This answer is for general guidance only. It does not constitute advice.
How it works for Funds
How it works for Investors
How it works for Funds
Under AIFMD, you may not be registered in each EEA jurisdiction for marketing. Therefore you may have chosen to rely on reverse solicitation.
However, this requires you to not perform active marketing and this is often tricky. If you meet an eligible investor at an event, say, you cannot actually send him any information unless he requests it first! This is a reverse solicitation.
You can ask the investor/prospect to go to a certain site, where he may, if he chooses, explicitly ask you what information to send him. This fulfills your reverse solicitation requirement since the request came from him first and all you did was send him to our site. You did not market. The investor requested it.
Note: you have to consult your specialized lawyer of the domicile you want to offer your product to decide, whether you can use SMARTMONEYMATCH.com for reverse solicitation.
For some jurisdictions, you can find some general guidance.
Important: This is general guidance only. It does not constitute advice.
Under the European AIFMD, non-EEA funds are not allowed to promote themselves to EEA investors without national registrations with each EEA regulator or government. As a result, the large majority of existing and new funds are ceasing their outreach to investors in the EEA. They are simply not allowed to reach out to investors.
This means they cannot ask you to have a look at them because this is marketing. The AIFMD directive is so prescriptive that they cannot even tell you to look at their website because that might be considered marketing! Therefore, you have to actually request the information first! This is called reverse solicitation and is allowable under the AIFMD.
Under the AIFMD (Alternative Investment Fund Managers Directive), investment funds and fund managers are constrained in the way they can market and promote the fund to investors. This may be regardless of the investors' professional status, whether private HNW or institutional. As long as the investor is based in an EEA jurisdiction, the marketing/promotion of funds is subject to national regulators and may require the fund/manager to be registered and/or approved for marketing in each specific country.
Some countries do not even currently allow ANY marketing of non-EU AIFs (funds).
If you are a fund, therefore, you will either have to have the appropriate status (EU AIF / non-EU AIF - passporting or non-passporting, individual national registration/notification/approvals required), or you have to rely on investors reaching out to you first. This is called reverse solicitation. If an investor reverse genuinely solicits you, the marketing constraints under AIFMD do not apply.
If you are an investor, you may find that funds/managers are taking you off their marketing lists, and you will not hear about new launches or new funds because managers are not constrained in marketing to you. Therefore, by using this site, you can genuinely and demonstrably reach out first and fulfill the requirement for reverse solicitation.
For funds which rely exclusively on "reverse inquiry" (either generally or in specific jurisdictions) you should be acutely aware of the risks posed to your business (in particular, to those funds which rely on reverse enquiry in some or all EU jurisdictions) by activities promoting your funds that are undertaken (either by you or on by third parties interested in our funds) in contravention of the marketing restrictions in the AIFMD.
You should also be conscious of the fact that certain activities undertaken by third parties, whilst not in direct contravention of the marketing restrictions, will result in your funds being unable to rely on the reverse inquiry exemption in accepting certain investments from within the EU. This latter situation may arise, by way of example, where an investor becomes interested in one of your funds through information provided or made available to it in literature or on a website which prompts the investor to request further information. Whilst the provision of such information in many (but not all) cases may not amount to "marketing" of the fund, in a large number of jurisdictions the provision of such information will prevent the fund from claiming that any subsequent investment in that fund which results was "unsolicited". If the investment is deemed not to be "unsolicited" the "reverse inquiry" exemption is not available.
A further complication to this situation is the fact that many of the jurisdictions interpret the rules differently and may have different requirements, or may have given no guidance on what they consider to be "marketing", "reverse inquiry" and "unsolicited". This results in a situation where activity permitted or having no adverse consequences, in one jurisdiction may potentially have a very different effect in another jurisdiction.
Thus, you should have a look for each jurisdiction separately, whether you can rely on reverse solicitation within the platform. Below we have some general guidance only. It does not constitute advice.
Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Gibraltar (• Gibraltar is incorporated into the European Union by virtue of the United Kingdom's membership) Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom (UK)*
Guernsey, Isle of Man (UK territory), Jersey (UK territory)
Iceland, Liechtenstein, Norway
Switzerland (Switzerland, has not joined the EEA, but has a similar agreement with the EU, though under the AIFMD treated as a third country)
Albania, Andorra, Belarus, Bosnia-Herzegovina, Macedonia (Former Yugoslav Republic of), Moldova, Monaco, Montenegro, Russia, San Marino, Serbia, Turkey, Ukraine, Vatican City
The answer is based on an article from Claire Cunmings
Marketing non-EU funds under the AIFMD for US Managers regime (if any) in the relevant jurisdiction i.e. in accordance with local marketing rules.
The EU Passport regime may become available to non-EU managers from 2015, but this is subject to the European Securities and Markets Authority (ESMA) recommending that the passport is made available to them and the European Commission activating the passport provisions by adopting a delegated act. If the EU Passport regime is activated, all non-EU AIFMs managing
or marketing AIFs in the EU will need to apply for authorization, choose a “regulator of reference” within an appropriate EU jurisdiction (depending on various criteria) and comply fully with the
Until such time as the EU Passport is available, US managers are required to market their funds in accordance with the local rules applicable in each relevant jurisdiction.
It is important to note that provisions applying in one jurisdiction may not apply in other jurisdictions and it is possible that some Member States will impose requirements which are more
restrictive than some other Member States or may even remove the possibility of using any national private placement regime altogether.
AIFMD Private Placement Regime Subject to the transitional period, if relevant (discussed below), the AIFMD imposes a number of conditions upon private placement regimes, which must be met for a non-EU AIFM to be able to market its AIFs in the EU. These are as follows:
(i) there must be a co-operation agreement/memorandum of understanding (MoU) in place between the relevant Member State and the regulator of the fund’s jurisdiction;
(ii) the fund’s jurisdiction must not be designated as non-cooperative by FATF; and
(iii) the manager must comply with certain requirements of the AIFMD, namely the disclosure obligations (to investors), transparency requirements (to regulators)and the annual reporting obligations of the AIF (please see below for more detailed information on each of these requirements).
The non-EU AIFM will not be able to market or continue to market, in the EU if any of these conditions are not satisfied. Furthermore, it is important to note (as mentioned above) that private placement regimes vary and Member States have the ability to impose stricter conditions in their private placement regimes or to ban private placements altogether at any time.
The UK has determined to leave its own private placement regime unchanged, however, with one exception, namely notification to the Financial Conduct Authority (‘FCA’) (see ‘Notification to the FCA’ below).
The FCA has currently signed MoUs with a total of 43 non-EEA authorities, including, for example, with those in the US (both SEC and CFTC), FINMA (Switzerland), the Cayman Islands, Bermuda, the British Virgin Islands, Jersey, Guernsey and the Isle of Man. For the complete list, which may be updated from time to time, please see the FCA website at www.fca.org.uk.
If the first two conditions are satisfied, the US manager must then ensure that it complies with paragraph (iii) above, as follows:
The manager is required to make initial and ongoing disclosures to investors, which includes
information on all fees, charges, and expenses directly or indirectly borne by investors (as well as maximum amounts) and details of any preferential treatment provided to an investor or any special arrangements, such as side pockets. This will mean that offering documents will be required to contain certain obligatory disclosures and managers will need to make a checklist of AIFMD disclosure requirements and update offering memoranda and all marketing documentation where appropriate.
The manager must make an annual report available for each fund it markets, which must include disclosures in relation to the remuneration and management fees paid by the manager to its staff (including the total amount of carried interest payments made).
The manager is required to report regularly to the FCA in relation to the percentage of the fund’s assets which are subject to special arrangements arising from their illiquid nature and also reporting in relation to the main categories of assets in which the fund invests.
For US managers, the reporting requirements are similar to Form PF, but it will not be possible merely to lift all the necessary information from one report into another, as the valuation and leverage calculations differ under the AIFMD.
If the fund acquires control (i.e. 50% or more of the voting rights) of a listed or unlisted EU company, certain disclosure, and notification requirements will be applied, including the ‘asset-stripping’ provisions of the AIFMD, which the manager must make to the company, its shareholders and the FCA.
As mentioned above, the FCA has introduced one new change to its private placement regime, the introduction of three private placement registers, two of which are applicable to US managers.
The notification requires a confirmation from the manager that the management of the fund complies with the relevant conditions set out in the Alternative Investment Fund Managers Regulations 2013 (as amended), the regulations implementing the AIFMD into UK law.
