Capital markets and structured investments

The establishment of an investment fund is subject to prior authorization by the CMC.

Authorization requires approval by the CMC of the incorporation documents, the choice of depositary and the management entity's request to manage the Fund.

The marketing of a fund in Australia will normally constitute providing 'financial product advice' and so will be a 'financial service' for the purposes of the Corporations Act 2001 (Cth). That Act provides that, generally, all providers of financial services must hold an AFSL (or be appointed as an authorized representative of another AFSL holder) with an authorization to provide the relevant financial service.

When offering interests in retail funds it is also generally necessary to prepare a PDS.

Exemptions

There are a number of very limited exemptions from the need to obtain an AFSL or to act under an authorization from another AFSL in order to market a fund in Australia. These exemptions generally only apply when the fund is marketed solely to wholesale investors. For example:

• Certain foreign financial services providers who are regulated in jurisdictions that ASIC considers to have a regulatory framework sufficiently similar to the Australian regime (such as the UK, US, Singapore, Hong Kong and Germany) may be eligible to apply for relief from licensing to enable them to market funds to Australian 'wholesale' investors².
• An exemption applies where the marketing is done in Australia to a prospective investor which itself holds an AFSL and is not acting as a trustee or on behalf of another person (as Australian superannuation funds and Australian fund managers offer their products to their Australian investors through trusts, this limits the exemption to true proprietary investors which commonly do not have an AFSL as they are not usually required to hold one).
• An exemption applies where a prospective Australian investor makes enquiries of a foreign fund manager without any prior solicitation by the foreign fund manager, and the foreign fund manager does not during this time actively solicit persons in Australia in respect of the relevant fund (other than in response to the enquiry initiated by the Australian investor or by the Australian investor's agent).

² ASIC is currently conducting a consultation process to formalise this exemption into a foreign financial services licence for foreign financial services providers. ASIC has proposed a prospective commencement date of 1 April 2020, however this is subject to the finalisation of the draft instruments proposed by ASIC. 

The marketing of funds is generally covered under the Undertakings for Collective Investment in Transferable Securities (UCITS) or under the Alternative Investment Funds Managers Directive (AIFMD) regime.

UCITS, including those established in Belgium, have an EU passport which enables fund promoters to create a single product for marketing in all EU member states and on the completion of the appropriate notification procedure, a UCITS established in one member state can be sold in any other.

A UCITS intending to market in another member state must complete and submit to its home regulator a notification including certain specified information, including copies of key investor information documents. The home regulator then completes a notification file which is sent in a regulator to regulator transmission, following which the UCITS can be sold in the other member state.

Under AIFMD, marketing is defined as a direct or indirect offering or placement at the initiative of AIFM or on behalf of the AIFM of units or shares in an AIF it manages to or with investors domiciled or with a registered office in the EU.

An AIFM may only market an AIF to EU investors if it is authorized by a relevant EU regulator – registration with one EU regulator opens access, subject to certain further limited conditions, to marketing to professional investors across the EU under a EU passport or if it complies with national private placement regimes (where available).

As the AIFMD’s passport regime for the marketing of non-EU AIFs by EU AIFMs and the marketing of AIFs by non-EU AIFMs, is not yet available, Articles 36 and 42 of the AIFMD allow the member states to permit such marketing if certain conditions are met. The Belgian legislator has decided to implement Articles 36 and 42 of the AIFMD. The private placement regime is therefore still available in case a passport is not yet available.

In accordance with Article 68 of the AIFMD, these grandfathering rules and the private placement regime in Belgium will be abolished on a date to be determined by the European Commission. It is expected that this abolition will not take place before the end of 2018.

In addition to these two laws, a number of other regulations have impacted the way that funds can be distributed in Belgium. These include the:

• Belgian moratorium on the marketing of particularly complex products to non-professional clients (which prohibits or limits the marketing of certain funds by distributors that have acceded to the moratorium);
• Royal Decree of 25 April 2014 on certain information requirements when marketing financial products to non-professional clients (which adopts a ‘transversal’ approach towards financial products); and
• Royal Decree of 24 April 2014 approving the regulation of the FSMA on the ban on the distribution of certain financial products to retail clients.

The distribution of quotas of funds (both open-ended or closed-ended) may only be done by entities authorized to operate in the securities distribution system in Brazil (eg brokers or investment banks).

The distribution of quotas of open-ended funds does not require advance registration with the Brazilian Securities Commission (CVM). However, the public distribution of quotas of closed-ended funds do require the previous registration with CVM and must comply with all the formalities applicable to public offer of securities in Brazil.

In any event, marketing materials of any type of funds in Brazil have to follow the applicable regulation of CVM, in particular Instruction No. 555.

Retail funds can be marketed by registered dealers. Mutual funds are typically distributed to retail investors by either:

• investment dealers; or
• mutual fund dealers.

