Investor: Includes investment firms, authorised financial institutions, pension funds and their management companies, central banks and certain large undertakings. Retail Investor: Retail Investors generally receive higher levels of protection in European and national law. Investors that are not Professional Investors will be Retail Investors. The distinction between Retail Investors and Professional Investors is set out in MiFID, but is also used in the AIFMD (for example, the AIFMD marketing passport only permits marketing to Professional Investors). There is some scope for movement between the categories, both downward (resulting in greater protection) and upward (resulting in less protection). aosphere LLP 2017

4 3. Marketing Funds the European Regulatory Framework The UCITS Directive and the Alternative Investment Fund Managers Directive (AIFMD) provide a framework for marketing funds across Europe. UCITS DIRECTIVE Aims to create a single market in Europe for open-ended retail funds, with a high level of investor protection (UCITS Funds). Detailed requirements as to structure, eligible assets, diversification, investor disclosure. Passport available, for marketing UCITS Funds to Professional and Retail Investors. AIFMD Regulates alternative investment fund managers (AIFMs) and provides a framework for their activities, including marketing an AIF. Passport may be available for marketing AIFs to Professional Investors. Where the passport is not available, need to use national PPRs. The Prospectus Directive, which aims to provide for a single prospectus regime in Europe, may be relevant to closed-ended funds where they are offered to the public. However, it is often possible to fall within an exemption from the prospectus requirement. The Markets in Financial Instruments Directive (MiFID) may also be engaged, if the marketing and placement of a fund involves an investment service or activity within its scope. See Marketing Investment Management & Advisory Services below. 4. Marketing Funds National Law Within the framework of European law, Member States have discretion in interpreting and applying certain provisions, so that marketing activities that are permitted in one Member State may be prohibited or subject to additional requirements in another. This may be referred to as gold-plating or super-equivalence. For example, the AIFMD permits the use of national PPR in certain circumstances, but the availability and detail of these regimes will vary. National laws will also apply to activities that are outside the scope of the European legislation, such as reverse enquiry or pre-marketing. Reverse Enquiry Different rules apply in each Member State. Potentially risky a fact-based test. Careful record-keeping essential. Pre-Marketing Might not be recognised in every Member State. If recognised, will not trigger AIFMD marketing rules. Local rules on marketing and financial promotion will apply. Private Placement Not available to EEA AIFMs in respect of EEA AIFs (who must market via AIFMD passport). Certain provisions of AIFMD will still apply when marketing via national PPR.

5 5. Marketing Investment Management & Advisory Services It may be possible to access investor capital in Europe using a structure that falls outside the definition of a UCITS Fund or an AIF by marketing investment management & advisory services, for example, a segregated managed account. This may fall within the scope of MiFID Services. Even when marketing a fund, the marketing and placement activities may involve MiFID Services, such as arranging or investment advice. MiFID Services are investment services and activities that are regulated by MiFID. The following MiFID Services may be relevant to marketing or selling a fund or to an asset manager looking to provide investment management & advisory services: Reception and transmission of orders (ie arranging) Execution of orders on behalf of clients Portfolio management Investment advice An entity marketing or providing MiFID Services into a Member State must comply with local licensing requirements, unless they are an EEA Passporting Entity or able to benefit from a Third Country Exemption. Alternatively, a locally licensed intermediary could be used. EEA Passporting Entity If the marketing entity is an EEA Passporting Entity (ie a MiFID Investment Firm, an EEA authorised credit institution, a UCITS management company or, in certain cases, an EEA AIFM) with appropriately scoped permissions in its home Member State, it may passport into another Member State to provide MiFID Services. Third Country Exemption Some Member States may permit non-eea entities to provide certain MiFID Services to investors in that jurisdiction pursuant to national laws. This is known as a Third Country Exemption. Note that MiFID II will introduce harmonised rules for the provision of MiFID Services by Third Country Firms. MiFID II Member States have until 3 July 2017 to adopt and publish the measures transposing MiFID II into national law which they must apply from 3 January Among other aspects, MiFID II: introduces harmonised rules for provision of investment services by so called Third Country Firms (which would include non-eea OFIs) into the EEA. sets out specific rules for firms that manufacture or distribute financial instruments (which includes Funds (AIFs and UCITS)). places a bigger reporting and data burden on fund distributors. This guide introduces some of the key concepts applicable to the cross-border marketing and sale of asset management products and services in Europe. For more detail, Rulefinder Marketing Restrictions Asset Management (MR-AM) provides country-specific reports dealing with the impact of the key pieces of European law mentioned in this document and the particular legal position that applies under national law. To find out more about MR-AM and get a free trial, please contact us at info@ or go to

This document represents an overview of key areas covered by European legislation. Nothing in this document constitutes legal or other professional advice.

6 This document represents an overview of key areas covered by European legislation. Nothing in this document constitutes legal or other professional advice. Use of this document is subject to the Terms of Business that can be viewed on the Marketing Restrictions Asset Management website. The transmission of any part of this document to any person who is not an Authorised User is strictly prohibited without the consent of aosphere LLP. aosphere LLP 2017 CS1703_CDD-47607_ADD-66452

AIFMD Initial Guidance And Advice For The Sub-Threshold AIFM

AIFMD Initial Guidance And Advice For The Sub-Threshold AIFM AIFMD Initial Guidance And Advice For The Sub-Threshold AIFM A What is the AIFMD? The Alternative Investment Fund Managers Directive (the AIFMD