These conditions vary depending on whether or not the manager is a ‘small’ AIFM i.e. broadly an AIFM who manages leveraged assets of below €100m (such as a small hedge fund) or who manages unleveraged assets of below €500m where there are no redemption rights within five years of initial investment in the AIFs (for instance, a typical private equity fund).
The two registers relevant to a US manager are, therefore:
(1) Article 42 Register – for non-EU AIFMs that are not small AIFMs managing AIFs; and
(2) Small third country AIFM Register – for nonEU AIFMs that are small AIFMs managing AIFs.
These forms can be found under Forms in the AIFMD section of the FCA website at www.fca.org.uk.
Further details regarding the FCA’s private placement regime can be found in the FUND sourcebook of the FCA Handbook at FUND 10.5.
At the time of writing, not all Member States have fully transposed the AIFMD into national law and until transposition actually takes place, US managers should be able to market their funds via existing private placement regimes in that jurisdiction. Please note, however, that some Member States are contemplating the elimination of such regimes upon transposition, so any manager should conduct proper due diligence in each jurisdiction in which it is considering marketing or continuing to market, its funds.
For those jurisdictions where the private placement regime will continue, the three private-placement conditions (i) – (iii) set out above under the ‘AIFMD Private Placement Regime’ in the UK section will apply. In addition to these, some countries require the fund to be registered and consent obtained from the local regulator while others, like the UK, simply require notification (i.e. no approval required) to the local regulator.
Those requiring registrations include Germany (BaFIN), Denmark (FSA), Norway and Sweden. Furthermore, some jurisdictions may impose further requirements; Germany, for example, requires the appointment of a depositary.
Please note that the marketing of open-ended funds in France is generally not permitted under the private placement regime and that closed-ended funds may only use the private placement regime until 2015 when all managers will be required to market under the EU Passport.
As can be seen from the above, transposition of the AIFMD varies from country to country and it will, therefore, be necessary for a manager to carry out sufficient due diligence, consulting with local counsel where appropriate, prior to carrying out any marketing in the EEA. Marketing between 2015 and 2018
Although the private placement regime is expected to remain in place until at least 2018 (see further below), not all EEA countries may retain the regime if the EU Passport is introduced in 2015. The private placement regime is expected to remain in the UK until 2018, but managers will need to determine whether this will be the case in respect of each other jurisdiction at the relevant time.
The private placement regime is generally expected to remain in place until at least 2018, at which time ESMA is expected to report on whether this regime should stay or be abolished.
If it is abolished, the only marketing route available would then be the EU Passport, subject to ESMA’s recommendation as stated above. If that is the case, all non-EU managers who wish
to continue marketing their funds in the EEA will need to apply for authorization by a “regulator of reference” and comply fully with the AIFMD.
Post transposition of the AIFMD, a US manager wishing to market its funds in the UK should be able to continue marketing in the UK during the transitional period under the existing private placement regime and likewise after the transitional period, but subject to the disclosure and reporting obligations and the new FCA notification requirements, as set out above.
As regards marketing in the EEA, the US manager needs to take the following into account:
- is transitional relief available in the relevant jurisdiction in which it wishes to market its funds? If so:
• does this extend to a non-EU manager?
• does this extend to new funds or solely
to funds existing as at 22 July 2013?
- is there an existing private placement regime in the relevant jurisdiction in which it wishes to market its funds? If so:
• the three minimum conditions are satisfied?
• are there any additional notification/registration requirements?
• are there are any depositary requirements?
A manager will also need to bear in mind the introduction of the EU Passport from 2015 onwards (subject to ESMA advice) and consider what the benefits are of authorization and the EU Passport as against the private placement regimes.
Picture: Distribution of collective investment schemes according to the Swiss regulation. © HUGO FUND SERVICES SA
Remark: SmartMoneyMatch distinguishes in between entities that are qualified investors that are regulated by FINMA and others. This means that qualified investors non-regulated by FINMA are also classified as non-qualified investors for not restricting the opportunity for reverse solicitation.