Exempt market dealers can also market prospectus qualified, open-ended funds to eligible investors under a prospectus exemption. The most common prospectus exemption is the accredited investor exemption. Under this prospectus exemption, securities can be distributed to a purchaser that qualifies as an accredited investor, including:

• an individual who alone or with a spouse has either CA$1 million in financial assets or CA$5 million in net assets;
• an individual who had net income before taxes exceeding CA$200,000 in each of the two most recent calendar years (or CA$300,000 when combined with income of a spouse);
• a Canadian financial institution or Schedule III bank;
• an advisor or dealer;
• the Government of Canada or a jurisdiction of Canada (including crown corporations and agencies);
• a municipality, public board or commission in Canada;
• certain pension funds; and
• certain investment funds.

Institutional investors that are ‘permitted clients’ may be less relevant for retail funds but are the focus of hedge and non-resident funds.

A firm registered as an investment dealer or mutual fund dealer must generally be a member of a self-regulatory organization. Investment dealers must generally become members of the Investment Industry Regulatory Organization of Canada (IIROC). Mutual fund dealers must generally become members of the Mutual Fund Dealers Association of Canada (MFDA).

Registered dealers, including mutual fund dealers, are subject to ‘know your client’ (KYC), ‘know your product’ (KYP) and suitability requirements that are collectively intended to ensure that purchases of securities are not incompatible with the client's circumstances, risk tolerance and investment goals.

Under KYC requirements, dealers must take reasonable steps to establish the identity of a client and to ensure that they have sufficient information to meet their suitability obligation. Under suitability requirements, a dealer must obtain, understand and is expected to explain how a proposed investment is suitable for the client in light of the client's investment needs and objectives, including the client's:

• time horizon for its investments;
• financial circumstances (including net worth, income, current investment holdings and employment status); and
• risk tolerance for various types of securities and investment portfolios, taking into account the client's investment knowledge.

Registrants must conduct their own product due diligence and be able to explain to clients the security's:

• risks;
• key features; and
• initial and ongoing costs and fee.

Marketing restrictions depend on the type of fund. Private investment funds may not make public offering of their quotas. Mutual and regulated investment funds are entitled to make public offering of their quotas.

Please note that funds’ ownership (funds in Chile are not corporations, but a pool of assets) are not represented by shares (as in LPs or LLCs), but by quotas instead. That is why investors are commonly referred to as ‘quota holders’.

No, there are no restrictions on marketing a fund. However, the marketing of a fund is carried out by the management company of the fund and/or by the general partner.

Under Czech Law, offering securities was formerly covered by either the Act No. 189/2004 Coll., on Collective Investment or the Act No. 591/1992 Coll., on Securities. Both of these Acts have, however, been replaced in the process of recodification in 2014 and the offer of securities is since been included in the Act on Investment Companies and Investment Funds. The definition of securities itself is in the Czech Civil Code.

Undertakings for Collective Investments in Transferable Securities (UCITS)

In the Czech Republic, standard funds (ie mutual funds or investment funds with variable capital) are considered UCITS.

Alternative Investment Funds (AIFs)

A management company which decides to distribute securities or equity participations in AIFs or European AIFs it manages in another member state, is required, prior to the commencement of such activity, to notify its intention to the Czech National Bank.

Several acts regulate marketing a fund; the Mutual Funds Act as well as the Act on Alternative Investment Managers regulate specifically the marketing of funds. Further, the Consumer Protection Act regulates all marketing directed at consumers and the Unfair Business Practices Act regulates marketing in general. All these regulations shall be taken into account when marketing a fund, as applicable.

The Finnish Financial Supervisory Authority (FIN-FSA) has also given instructions and regulations on marketing funds. These instructions contain, amongst other things, information on:

• what kind of language shall be used in marketing (a non-professional investor should be able to understand the language that is used);
• how comparisons between different funds shall be made; and
• how the funds shall be identified in marketing.

Undertakings for Collective Investments in Transferable Securities (UCITS) funds

The management company may not begin to market the units in a common (UCITS) fund to the public or receive funds from public into the common fund before the fund rules have been confirmed by the FIN-FSA.

A UCITS fund manager from another EEA country may market units in such fund in Finland if the competent authorities of its home Member State have submitted to the FIN-FSA a notification of the commencement of marketing.

Special Common Funds and other alternative investment funds (AIFs)

The management company may not market units in a special common fund or receive money to the fund before the board of directors of the fund management company has approved the rules and the FIN-FSA has been notified of the rules and the commencement of marketing of the fund.

The alternative investment fund manager may market the units in an AIF managed by after a notification to the FIN-FSA as regards the AIF and receipt of a notification from the FIN-FSA regarding the same. The same applies also to the marketing by an investment firm of the AIF units. However, subject to certain exceptions as to e.g. family offices and business angel investors, the units in an AIF may be marketed to non-professional investors in Finland only if the fund manager has been authorized, the rules and a key investor information document (KIID) have been prepared for the fund and all the required documents and information has been provided to the FIN-FSA.

The manager of an AIF from another EEA country or from a third country may market its units in Finland when it has submitted to the FIN-FSA a notification of the commencement of marketing and received a notification from the FIN-FSA regarding the same.

Reverse solicitation and the definition of ‘marketing’

‘Marketing’ is not defined in the Act on Alternative Investment Fund Managers. In the relevant government Bill, it has been viewed that in order to qualify an action as ‘marketing’, it has to be made by the alternative investment fund manager (AIFM) or on its behalf and it has to contain the offering of the units in an alternative investment fund managed by it. The offering can be direct or indirect.

