Since 2 February 2022, the guidelines on marketing communications prepared by the European Securities and Markets Authority (ESMA) have been applicable throughout the European Economic Area (EEA) for funds distributed on a cross-border basis. Just days earlier, the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg published Circular 22/795 (PDF | 0.1MB) confirming the applicability of the guidelines, announcing that they had been integrated into the authority’s “administrative practices and regulatory approach” with Luxembourg investment fund managers (“IFMs” as per the CSSF’s terminology). This term covers UCITS management companies, self-managed UCITS, alternative investment fund managers (AIFM), self-managed AIFs, managers of European qualifying venture capital funds (EuVECA) and managers of European qualifying social entrepreneurship funds (EuSEF), all of which are within the scope of the circular.
Various requirements on fund marketing and investment advice have been introduced over the years on an EU level, most notably with the Markets in Financial Instruments Directives (MiFID I and MiFID II) and related regulations, along with the UCITS Directives and AIFMD. The ESMA marketing guidelines set out to establish common principles on such requirements – specifically on the identification as such of marketing communications, the description of risks and rewards of purchasing units or shares of an AIF, or units of a UCITS in an equally prominent manner, and the fair, clear and not-misleading character of marketing communications.
The CSSF also announced in its circular that it will now require fund managers to provide information regarding marketing communications to the financial sector authority, and will conduct testing to verify compliance with the relevant regulation and guidelines.
While the practicalities are yet to be defined, with additional instructions expected in due course by means of annexes to the issued circular followed by a collection of FAQs, the announcement might mean that the CSSF will make use of article 7 of EU regulation 2019/1156 regarding cross-border fund distribution. This article empowers national competent authorities to receive, review and approve marketing communications prior to their use.
Several other financial supervisory authorities across the EEA are already doing this. The procedures vary but generally fall into three categories:
- provision of all marketing material and communications before use (review on an ad-hoc basis)
- provision of all marketing material and communications in advance upon request (with review if requested)
- provision, review and approval of all marketing material and communications prior to use
Other competent authorities and countries typically rely on, for example, ad-hoc reviews, specific financial market studies, investor complaints, the judiciary system, self-regulation by market participants, guidance and recommendations by investment management associations.
It remains to be seen exactly which approach the CSSF will wind up taking. Investment fund managers in Luxembourg can in any case expect more scrutiny when it comes to marketing communications and should prepare accordingly.
Our fund distribution services team has years of experience tailoring solutions for each client’s specific needs. Get in touch to learn more about how KPMG can help you assure compliance of your marketing communications.