For more insights, the below text based on an article from Patrick Schleiffer/Michael Kremer (Reference: CapLaw-2015-17) might be worth reading
In parallel with the Alternative Investment Fund Directive (AIFMD) coming into force, Switzerland amended its fund marketing regime which entered into force on 1 March 2013. The implementation of the amended requirements for non-Swiss funds to be distributed to qualified investors in Switzerland was subject to a two-year transitional period which ended on 28 February 2015. As from 1 March 2015, the distribution of non-Swiss funds to so-called unregulated qualified investors requires the appointment of a Swiss representative and a Swiss paying agent. In addition, distributors have to enter into Swiss law governed distribution agreements with the Swiss representative of the respective non-Swiss fund before marketing the fund in Switzerland.
The revised Swiss fund marketing regime applicable to non-Swiss funds not approved by the Swiss Financial Market Supervisory Authority (FINMA) depends on the type of qualified investors that are being targeted in Switzerland. There are two different regimes which apply to the marketing of funds to qualified investors in Switzerland: the fund marketing regime applicable to the distribution of non-Swiss funds to regulated qualified investors on the one hand and the fund marketing regime applicable to the distribution of non-Swiss funds to unregulated qualified investors on the other hand. Under either regime, no approval, registration or notification in Switzerland is required under the CISA. Absent any prior approval by FINMA or exemption available under the CISA, a non-Swiss fund may not be marketed to investors other than qualified investors within the meaning of the CISA. If the non-Swiss fund is structured as a company, the Swiss civil law prospectus rules may also apply if the distribution of the non-Swiss fund in Switzerland qualifies as a public offering for purposes of such prospectus rules. See CapLaw-2010-42 and CapLaw-2011-22.
There are no restrictions on the cross-border marketing of a non-Swiss fund to so-called regulated qualified investors which are entities that are prudentially supervised financial intermediaries (such as banks, securities dealers, fund management companies, asset managers of collective investment schemes and central banks) and regulated insurance companies (Regulated Qualified Investors). The marketing of a non-Swiss fund exclusively to Regulated Qualified Investors falls outside the scope of the CISA and is, as such, not subject to specific marketing restrictions and requirements under the CISA. Thus, there is no requirement for a non-Swiss fund to appoint a Swiss representative and a Swiss paying agent, and no distribution agreements have to be entered into between the relevant Swiss representative and the distributors marketing the non-Swiss fund to Regulated Qualified Investors in Switzerland.
Where a non-Swiss fund is marketed (also) to so-called unregulated qualified investors in Switzerland which include (i) public entities and pension funds with professional treasury management (professional treasury management requires that the relevant entity has entrusted at least one qualifi ed professional with the management of its asset on a permanent basis), (ii) enterprises with professional treasury management, (iii) high net worth individuals who have declared in writing that they wish to be deemed, qualified investors and who fulfi ll certain conditions such as minimum financial assets and technical competences (HNWIs), and (iv) investors who have entered into a discretionary asset management agreement with a regulated financial intermediary or an unregulated independent asset/portfolio manager meeting the relevant requirements under the CISA, its implementing ordinance and guidelines (Independent Asset Manager), provided that they have not opted out in writing (Unregulated Qualifi ed Investors), a Swiss representative and a Swiss paying agent must be appointed, prior to any marketing activities in Switzerland, and distribution agreements have to be entered into between the relevant Swiss representative and each distributor marketing the non-Swiss fund in Switzerland.
For each non-Swiss fund which is marketed (also) to Unregulated Qualified Investors in Switzerland, a Swiss representative and a Swiss paying agent must be appointed. Swiss banks may act both as representative agent (subject to proper licensing) and paying agent.
The duties of the Swiss representative include representing the non-Swiss fund vis-à-vis Swiss-based investors and FINMA. Thus, the Swiss representative is responsible for answering any potential queries or claims raised by FINMA or investors in relation to the distribution of the non-Swiss funds in Switzerland. Also, the Swiss representative has to monitor the distribution activities of the appointed distributor(s) for Switzerland. The Swiss representative has to enter into a Swiss law governed distribution agreement with each distributor appointed to market the non-Swiss fund to Unregulated Qualified Investors in Switzerland.