It has been held in the government Bill that an action which does not include offering of units cannot be seen as marketing and, consequently, actions taken by the AIFM or on its behalf to map the interest of investors to invest in a certain type of investment (‘soft circling’) would not be qualified as marketing. Further, actions directed towards professional investors, which do not aim to a binding subscription to the fund units, should not be labelled as marketing in the context of the Act. These can include for example road shows initiated by the AIFM, provided such events do not include a specific sale or purchase offer of the AIF units (although comparable events initiated by issuers or investment service providers may qualify as marketing of securities). In addition, reverse soliciting ie the investor contacting the AIFM and the AIFM providing information on different investment opportunities, should not be seen as marketing.

Provision of offering documents related to an established fund managed by the AIFM is considered as negotiations on the terms of an investment and subject to prior FIN-FSA notification. Provision of various agreements related to a fund which has not been established yet does not, however, require that the AIFM must adhere to the provisions of law regarding marketing. When a binding subscription is made, the AIFM must be able to demonstrate that it has adhered to the marketing provisions of the AIFM Act and duly made a notification to the FIN-FSA.

French selling restrictions

Generally in France, offering securities or interests in alternative investment funds (AIFs) is covered under the Monetary and Financial Code (Code monétaire et financier) and the General Regulation of the AMF, which implement in French law the Undertakings for Collective Investment in Transferable Securities Directive and the Alternative Investment Fund Managers Directive.

Undertakings for Collective Investments in Transferable Securities (UCITS)

UCITS, including those established in France, have an EU passport which enables fund promoters to create a single product for marketing in all EU member states and on the completion of the appropriate notification procedure, a UCITS established in one member state can be sold in any other.

A UCITS intending to market in another member state must complete and submit to its home regulator a notification including certain specified information, including copies of key investor documents. The home regulator then completes a notification file which is sent in a regulator-to-regulator transmission, following which the UCITS can be sold in the other member state.

Alternative Investment Funds (AIFs)

An alternative investment fund manager (AIFM) may only market an AIF to EU investors if it is authorized by a relevant EU regulator – registration with one EU regulator opens access, subject to certain further limited conditions, to marketing to professional investors across the EU under a EU passport or if it complies with national private placement regimes (where available).

Reverse solicitation and the definition of ‘marketing’

The act of marketing AIFs consists in presenting the products on French territory by different means (advertising, direct marketing, advice, etc) with a view to encouraging an investor to subscribe to or purchase such AIFs. If units or shares of AIFs are marketed as defined above, those units or shares are considered as being marketed in France and the manager of the AIF must comply with the legal and regulatory framework applicable to the marketing of AIFs (eg Financial Markets Authority (Autorité des Marchés Financiers) (AMF) authorization or EU passport).

The AMF expressly considered in its AIF marketing guidelines that the purchase, sale or subscription of units or shares of an AIF in response to a client’s unsolicited request to purchase a specifically designated AIF, provided that the client is authorized to do so, would not be considered as an act of marketing in France (Reverse Solicitation). Any entity wishing to rely on the Reverse Solicitation exception should document all of its communications with potential investors.

Yes.

The marketing must comply with the detailed marketing rules set out in the German Capital Investment Code (Kapitalanlagegesetzbuch – KAGB). Generally, there are different rules with regard to the marketing of funds depending in particular on the type of fund, the type of investors and the domicile of the fund/fund manager.

An advertisement for the marketing of a fund generally may only be made by a person licensed or authorized by the Securities and Exchange Commission. It must not be unclear, false or misleading and must comply with the Security and Exchange Commission Regulations, 2003 (LI 1728). 

In relation to mutual funds and unit trusts, an invitation to the public to acquire shares or units is prohibited without a license from the Securities and Exchange Commission. The advertisement must be approved in writing by the trustee of the unit trust or board of directors of the mutual fund by a duly passed resolution and reproduce the approved scheme particulars or, where applicable, indicate where the scheme particulars may be obtained and the most recently published issue, sale, and repurchase or redemption price of an interest. An advertisement must also include a statement that an investor’s right to redeem the investor’s interests in certain circumstances may be suspended by the Securities and Exchange Commission. LI 1695 sets out additional details to be provided with regards to any investment plan advertised.

Undertakings for Collective Investments in Transferable Securities (UCITS)

UCITS, including those established in Hungary, have an EU passport which enables fund promoters to create a single product for marketing in all EU member states and on the completion of the appropriate notification procedure, a UCITS established in one member state can be sold in any other.

A UCITS intending to market in another member state must complete and submit to its home regulator a notification including certain specified information, including copies of key investor documents. The home regulator then completes a notification file which is sent in a regulator-to-regulator transmission, following which the UCITS can be sold in the other member state.

Alternative Investment Funds (AIFs)

Under the Alternative Investment Fund Managers Directive, marketing is defined as: a direct or indirect offering or placement at the initiative of the Alternative Investment Fund Manager (AIFM) or on behalf of the AIFM of units or shares in an AIF it manages to or with investors domiciled or with a registered office in the EU.

