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Out-Law News 1 min. read

Fund managers urged to revisit distribution agreements over marketing

Investment fund managers have been urged to review their distribution agreements after new guidance was issued on the application of EU rules around the marketing of alternative investment funds (AIFs) and Undertakings for Collective Investment in Transferable Securities (UCITS).

The guidance was provided by the European Commission in updated ‘Q&A’ documents published by the European Securities and Markets Authority (ESMA) which relate to the EU AIF Managers Directive (AIFMD) and EU UCITS Directive respectively.

The new guidance provides clarification around where responsibility sits for ensuring that marketing communications comply with the requirements set out in the respective directives in cases where a third-party distributor, and not the fund manager itself, performs the relevant AIF or UCITS marketing activities.

According to the answer given by the Commission, fund managers, not distributors, are ultimately responsible for the marketing activities of AIFs and UCITS – even where there is no contractual relationship between the fund manager and the third party distributor or indeed even the contract between them states otherwise.

“Given this confirmation from the Commission that the responsibility for compliance with the requirements of marketing communications cannot be passed to delegates, managers should consider revisiting their distribution agreements to ensure that any marketing materials issued in respect of their funds comply with the requirements set out under the cross-border distribution regulation,” said Dublin-based Áine Ní Riain, who specialises in the regulation of investment funds at Pinsent Masons.

Last month, Oliver Crowley, also of Pinsent Masons, encouraged fund managers to engage with ESMA over new proposals it is consulting on concerning the information they will be required to provide when informing regulators of their cross-border marketing and management activities under the UCITS Directive and the AIFMD. Template letters are being considered to ensure that notifications are consistent across member states and to avoid differences in national approaches.

ESMA’s consultation will close on 9 September 2022. The regulator has said that it expects to publish its final report on cross-border marketing and management activities in early 2023, before draft implementing technical standards and regulatory technical standards are submitted to the European Commission.

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