On 20 September 2022, the CSSF published an FAQ on Cross Border Distribution of Funds - Guidance on Marketing Communication (the “FAQ”) which aims to address a number of key aspects of the application of Article 4 of the regulation 2019/1156 of the European Parliament and of the Council of 20 June 2019 on facilitating cross-border distribution of collective investment undertakings (the “CBDF Regulation”) and the ESMA Guidelines on marketing communications under the CBDF Regulation (the “ESMA Guidelines”). According to Article 4 of the CBDF Regulation marketing communications shall be identifiable as such and shall describe the risks and rewards related to the subscription of shares of an alternative investment fund (“AIF”) or an undertaking for collective investment in transferable securities (“UCITS”) in a similar way and be fair, clear and not misleading. Under the same Article 4, the European Securities Market Authority (the “ESMA”) was entrusted to prepare guidelines in relation to the requirements applicable to marketing communications, which lead to the issue of the ESMA Guidelines.
The key aspects relate to the scope of application of Article 4 of the CBDF Regulation, the governance requirements to be put in place by investment fund managers (“IFM”) and to the information to be provided to the CSSF.
In June 2022, the CSSF also introduced a new E-Desk module – E Passporting, to be used by supervised entities to proceed with marketing notification and de-notification procedures.
Scope of application of Article 4 CBDF
The FAQ clarifies that the requirements related to marketing communications apply:
- To all IFMs in scope of CSSF Circular 22/75 (“In-Scope IFMs”) which are:
- UCITS management companies and authorised AIFMs;
- UCITS or AIF internally managed, meaning those which have not designated a management company or an external AIFM; and
- EuVECA and EuSEF managers.
- To all UCITS, regulated and non regulated AIFs (“Funds”) managed by In-Scope IFMs including non-Luxembourgish Funds;
- When a Luxembourgish or non-Luxembourgish Fund managed by a Luxembourgish IFM is solely notified for distribution in Luxembourg, i.e. outside of a cross-border distribution;
- To all marketing communications addressed to all types of investors or potential investors, even those targeting professional investors.
The FAQ further clarifies that the requirements related to marketing communications do not apply to:
- In-scope IFMs when they act as distributor or intermediary in relation to funds that they do not manage;
- Distributors or intermediaries involved in the distribution of the Funds regardless of whether they are related to the IFMs by a contractual relationship or not; and
- Marketing Communications addressed to investors or potential investors, which are not resident in the European Economic Area (“EEA”).
Governance and organisation rules
The CSSF draws the attention of the industry to the latest version of the ESMA Q&A on the application of the AIFM Directive pursuant to which IFMs “are responsible to ensure compliance with Article 4 CBDF Regulation, irrespective of who is the actual entity marketing the fund and of the relationship it has with the third party distributor (whether it is contractual or not).”
As part as their governance and organisation requirements, the CSSF expects the In-Scope IFMs to identify, prepare, validate, oversee marketing communications and to have relevant procedures in place. In this respect In-Scope IFMs must:
- Implement measures allowing them to identify and flag marketing communications;
- Be involved in the process of preparation and validation of the marketing communications ensuring that a review process based on the four-eyes principle is always applied;
- Implement procedures and arrangements allowing it to ensure compliance of marketing communications with Article 4 of the CBDF Regulation;
- Ensure a proper validation of the consistency between the marketing communications and legal and regulatory documents, as foreseen under Article 4 of the CBDF Regulation and points 18 to 21 of the ESMA Guidelines.
Finally it is worth noting that compliance with Article 4 shall be part of the report of the compliance officer of the In-Scope IFMs and that breaches of compliance have to be reported to the senior management of the In-Scope IFMs.
The CSSF also expects IFMs to update their marketing procedures to take into account the process of identification/flagging of marketing communications.
In-Scope IFMs are also authorised to use delegates, within the group they belong to or a third party, in relation to the preparation and validation of marketing communication.
The delegation will be governed by the same rules regarding delegation of function by In-Scope IFMs and shall be formalised by a contract and adequately overseen by the In-Scope IFMs. In addition, the IFM shall ensure that the governance and organisation requirements above are continuously met.
Information on marketing communications to be provided by IFMs to the CSSF
In relation to provision of marketing communications to the CSSF, the FAQ clarifies that, as of 16 September 2022, the following information shall be provided upon request by In-Scope IFMs and top-up MiFID license IFMs in relation to their discretionary portfolio management and investment advice activities, in relation to the Funds/financial instruments they manage :
- Types of marketing communications used:
- Country(ies) of dissemination of the marketing communications (EEA only); and
- Target Investors.
As from 1 April 2023 In-Scope IFMs must also be able to link the above information to their relevant Fund(s) (or sub-funds) and identify if the marketing communications include information with regards to ESG in the context of the application of Article 13 of SFDR and of the ESMA Supervisory briefing on Sustainability risks and disclosures in the area of investment management.
In addition, the CSSF clarifies that as part of the verifications of the compliance with Article 4 of the CBDF Regulation it may request legal and regulatory documents of the Funds, including PRIIPs KID or the Article 23 AIFMD disclosure and that any non-compliance with the requirements of Article 4 and the ESMA Guidelines is considered as a breach of Article 4.
The CSSF also reminds that Article 4 is applicable since 2 August 2021 and the ESMA Guidelines since 2 February 2022.
E-Desk module – E Passporting
Since 1 July 2022, UCITS, Luxembourg AIFMs and AIFMs managing Luxembourg EuVeca or EuSEF are required to proceed with the marketing notification, de-notification procedures, including any updates, through a new E-Desk module – E passporting. Please see our previous article on this.
The eDesk Portal can be accessed at the following address: https://edesk.apps.cssf.lu/edesk-dashboard/dashboard/getstarted and a User Guide accessible at the following address has also been prepared by the CSSF: Guide utilisateur – eDesk – module ePassporting.