An AIFM may only market an AIF to EU investors if it is authorized by a relevant EU regulator – registration with one EU regulator opens access, subject to certain further limited conditions, to marketing to professional investors across the EU under an EU passport or if it complies with national private placement regimes (where available).

Reverse solicitation and the definition of ‘marketing‘

The Alternative Investment Fund Managers Directive generally continues to permit professional investors who wish to invest in AIFs based on their own initiative (reverse solicitation); however, the EU is currently reviewing this area during 2017 and may impose more stringent requirements.

Specifically in Hungary, Act XVI of 2014 on Collective Investment Trusts and Their Managers, and on the Amendment of Financial Regulations defines marketing as a direct or indirect offering or placement at the initiative of the investment fund manager or on behalf of the investment fund manager of collective investment instruments of a collective investment trust it manages for investors domiciled, or with a registered office, in the EU.

Irish selling restrictions

Generally, in Ireland, offering securities is either covered under the Central Bank's marketing regime, the UCITS regime or the AIF regime.

Undertakings for Collective Investments in Transferable Securities (UCITS)

UCITS, including those established in Ireland, have an EU passport which enables fund promoters to create a single product for marketing in all EU Member States and on the completion of the appropriate notification procedure, a UCITS established in one member state can be sold in any other.

A UCITS intending to market in another Member State must complete and submit to its home regulator a notification, including certain specified information, as well as copies of key investor documents. The notification procedure between competent authorities is transmitted on an electronic basis and contains information in relation to the marketing requirements of the host Member State, as well as the latest versions of the UCITS documents. The home regulator then completes a notification file which is sent in a regulator-to-regulator transmission, following which the UCITS can be sold in the other Member State.

With the exception of certain classes of AIFs established in Guernsey, Jersey and the Isle of Man, a non-Irish AIF proposing to market their units in Ireland to retail investors (a RIAIF) must make an application to the Central Bank of Ireland for authorization, enclosing certain prescribed information, in order to ensure the protection of unitholders and (in the opinion of the Central Bank of Ireland) provide an equivalent level of investor protection to that provided under Irish laws, regulations and conditions governing RIAIFs.

Alternative Investment Funds (AIFs)

Under the AIFMD, marketing is defined as “a direct or indirect offering or placement at the initiative of the Alternative Investment Fund Manager (AIFM) or on behalf of the AIFM of units or shares in an AIF it manages to or with investors domiciled or with a registered office in the EU.”

The passporting procedure under the AIFMD is similar to that which exists for UCITS funds in the EEA. An AIFM may only market an AIF to EU investors if it is authorized by a relevant EU regulator – registration with one EU regulator opens access (subject to certain limited conditions) to marketing to professional investors across the EU under an EU passport or if it complies with national private placement regimes (where available). There is no need for additional authorization but there must be a notification letter for each EEA Member State in which the AIFM wishes to market its shares or units to professional investors. 

For passporting purposes, an investor must meet the definition of professional client set out in the Markets in Financial Instruments Directive (2014/65/EU) (MiFID). According to MiFID, a professional client is a client who possesses the expertise, knowledge and experience to make its own investment decisions and properly assess the risks that it incurs. Furthermore, in the case of an AIF structured as a master/feeder, the master must be domiciled in the EEA in order to avail of the passport. 

Reverse solicitation and the definition of marketing

Reverse solicitation or “passive marketing” is marketing that is not at the direct or indirect initiative of the fund manager. Applicable in the context of professional investors, it is a sensitive area in Ireland and across Europe generally. AIFMD generally continues to permit professional investors who approach an AIF based on their own initiative (i.e. a reverse solicitation). However, many commentators argue that reverse solicitation may constitute marketing under AIFMD and caution should be exercised if seeking to rely on the reverse solicitation argument.

Notwithstanding that the definition of marketing is very broad for the purposes of the AIFMD, no additional guidance on the concept is provided by the Central Bank of Ireland, leaving the definition open to interpretation. Most Member States have chosen not to provide guidance, but the UK Financial Conduct Authority (FCA) has done so, stating that marketing will occur when: “a person seeks to raise capital by making a unit or share of an AIF available for purchase by a potential investor. This includes situations which constitute a contractual offer that can be accepted by a potential investor in order to make the investment and form a binding contract, and situations which constitute an invitation to the investor to make an offer to subscribe for the investment” (FCA Handbook).

The AIFM would be well advised to consider at a minimum whether it had, for example, followed up with prospective investors following a marketing event or whether it had been in correspondence with prospective investors in a manner which could be construed as an “indirect” offering. Any AIFM seeking to rely on the reverse solicitation argument would also need to take care in preparing offering materials and marketing documentation, to include web-based platforms, to ensure that appropriate selling restrictions are specifically set out. Individual legal advice on a case-by-case and jurisdiction-by-jurisdiction basis should be sought, and it would be necessary to ensure that procedures and policies are put in place to clearly demonstrate that a particular EU investor invested in the fund on the basis of reverse solicitation.

If a manager is unwilling to rely on reverse solicitation, then the only alternative at present for such managers is to market in accordance with existing private placement regimes.

