On 2 August 2021, The European Securities and Markets Authority (“ESMA”) published the Guidelines on Marketing Communications (the Guidelines) under the regulation on cross-border distribution of funds, which applies new standards to marketing communications addressed to investors or potential investors.
What is covered by the Guidelines?
ESMA specifically declined to outline criteria to allow firms to determine whether material is covered, but they did provide lists of examples of both covered and non-covered material, the main examples of which are set out below (the full list is in section 1 of the Guidelines):
- All messages advertising the fund. This includes paper printed documents or information made available in electronic format, press articles, press releases, interviews, advertisements, documents made available on the internet, as well as webpages, video presentations, live presentations, radio messages or factsheets.
Out of scope
- Legal and regulatory documents/information of a fund such as a prospectus or the information which is to be disclosed to investors in accordance with Article 23 of the AIFMD, constitutional documents, financial reports, KIID/KIID or annual and half-yearly reports and other material that is “required to legally establish a fund”; and
- Information or communication issued in the context of ‘pre-marketing’.
- It is unclear from the above whether an AIF’s PPM is covered, but the better (and safer) view is that it probably is. The first bullet point above of excluded material is a reference to material that is produced in accordance with some legal or regulatory requirement which covers what needs to be disclosed; a PPM is not subject to such rules and the content is at the manager’s discretion. The reference to a “prospectus” is probably, therefore, a reference to a UCITS prospectus that is mandatory under the rules.
- The exclusion for pre-marketing material is slightly odd in that application of the Guidelines turns more on when the material is being used rather than what material is used. The amended Article 30a of the AIFMD allows managers to pre-market using almost all documents with the exception of the subscription document or partnership agreement. Managers, though, will need to make sure that the material complies with the Guidelines if they want to continue using it when pre-marketing becomes full marketing.
The requirements of the Guidelines
Much of the Guidelines will not be controversial or difficult for firms to comply with since they will probably already be doing what the Guidelines require. Below are the more substantive issues.
- Identification of marketing communications.
All marketing communications should include sufficient information to make it clear that the communication has a purely marketing purpose, for example by including a prominent disclosure of the terms “marketing communication” such that any person can easily identify it. Additionally, ESMA proposes that all marketing communications should include a disclaimer along the lines of the following:
"This is a marketing communication. Please refer to the [prospectus of the fund] and to the [KIID / KID] (as applicable) before making any final investment decisions.”
- Description of risks and rewards in an equally prominent manner.
Where information on risks and rewards is included in marketing communication the following requirements should be met:
- Marketing communications that reference any potential benefits of purchasing units or shares in a fund should give a fair and prominent indication of the relevant risks;
- Marketing communications should outline risks and rewards at the same level or one immediately after the other and not describe the rewards without identifying the associated risks, or cross-refer to another document for the description of the risks; and
- When disclosing risks and rewards information, the font and size used to describe the risks should be at least equal to the predominant font size used throughout the information provided, and its position should ensure such indication is prominent.
This is less likely to be an issue in the PPM, where risks are clearly displayed in a full and prominent manner, but could be an issue for teasers and other early stage material where risks may either not be discussed or where there is a simply a cross-reference to the later PPM.
- Information on past performance and expected future performance.
Information on past performance should not be the main part of the marketing communication and should be based on the preceding 10 years for funds using a KID or for the preceding five years for other funds or the whole period for which the relevant funds have been established if less. In every case, past performance information should be based on complete 12 month periods but this information may be supplemented with performance for the current year updated at the end of the most recent quarter.
This information should be preceded by the following statement: “Past performance does not predict future returns”. If the information relies on figures denominated in a currency other than that of the relevant member state, the relevant current must be clearly stated together with a warning that indicating that returns may increase or decrease as a result of currency fluctuations.
The guidelines will take effect from 2 February 2022. All EU regulators have indicated that they will follow them. The Guidelines do not apply to non-EU countries (including the UK), but non-EU managers who wish to market in the EU should consider the provisions; it is possible that regulators that review marketing material as part of an Art 42 registration may pick up on material that obviously does not comply with the Guidelines.