Dos & Don’ts of UCITS Marketing Communications
A recent update to the ESMA Q&A on the application of the UCITS directive is set to pose fresh challenges for UCITS managers in the European crossborder distribution of their fund products. The debate, likely to heat up in the coming months, starts with an authentic interpretation from ESMA, issued via the Q&A, on the responsibility to ensure compliance of UCITS marketing communications with the rules introduced by Regulation (EU) 2019/1156.
More specifically, ESMA wants UCITS managers to be responsible for compliance of marketing communications with the new applicable rules introduced by the Crossborder Distribution Directive also when a third-party distributor has been appointed. A seemingly strict interpretation of the concept of delegation and a U-turn in respect of current market practice, which will add to the existing burden of UCITS management companies due to the more demanding nature of the new rules.
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Crossborder Distribution Directive and UCITS Marketing Communications
The overall aim of the Crossborder Distribution Directive to streamline and facilitate European distribution does not manifest itself exclusively in the new rules on premarketing, marketing denotification as well as facilities agents. A significant part of the efforts within the Crossborder Distribution Directive is channelled via the new rules on UCITS marketing communications. These rules introduce a golden – European – standard for better identifiable, fair, clear and not misleading marketing communications. As part of this newly set standard, more involvement is also foreseen from national competent authorities across European member states, with the introduction of an optional ex-ante verification process for marketing communications.
But here is the catch. Marketing – and marketing communications alike – for the time being have been exclusively a local affair. There is no broad regulation at European level governing marketing and, most often, related rules and practices have been very difficult to source and interpret alike. With the Crossborder Distribution Directive, on the one hand, we have an attempt to make these local rules more easily accessible, whilst, on the other, we see introduction of an additional European standard for UCITS marketing communications.
This seems to be reinforced by the guidelines on marketing communications, promptly released by ESMA in August 2021. The purpose of the guidelines is to specify the requirements applicable to UCITS marketing communications under article 4.1 of Regulation (EU) 2019/1156, without replacing any existing national requirements on the type of information required to be included in marketing communications, which will continue to apply to the extent that these are not in contrast with any existing EU rules.
In addition, the guidelines rightly emphasise the relevance and importance of the on-line aspects of UCITS marketing communications.
The dos and the don’ts of UCITS Marketing Communications
Without entering in the broader topic of the ESMA guidelines, some useful principles on how UCITS marketing communications should be designed going forward:
Overcoming the new Challenges of UCITS Marketing Communications
The challenges posed by the ESMA authentic interpretation are multifaceted for UCITS management companies and AIFMs.
So far, market practice developed in UCITS European crossborder distribution saw shifting contractually, entirely towards distributors, the onus of compliance with local marketing rules. That was justified in light of the fact that only national rules would govern the content of the information contained in marketing communications. It is still early days to see how market practice will adapt to the new ESMA interpretation on this topic, yet as UCITS management companies will have to retain control of the function and ensure alignment of UCITS marketing communications with the European standard we would expect that a complete contractual shift towards distributors will no longer be a workable approach.
In addition, there will be potentially additional operational issues related to the ex-ante verification of marketing material by national competent authorities across European member states. Whilst from an ESMA report (on marketing requirements and marketing communications) it emerged that a vast majority of European member states did not carry out an ex-ante verification of the marketing material, we cannot exclude that the situation will change in the future. Implementation of this requirement on a wider scale will create additional requirement to submit marketing communication to national competent authorities on an initial and possibly ongoing basis. Again, we will see how this particular obligation will be integrated in distribution agreements and whether a shift towards third party distributors could be considered acceptable.
Last but not least, we expect that most of the controversy will arise on digital/online aspects of marketing communications. In line with the move to spearhead digital innovation in Europe and the related digital strategies, ESMA places particular emphasis on the on-line aspect of marketing communications. From the introduction of requirements for specific disclaimers as well as precautions when disseminating content over digital channels, to a new etiquette in the use of social media for marketing purposes, the guidelines fulfil the aim of creating a golden European standard for social media marketing. And whilst nowadays it is absolutely not uncommon – actually the very contrary – for marketing communications related to UCITS and AIFs to be broadcasted online, there is little to no awareness yet on the fact that the digital sphere is no longer a grey zone.
We expect that going forward more governance shall have to be put in place for what concerns the digital media strategy adopted by management companies and independent distributors with regards to UCITS and AIFs.
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