From a legal perspective, the purpose of appointing a Swiss bank as a Swiss paying agent is to enable Swiss investors to receive and make payments in relation to the units of the non-Swiss fund through a Swiss-based bank. However, in practice, payments are typically directly made with or received from the non-Swiss fund’s custodian or transfer agent, and, accordingly, the Swiss paying agent does typically not play an active role when non-Swiss funds are marketed to Unregulated Qualified Investors.
The Swiss Funds & Asset Management Association (SFAMA) has published a model representation agreement serving as a template for representation agreements.
A distributor based outside of Switzerland may not market non-Swiss funds to Unregulated Qualified Investors unless it is subject to appropriate supervision in its home jurisdiction. There is currently no further guidance on the interpretation of the Swiss concept of “appropriate supervision”. In the opinion of Patrick Schleiffer/Michael Kremer (Reference: CapLaw-2015-17), also a SEC-registered investment manager or a MiFID licensed investment firm should, as a rule, be considered to be a non-Swiss distributor subject to an appropriate foreign supervision and should therefore be permitted to distribute, on a pure cross-border basis, non-Swiss funds to Unregulated Qualified Investors in Switzerland.
Distributors (including non-Swiss based distributors) have to enter into a written Swiss law governed distribution agreement with the relevant Swiss representative of the non-Swiss fund, prior to any marketing activities in Switzerland. This obligation also applies to any sponsor, fund manager or asset/investment manager of the non-Swiss fund or to the fund itself, provided they are also engaged in marketing the fund in Switzerland. Such agreements are typically based on the model distribution agreement issued by SFAMA. Distributors (including non-Swiss based distributors) must agree to exclusively use marketing documentation mentioning the Swiss representative, the Swiss paying agent as well as the place of jurisdiction and to comply with the SFAMA guidelines on the distribution of collective investment schemes (Distribution Guidelines) and the SFAMA guidelines on duties regarding the charging and use of fees and costs (Transparency Guidelines). Both the Distribution Guidelines and the Transparency Guidelines have been declared by FINMA as minimum standards to be complied with when marketing funds in Switzerland.
Non-Swiss funds to be distributed to Unregulated Qualified Investors must use in Switzerland fund documentation mentioning the Swiss representative, the Swiss paying agent, the place of jurisdiction and the place where the relevant fund documents are available free of charge.
In accordance with the Distribution Guidelines and the Transparency Guidelines, certain information on fees and costs as well as on retrocessions and rebates must be disclosed in the relevant fund documentation. Retrocessions refer to any commissions, kickbacks, trailer or finder’s fees that are paid by the fund to distributors. Rebates are payments by funds or their agent directly to investors resulting in a reduction of the fee or cost attributable to the fund. Rebates are permitted, provided that they are granted on the basis of objective criteria. The fund documents must also contain a statement if no retrocessions or rebates will be paid.
In order to comply with the Transparency Guidelines and the regulatory information requirements, SFAMA recently prepared a model annex (Information for investors in Switzerland) serving as a template and covering the required information to be inserted into the fund documentation regarding the Swiss representative and Swiss paying agent, the place of performance and jurisdiction and payments of retrocessions and rebates.
It is untested whether the place of jurisdiction has to be located (as a matter of mandatory Swiss law) at the registered office of the Swiss representative or another venue in Switzerland or whether it can be provided for to be elsewhere (e.g., at the place of the registered office of the fund). According to the view of Patrick Schleiffer/Michael Kremer (Reference: CapLaw-2015-17), there is no sufficient legal basis for mandatory submission of the fund to the courts at the registered office of the Swiss representative or another venue in Switzerland. Thus, it should be permissible under the CISA to provide for a place of jurisdiction at the registered office of the fund, subject to mandatory Swiss conflict of law provisions.
Under the CISA, any form of marketing activities, whether in writing or orally, occurring on a pure cross-border basis or by representatives of the sponsor, fund manager and any other persons involved in the marketing of the fund physically present in Switzerland (e.g., roadshows, investor presentations, term sheets, private placement memorandums, granting access to a virtual data room, draft subscription agreement), which is aimed at marketing a specific fund to Unregulated Qualified Investors constitutes distribution under the CISA and thus triggers the obligation to appoint a Swiss representative and a Swiss paying agent and to enter into distribution agreements prior to marketing activities being conducted in Switzerland.