Packaged Retail and Insurance-based Investment Products (PRIIPs)

Packaged Retail and Insurance-based Investment Products are also common in the Irish market. Regulation (EU) No 1286/2014 on PRIIPS (the PRIIPS Regulation) introduced an obligation on all persons who manufacture, advise on or sell PRIIPs to retail investors (i.e. any person who does not fall within the definition of “professional client” under MiFID), to produce a pre-sale disclosure document known as a Key Information Document (the PRIIPs KID) to the retail investor in advance of them making their investment decision. Packaged investment products that are within the scope of the PRIIPS Regulation include life insurance investment products, investment funds, structured deposits and derivative instruments. Accordingly, RIAIFs, QIAIFs and UCITS are all capable of falling within the definition of a PRIIP for the purposes of the PRIIPS Regulation.

Similar to the UCITS KIID (Key Investor Information Document), the PRIIPs KID aims to explain the main features of risk, reward and costs to the retail investor in a concise document. Any PRIIPs KIID must be updated annually, but may also need to be revised more frequently if changes are made to the produce which impact the information disclosed in the PRIIPs KID.

At present, UCITS can continue to provide a UCITS KIID to investors and will not have to provide a PRIIP KID until January 1, 2022.

Italy selling restrictions

The offer of securities in Italy is covered under the CONSOB financial promotion regime provisions, respectively implementing Undertakings for Collective Investment in Transferable Securities Directive regime and Alternative Investment Fund Managers Directive regime.

Undertakings for Collective Investments in Transferable Securities (UCITS)

UCITS, including those established in Italy, have an EU passport which enables fund promoters to create a single product for marketing in all EU member states and, on the completion of the appropriate notification procedure, a UCITS established in one member state can be sold in any other.

A UCITS intending to market in another member state must complete and submit to its home regulator a notification including certain specified information, including copies of key investor documents. The home regulator then completes a notification file which is sent in a regulator-to-regulator transmission, following which the UCITS can be sold in the other member state.

Alternative Investment Funds (AIFs)

Under the Alternative Investment Fund Managers Directive, marketing is defined as: a direct or indirect offering or placement at the initiative of the Alternative Investment Fund Manager (AIFM) or on behalf of the AIFM of units or shares in an AIF it manages to or with investors domiciled or with a registered office in the EU.

An AIFM may only market an AIF to EU investors if it is authorized by a relevant EU regulator – registration with one EU regulator opens access, subject to certain further limited conditions, to marketing to professional investors across the EU under a EU passport or if it complies with national private placement regimes (please note that NPPR has not been yet implemented in Italy).

Reverse solicitation and the definition of 'marketing'

In general terms, reverse enquiry mechanisms refer to situations in which clients contact managers, on their own initiative, in order to subscribe for units or shares of a fund, and no placement or marketing activity are performed by the managers towards such clients.

Italian law and regulation does not contain specific provisions on the reverse solicitation scheme. The qualification of the operation as a 'genuine' reverse solicitation, in this sense, will derive from an assessment, made by the competent Italian supervisory authorities, of the procedural and documentary evidences underlying the transaction. More precisely, the Italian supervisory authorities, in order to prove the legal construction of the reverse inquiry, adopt a stringent ‘substance over form’ approach.

In relation to the definition of 'marketing', the Consolidated Financial Act defines this as 'the offer, also indirect, on the initiative or on behalf of the manager, of the AIF units and shares managed, addressed to resident investors or those with a registered head office in the EU'.

Marketing is a proposition for the acquisition of investment products. It is, mostly, dealt with under the concept of solicitation.

Individuals intending to conduct public solicitation activities (business providers, direct sellers) are required to obtain a professional card issued by the Regional Council (General Regulation of the CREPMF, Article 108: The solicitation of the public).

Financial institutions, such as banks, wealth management companies, management and intermediation companies (SGI), business providers, individual or legal persons authorized for that purpose, are allowed, as of right, to have recourse to solicitation after reporting to the Regional Council (Article 155).

Solicitation of the WAMU’s public by a non-resident entity, or on behalf of it, to propose the acquisition of investment products is subject to prior authorization of the Regional Council and the assent of BCEAO (General Regulation, Article 176).

Reverse solicitation: is not specifically provided for under the applicable rules and regulations.

Prospective investors do, sometimes, make the first move, take the initiative to contact investors for potential acquisition of financial products. The financial entity needs to have evidence that the potential investor solicited them.

An offer of fund interests is categorized either as a private placement or a public offering under the Financial Instruments and Exchange Act. A public offering of fund interests refers to an acquisition of fund interests by 500 or more investors as a result of solicitation. In a public offering, the Securities Registration Statement via the Electronic Disclosure for Investors' NETwork (EDINET) requires the offeror to deliver a prospectus to investors who wish to purchase the securities prior to solicitation. When the company files the Security Registration Statement or submits the Shelf Registration Form, periodic disclosure requirements will be triggered. These obligations include the filing of an Annual Securities Report.

