Crossborder Distribution Marketing Communications – CSSF Weighs In
A few weeks lapsed since the updated ESMA Q&A on the application of the UCITS directive created havoc in the industry, by calling for ultimate responsibility of management companies for compliance with the new principles on Crossborder Distribution Marketing Communications. Now the CSSF officially weighs in on the topic with a new ad-hoc Q&A guidance.
Whilst the guidance applies only to Luxembourg domiciled management and investment companies, as well funds, it is nevertheless of extreme interest for the overall additional level of clarity offered on the governance aspects involved in the dynamics of identification and preparation of marketing communications by management companies and investment firms. The CSSF guidance is as interesting also for its reach, which goes beyond the mere marketing communications for investment fund products, capturing also portfolio management and investment advice, as we will see further down.
We expect many more Member States to adopt a similar approach and take a more official stance going forward on the issue of compliance with the new principles on Crossborder Distribution Marketing Communications.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with Crossborder Distribution Marketing Communications.
Governance, Organisation and Delegation
The CSSF guidance on Crossborder Distribution Marketing Communications double-clicks on the governance and organisational aspects related to identification, preparation, validation and reporting on marketing communications for Luxembourg domiciled investment fund managers.
As a general and initial remark, both the identification and preparation of marketing communications falls under the broader marketing procedure, required to be established by fund management companies. Same as the broader marketing function – and any other managerial function for that matter – delegation will also be possible for the specific part of the marketing function related to marketing communications. Contracts for delegation arrangements will have to specify respective obligations on delegates and management companies for what concerns identification and preparation of marketing communications. On this point, the CSSF guidance on Crossborder Distribution Marketing Communication makes it clear that in case of outsourcing to third-parties, management companies can rely on the identification and validation of marketing communications carried out by them, yet ensuring that the function remains under its control, by performing all the sign-off related activities and ensuring adequate senior management involvement. In simpler terms, management companies will have to retain ultimate responsibility for the function, notwithstanding the delegation, with adequate oversight exercised at all times.
The CSSF guidance on Crossborder Distribution Marketing Communications offers also other details on the practical involvement of management companies in the processes related to identification and preparation of marketing communications, should this portion of the marketing function be retained internally and not delegated. Management companies will have to organise any related process in a way to ensure that review of the marketing material is made in accordance with the four-eyes principle, with senior management having to ensure that any marketing material sign-off process is based on that principle. Management companies will also have to ensure proper validation of marketing communications, with emphasis on the consistency between marketing communications and all the legal and regulatory documentation of the fund products at issue.
The new obligations imposed by the Crossborder Distribution Directive on marketing communications will also have to be included within the so-called compliance report, which shall cover accordingly also the monitoring of compliance with these obligations and the related risks.
CSSF Reporting and Top-Up MiFID Services
The CSSF guidance on Crossborder Distribution Marketing Communications clarifies also the aspects related to the reporting to CSSF on marketing communications. On the point, whilst no reporting obligation as such for marketing communications exists, investment fund managers should be prepared to provide specific information to the CSSF upon request. With specific reference to the funds managed, investment fund managers will have to provide CSSF upon request with information on the marketing communications issued, the European member states where these communications have been disseminated as well as the targeted investors.
The reporting obligation is used by the CSSF also to capture portfolio management and investment advice activities, even though explicitly excluded by the Crossborder Distribution Directive. Management companies, which opted for the so-called MiFID top-up license, will be required to provide upon request the CSSF with the same information on the marketing communications issued for these specific MiFID activities as currently required for investment fund products.
Conclusions
As an initial practical step, management companies shall amend their existing marketing procedures. These will have to include now a detailed process for identification of marketing communications and document in details how it is planned to ensure full compliance with the new provisions imposed by the Crossborder Distribution Directive.
The issue of compliance with the new principles on Crossborder Distribution Marketing Communications in our view will be dealt with in a different fashion, depending on the type of management company at issue. Big third-party management companies, already providing an all-encompassing solution also for what concerns licensing coverage of distribution activities, will see this a good opportunity to capitalise on the new requirements and cover also this part of the equation at an additional cost. The CSSF guidance reminds that automation might be helpful in the context of these processes for management companies.
Smaller management companies and investments firms, with less internal resources and specific expertise available, will likely find it easier to delegate the function.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with Crossborder Distribution Marketing Communications.