Conversely, presentations that solely describe the sponsor or the fund or asset/investment manager’s business, services, experience and investment strategy in general and which do not reference a specific fund to be marketed should in in the eyes of Patrick Schleiffer/Michael Kremer (Reference: CapLaw-2015-17) not be considered to constitute a distribution within the meaning of the CISA. Further, the testing of the market for a contemplated future fund should according to them not constitute distribution unless the principle terms are already specified so that the fund can be regarded as ready to be marketed in Switzerland. Also, references to existing funds that are, at such time, no longer open/distributed to investors in Switzerland should not be regarded as a distribution under the CISA.
There are three main exemptions from the revised fund marketing regime that non-Swiss funds and non-Swiss based distributors may rely on when distributing a fund in Switzerland:
Unsolicited request/reverse solicitation exemption: The provision of information and marketing material and the marketing of a non-Swiss fund occurring at the instigation/own initiative of the investor in Switzerland do not constitute distribution of such fund to Unregulated Qualified Investors in Switzerland. However, such reverse solicitation is limited to situations where an investor requires information on or acquires units of a specific fund without preliminary intervention or contact from the sponsor, fund, fund manager, distributor(s) or the Swiss representative. Though through its' nature SMARTMONEYMATCH should fulfill this condition for reverse solicitation and for Switzerland we only allow regulated qualified investors to qualify - at registration - as qualified investors, we still require for offering for qualified investors in Switzerland a Swiss representative agent and paying agent according to the Terms & Conditions point 5.c.X.
Discretionary asset management agreement exemption: The provision of information and marketing material and the marketing of a non-Swiss fund occurring in the context of a written discretionary asset management agreement entered into by the investor with a regulated financial intermediary (such as a bank or an asset manager of collective investment schemes) do not constitute distribution under the CISA.
Advisory agreement exemption: The provision of information and marketing material and the marketing of a non-Swiss fund occurring in the context of a written advisory agreement which complies with the requirements of the CISA, its implementing ordinance and guidelines, entered into by the investor with a regulated financial intermediary are not regarded as distribution under the CISA.
While the discretionary asset management agreement exemption and the advisory agreement exemption is also applicable in the context of a written discretionary asset management agreement or a written advisory agreement entered into between an (unregulated) Independent Asset Manager and its clients, FINMA currently only considers the provision of information and the marketing of a non-Swiss fund by the (unregulated) Independent Asset Manager to its clients (but not any preceding or concurrent marketing activities of the distributors towards the (unregulated) Independent Asset Manager) as exempt from the fund marketing regime for Unregulated Qualified Investors. Thus, in the context of the discretionary asset management agreement exemption and the advisory agreement exemption and in order to completely stay outside the scope of the revised fund marketing regime, non-Swiss funds may only be marketed to regulated financial intermediaries (such as a bank or an asset manager of collective investment schemes) and by them to their clients (which do not have to be Regulated Qualified Investors) with whom the relevant regulated financial intermediary maintains a discretionary asset management agreement or an advisory agreement meeting the requirements of the CISA, provided that the marketing of the fund to such clients is made through the relevant regulated financial intermediary itself (and not by the distributors of the fund directly).
The two-year transitional period applicable to the amended rules for the marketing of non-Swiss funds to Unregulated Qualified Investors in Switzerland under the CISA ended on 28 February 2015. As from 1 March 2015, a Swiss representative and a Swiss paying agent must be appointed, and Swiss law governed distribution agreements between the Swiss representative and the entities distributing the relevant non-Swiss fund in Switzerland must be entered into, prior to marketing such fund to Unregulated Qualified Investors in Switzerland.
It is untested whether a fund has to appoint a Swiss representative and a Swiss paying agent also in case that the fund was marketed to Unregulated Qualified Investors in Switzerland during the transitional period but not after 28 February 2015. According to Patrick Schleiffer/Michael Kremer (Reference: CapLaw-2015-17), in such a situation, no Swiss representative and no Swiss paying agent has to be appointed retrospectively, as there was no distribution (triggering the obligation to appoint a Swiss representative and Swiss paying agent and to enter into distribution agreements) after 28 February 2015.
The revised marketing rules are silent as to whether the agreements with the Swiss representative, the Swiss paying agent and the distributors must also be maintained, if, e.g., a closed-end fund is marketed only one time in Switzerland.