The marketing of funds is regarded as a sale of financial instruments under the Act on Sales of Financial Instruments. The act requires a firm marketing funds to establish a solicitation plan which ensures the appropriateness of sales activities and to fulfil a firm's duty to disclose to investors any risk pertaining to the funds.

The execution of agreements to purchase fund interests is designated as a transaction requiring the use of anti-money laundering measures. In particular, the firm marketing the funds must confirm the investor’s identity, objective in transacting, business scope and the identity of any substantial controllers (i.e. a shareholder owning 25% or more of all shares). Records confirming this information must be kept for seven years. The parties must also report any suspicious transaction which might involve criminal proceeds to the relevant administrative agency.

Undertakings for Collective Investments in Transferable Securities (UCITS)

Luxembourg Undertakings for Collective Investments in Transferable Securities (UCITs) may be offered for sale in Luxembourg without any restriction (private or public offer, institutional clients or not and whatever their number) as soon as they are registered on the official list of UCITs of the Commission de Surveillance du Secteur Financier.

Alternative Investment Funds (AIFs)

Under the Alternative Investment Fund Manager Directive, marketing is defined as a direct or indirect offering or placement at the initiative of the Alternative Investment Fund Manager (AIFM) or on behalf of the AIFM of units or shares in an AIF it manages to or with investors domiciled or with a registered office in the EU.

An AIFM can only market an AIF to EU investors if it is authorized by a relevant EU regulator – registration with one EU regulator opens access, subject to certain further limited conditions, to marketing to professional investors across the EU under a EU passport or if it complies with national private placement regimes (where available).

Offering securities is covered by the Securities Act 2005 and guidelines for the advertising and marketing of financial products issued by the Financial Services Commission. 

Offering to the public 

By virtue of the Securities Act 2005, no person shall make an offer of securities to the public unless: 

• the entity whose securities are being offered is in existence at the time of the offer;
• the offer is made in a prospectus that complies with the Securities Act 2005; and
• the Financial Services Commission has given a provisional registration to the prospectus. 

Solicitation 

Under the Securities Act 2005, solicitation is widely defined. 

No person other than the holder of an investment dealer license or an investment advisor, shall solicit another person to enter in securities transactions. 

A person shall be deemed to solicit another person where they induces another person to buy, sell or exchange securities or to participate in transactions involving securities or offers persons services, recommendations or advice for those purposes by: 

• seeking to meet such person at their place of residence, work or public places;
• contacting such person by telephone, letters, circulars, the internet or other electronic means or telecommunication system; or
• publishing or causing an advertisement to be published or circulated. 

Guidelines for the Advertising and Marketing of Financial Products 

The Financial Services Commission has also provided Guidelines for the Advertising and Marketing of Financial Products, which regulates advertisements in connection with the conduct of an activity or the provision of a service which requires a license, approval, authorization or registration.

Investment funds can be marketed by management companies, insurance companies, brokers, brokers' dealers and distributors. These entities must be authorized to market the funds.

The marketing of the investment fund management companies must be clear to avoid confusion and allow for simple interpretation. The broadcasting of announcements with ambiguous information is forbidden. The advertising material must not contain any false information, omission, ambiguity, hyperbole or deception, which might induce the public to make wrong or inaccurate conclusions about the products and services offered by the mutual fund managers.

Although its approval is not required, marketing material must be sent to the National Banking and Securities Commission (CNBV). The Association of Securities Intermediaries (Asociación Mexicana de Intermediarios Bursátiles) (AMIB) can also comment on marketing material.

The marketing of a fund's products may be carried out by banks, management companies, brokerage firm or the deposit and management fund.

Yes.

Funds may only be marketed in the Netherlands once an authorization has been obtained. Furthermore, certain detailed marketing requirements may apply if marketing is targeted at retail investors (eg restrictions in relation to cold calling).

Marketing of retails funds is strictly regulated under the Financial Markets Conduct Act 2013. Disclosure documents must comply with heavily prescribed regulatory requirements, and a great deal of information must be placed on the public register.

Yes.

The units of a fund can be marketed by investment firms, licensed alternative investment fund managers or securities funds as well as banks to a certain extent. Other regulated entities may also be entitled to market units in a fund in cooperation with the manager.

The Securities Fund Act of 2011 and the Alternative Investment Fund Managers Act of 2014 set out the marketing regimes applicable for funds. They also provide exemptions for some of these marketing requirements where marketing is aimed at professional investors. In addition, the laws differentiate between securities' funds and alternative investment funds (AIF). AIFs are more suited for professional investors, therefore there are restrictions in relation to the marketing of such funds to non-professional investors. Where the AIF fund is marketed to professionals and it is below certain set fund thresholds, then a marketing permit from the Norwegian Financial Supervisory Authority is not needed. Where marketing is done towards non-professional investors, then the management is required to apply for a special marketing license.

The Undertakings for Collective Investments in Transferrable Securities (UCITS) directive has been incorporated into Norwegian legislation. This enables fund promoters to create a single product for marketing in all EU member states and on the completion of the appropriate notification procedure, a UCITS established in one member state can be sold in any other. A UCITS intending to market in another member state must complete and submit to its home regulator a notification which must include certain specified information, including copies of key investor documents. The home regulator then completes a notification file which is sent in a regulator-to-regulator transmission, following which the UCITS can be sold in the other member state.

