Following the proposal of the European Commission for a Directive of the European Parliament and of the Council amending Directive 2009/65/EC [UCITS] of the European Parliament and of the Council and Directive 2011/61/EU [AIFMD] of the European Parliament and of the Council with regard to cross-border distribution of collective investment funds (2018/0041 (COD), published on 12 March 2018, we know that the EU Commission intends “to simplify” the marketing of AIFs within the European Union.
The EU Commission aims to eliminate existing regulatory barriers to the cross-border distribution of investment funds in the EU. The objective of the proposed Directive is to reduce cross-border distribution costs for the AIFMs, harmonize divergent marketing requirements set by the Member States, address the different regulatory fees, and standardize the administrative and notification requirements. As a result, the EU Commission expects the implementation of this Proposal to increase competition of investment fund products in the EU and thus help to give investors more choice and better value. Therefore, the EU Commission is seeking, inter alia, to regulate the so-called pre-marketing laid down in Article 4 of the AIFMD throughout the EU in a uniform manner and to prevent the possibility to rely on reverse solicitation after pre-marketing.
However, it remains questionable whether this “harmonization” will actually result in a “simplification” for the AIFMs as well as for the initiators. Given that pre-marketing has not been considered marketing in accordance with point (x) of Article 4(1) of the AIFMD up to now, in Germany, for example, such activity was therefore not covered by the term “marketing” under KAGB (German Investment Code). Thus, depending on national law, pre-marketing activities may also be currently performed by an initiator (comparable with the former “private placement”). If the EU Commission’s Proposal is implemented, this is probably going to change.
- The EU Commission wants to harmonize and simplify pre-marketing activities.
- Hence, under certain circumstances, pre-marketing would fall within the definition of “marketing” laid down in the AIFMD.
- This means that, in addition to its responsibility for the marketing of AIFs under current law, the AIFM would also be responsible for the pre-marketing activities.
- Initiators must ask themselves whether they can even still engage in pre-marketing activities without the AIFMs.
Proposal for Defining the Term Pre-Marketing Laid down in Article 4 of the AIFMD
The EU Commission proposes to include a definition of the term “pre-marketing” in Article 4(1) of Directive 2011/61/EU. This is due to the fact that the EU has determined that EU Member States have been interpreting the term “pre-marketing” in different ways and thus have different requirements for its application. Article 2 of the Proposal stipulates that in the future, pre-marketing should be defined at EU level as follows:
“a direct or indirect provision of information on investment strategies or investment ideas by an AIFM or on its behalf to professional investors domiciled or registered in the Union in order to test their interest in an AIF which is not yet established.”
In particular, the objective is to ensure throughout the EU that pre-marketing does not:
- relate to an established AIF;
- contain reference to an established AIF;
- enable investors to commit to acquiring units or shares of a particular AIF;
- include a prospectus, constitutional documents of a not-yet-established AIF, offering documents, subscription forms or similar documents whether in a draft or a final form, suitable to allow investors to take an investment decision.
At the same time, the Proposal requires that the subscription by an investor to units or shares in an AIF following the pre-marketing for that AIF or even for an AIF with similar features should be considered the result of marketing and not the result of pre-marketing. This would mean that even for pre-marketing activities pursuant to the provisions of the Proposal, such pre-marketing, if successful, should be subject to the marketing provisions set out in the AIFMD. The reason behind this subsequent fictitious idea of a subscription to be considered the result of marketing – even though the subscription was “only” realized in response to pre-marketing activities – is to protect professional (!) investors from the circumvention of the protective provisions set forth in the AIFMD.
AIFM Will Be Faced with Additional Requirements
It is the AIFM who must ensure that these protective provisions of the AIFMD for the professional investor are applied. According to sentence 1 of Article 5(1) of the AIFMD, each AIFM is required to ensure full compliance with the provisions laid down in the AIFMD. Article 5(1) of the AIFMD defines this obligation without any limitations and without taking into account the scope of the license of the AIFM. It is therefore irrelevant whether the AIFM’s license covers the activities in question set out in Annex I of the AIFMD. The AIFM remains responsible for the compliance of these activities with the provisions of the AIFMD regardless. The activities covered relating to the AIFs are mentioned in Annex I of the AIFMD and include the marketing of fund units or shares. In 2016, ESMA already confirmed that the responsibility of the AIFM to ensure compliance with the provisions laid down in the AIFMD includes all activities listed in Annex I, which also encompasses marketing. According to the interpretation given by ESMA and the EU Commission, this obligation applies, irrespective of whether the activities are offered by the AIFM itself or not. In cases where the AIFM does not itself perform the activities set out in Annex I of the AIFMD, ESMA considers such activities as having been delegated to a third party. Accordingly, the provisions for delegated functions referred to in particular in Article 20 of the AIFMD apply.
The CSSF incorporates the interpretation of ESMA and the EU Commission into its own interpretation of the AIFMD as part of its own FAQs. Hence, ESMA’s and the EU Commission’s understanding of the AIFMD also reflects the interpretation of the law applicable in the Grand Duchy of Luxembourg provided by the CSSF.
Currently, the AIFM is already responsible for marketing “its” AIF units or shares as laid down in Article 5 of the AIFMD. In other words, under applicable law, the responsibility of the AIFM extends to established AIFs that are actively offered to investors by either the AIFM itself or through delegated marketing. The AIFM must ensure that the marketing of an established AIF is compliant with the AIFMD – either by performing the marketing activities itself or, when delegating such activities, by monitoring the distribution partners in charge of the AIF, while adhering to the delegation provisions set out in the AIFMD, in particular in Article 20 of the AIFMD.
If the EU Commission’s Proposal is implemented, this responsibility will in future also encompass the marketing of AIFs not yet established – whatever form that may take on a case-by-case basis. At the same time, initiators will have to determine whether they themselves will be authorized to perform pre-marketing activities at all. We will have to wait and see if these new requirements really simplify things.
Should you have any questions regarding the responsibilities of AIFMs, the implementation of supervisory procedures as part of the delegation of certain activities as defined in Annex I of the AIFMD or the AIFMD in general, please do not hesitate to contact us.
Legal note: AIQUNITED, 1C, rue Gabriel Lippmann L-5365 Munsbach
 Ibidem, „Context of the proposal“.
 Ibidem, recital 11.
 See BaFIN in https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/FAQ/faq_kagb_vertrieb_erwerb_130604.html (German version).
 Proposal, recital 10.
 Proposal, Article 2.
 Proposal, page 10.
 FAQs of the EU Commission, page 4, https://ec.europa.eu/info/sites/info/files/aifmd-commission-questions-answers_en.pdf, also referred to in the FAQs of the CSSF under Preliminary Remarks, page 3.
 Please see Annex I of the AIMFD, available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32011L0061.
 ESMA Q&A on the AIFMD, page 36, Section VIII: Delegation, Question 2. https://www.esma.europa.eu/sites/default/files/library/esma34-32-352_qa_aifmd.pdf; see footnote 7.
 ESMA Q&A on the AIFMD, page 36, Section VIII: Delegation, Question 2.
 Please see the CSSF’s Preliminary Remarks listed in its FAQs on page 3: https://www.cssf.lu/fileadmin/files/AIFM/FAQ_AIFMD.pdf