No, there are no limits or restriction on marketing a fund, except for common law principles applicable to all services and products that are offered in the market. The marketing must be done directly by the Fund Management Company or an authorized promotor (such as a brokerage firm representative).

Selling restrictions

Generally, offering securities or units of funds in Poland is covered under the Act on Public Offerings and the Act on Investment Funds.

Undertakings for Collective Investments in Transferable Securities (UCITS)

UCITS, including those established in Poland, have an EU passport which enables fund promoters to create a single product for marketing in all EU member states. Upon the completion of the appropriate notification procedure, a UCITS established in one member state can be sold in any other member state of the EU.

A UCITS intending to market in another member state must complete and submit to its home regulator a notification including certain specified information, including copies of key investor documents. The home regulator then completes a notification file which is sent in a regulator-to-regulator transmission, following which the UCITS can be sold in the other member state.

Alternative Investment Funds (AIFs)

Under the Alternative Investment Fund Managers Directive, marketing is defined as: a direct or indirect offering to or placement with investors domiciled or with a registered office in the EU of units or shares in an Alternative Investment Fund (AIF) at the initiative of the Alternative Investment Fund Manager (AIFM) or on behalf of the AIFM that manages the AIF.

An AIFM may only market an AIF to EU investors if it is authorized to do so by a relevant EU regulator. Subject to certain conditions, registration with one EU regulator allows marketing to professional investors across the EU under an EU passport or if it complies with national private placement regimes (where available).

Reverse solicitation and the regulation of ‘marketing’

Applicable in the context of professional investors, this is a sensitive area in Poland and Europe generally. The Alternative Investment Fund Managers Directive generally continues to permit professional investors to invest in Alternative Investment Funds based on their own initiative (reverse solicitation); however, the EU is currently reviewing this area and may impose tighter requirements.

In Poland, the Polish Financial Supervisory Authority (PFSA) has provided general guidelines on marketing for investment funds. The guidelines are not binding but they provide a framework for operating within the law. According to the Investment Funds Act, the PFSA can impose financial sanctions on a fund that is operating contrary to fair marketing rules.

An offer of securities is generally governed by the Securities Act and Legal Regime on Undertakings for Collective Investment in Transferable Securities.

Under the Securities Act, a firm is considered to market securities when an offer of securities:

• is directed at undetermined addressees;
• is preceded or accompanied by the gathering of investment intentions of undetermined addressees or marketing campaigns;
• is directed at a minimum of 150 investors; or
• is not exclusively directed to qualified investors.

Four types of entity are permitted to market funds:

• management entities;
• depositaries;
• financial intermediaries registered or authorized by the Portuguese Securities Market Commission to conduct the relevant activities, the placement, reception and transmission of orders on behalf of third parties; and
• other entities as authorized by Portuguese Securities Market Commission regulations.

Foreign funds may also be marketed in Portugal if duly authorized. Management entities authorized by another EU member state and which are subject to regulation by the relevant authority of that member state may, in principle, freely market funds under the principle of the free movement of services. Management entities not authorized by a EU member state are subject to a previous tight authorization process from Portuguese Securities Market Commission to market funds in Portugal.

There are restrictions on offering and selling securities of a fund under both Puerto Rican and US federal laws.

Unless certain exclusions or exemptions apply, it is unlawful to offer debt securities to the public in Puerto Rico unless an approved prospectus has been made available to the public. This prospectus needs to be approved by the Office of the Commissioner of Financial Institutions of Puerto Rico (OCFI) or the US Securities and Exchange Commission. In the case of investment companies under the Investment Companies Act of 2013 the prospectus needs to be approved by the OCFI pursuant to the disclosure requirements under such act and its accompanying regulation. The same is applicable to investment companies under the US Investment Company Act of 1940, where the prospectus needs to be approved by the SEC pursuant to the disclosure requirements under such act and its accompanying regulations.

Undertakings for Collective Investments In Transferable Securities (UCITS)

In the case of UCITs, marketing materials addressed to investors can only be made public following the approval by the Financial Supervisory Authority (FSA) of the prospectus and its publication.

UCITS authorized in an EU member state intending to market in Romania must complete and submit to its home regulator a notification including certain specified documents. The home regulator then completes a notification file which is sent in a regulator-to-regulator transmission, following which the UCITS can be sold in Romania.

Alternative Investment Funds (AIFs)

AIFs which are closed-ended investment funds attracting financial resources publicly can be marketed to the public following their registration with the FSA and following the FSA's approval.

Closed-ended investment funds which attract financial resources privately and are managed by an AIFM are not allowed to distribute any promotional materials to the public.

An AIFM authorized in an EU member state may distribute and market AIFs from an EU member state in Romania to professional investors on the basis of its authorization by the relevant EU member state regulator, under an EU passport. The distribution of participative titles in AIFs, as well as the marketing of those AIFs in Romania are subject to the passporting formalities which mainly require that the FSA is notified by the AIFM home member state regulator of the intention of the AIFM to distribute in Romania participative titles of AIFs from an EU member state.

As regards distribution and marketing to retail investors, in addition to the passporting formalities above, it is required that AIFs which are marketed in Romania comply with the Romanian legislation which sets up investment limits, reporting, transparency and marketing obligations applicable to Romanian AIFs which attract financial resources publicly.

Federal Law 'On Advertising' sets requirements for the advertising (that is, the distribution of information addressed to the general public and intended to draw attention to an object of advertising, to form or keep up an interest to it or to market it in any form) of financial services or financial activities of a fund or the advertising of securities, such as a prohibition on the inclusion of information about the assets management that is not supported with documentary evidence, as well as the guarantees of future stability and / or profitability of the investments, unless it can be clearly defined at the time of agreement for using such financial services.

Russian law also prohibits offering foreign securities and foreign financial instruments that are not admitted for public placement/circulation in Russia to an unlimited group of persons, or to persons who are not qualified investors.

Marketing is generally defined as the proposition to acquire investment products. Under the CREPMF and WAMU systems, it is, mostly, dealt with through the concept of solicitation.

Individuals intending to conduct public solicitation activities (business providers, direct sellers) are required to obtain a professional card issued by the Regional Council (General Regulation of the CREPMF, Article 108: The solicitation of the public).

Financial institutions, such as banks, wealth management companies, management and intermediation companies (SGI), business providers, individual or legal persons authorized for that purpose, are allowed, as of right, to have recourse to solicitation after reporting to the Regional Council (Article 155).

Solicitation of the WAMU’s public by a non-resident entity, or on behalf of it, to propose the acquisition of investment products is subject to prior authorization of the Regional Council and the assent of BCEAO (General Regulation, Article 176).

Reverse solicitation is not specifically provided for under the applicable rules and regulations.

Prospective investors do, sometimes, make the first move, take the initiative to contact investors for potential acquisition of financial products. The financial entity needs to have evidence that the potential investor solicited them.

Fund management companies (FMC) must either be a licensed fund management company which has obtained a capital markets services license under the Securities and Futures Act or be a registered FMC. Both applications are made with the Monetary Authority of Singapore. Each of these FMCs can market their own funds.

Further a person licensed under the Financial Advisers Act (Cap. 110) can market a collective investment scheme.

There are also no restrictions on using intermediaries to market a fund provided the requisite capital markets services license is obtained.

Generally in Slovakia, offering securities is either covered by the Act on Collective Investment or by the Act on Securities.

Undertakings for Collective Investments in Transferable Securities (UCITS)

In Slovakia, standard funds, which can be mutual funds or investment funds with variable capital, are considered UCITS. A management company which decides to distribute securities of the standard fund it manages in another member state, is required to notify its intention to the National Bank of Slovakia prior to the commencement of such activity.

Alternative Investment Funds (AIFs)

Under the Act on Collective Investment, which implemented the respective provisions of the Alternative Investment Fund Managers Directive, distribution means direct or indirect offering or securities or equity participations in the collective investments entities, or their placement with the investors who have permanent residence or seat in the member state, at the initiative of the person managing this collective investment entity, or on its behalf.

A management company, which decides to distribute securities or equity participations in alternative investment funds or European alternative investment funds it manages in another member state, is required to notify its intention to the National Bank of Slovakia prior to the commencement of such activity.

In terms of the Collective Investment Schemes Control Act (CISCA), no Management Company (see Establishing and investing in debt and hedge funds – establishment) may publish any advertisement, brochure or pamphlet referred to in before the management company has been informed by the Registrar of Collective Investment Schemes that he has no objection to the terms thereof.

Qualified Investor Hedge Funds (QIHFs) may only be marketed to Qualified Investors (see Establishing and investing in debt and hedge funds – investor considerations), whilst any investor may invest in a Retail Investor Hedge Funds (RIHFs). As a result, RIHFs are more highly regulated than QIHFs in terms of the risk profile of the assets under investment.

For more information, see Managing and marketing debt and hedge funds – investment management restrictions.

For more information, see Establishing and investing in debt and hedge funds – investor considerations.

Generally in Spain, the marketing of funds is regulated under the Undertakings for Collective Investment in Transferable Securities Directive regime or under the Alternative Investment Fund Managers Directive regime.

Undertakings for Collective Investments in Transferable Securities (UCITS)

UCITS, including those established in Spain, have an EU passport which enables fund promoters to create a single product for marketing in all EU member states and on the completion of the appropriate notification procedure, a UCITS established in one member state can be sold in any other.

A UCITS intending to market in another member state must complete and submit to its home regulator a notification including certain specified information, including copies of key investor documents. The home regulator then completes a notification file which is sent in a regulator-to-regulator transmission, following which the UCITS can be sold in the other member state.

Alternative Investment Funds (AIFs)

Under the Alternative Investment Fund Managers Directive, marketing is defined as: a direct or indirect offering or placement at the initiative of the Alternative Investment Fund Manager (AIFM) or on behalf of the AIFM of units or shares in an AIF it manages to or with investors domiciled or with a registered office in the European Union.

An AIFM may only market an AIF to EU investors if it is authorized by a relevant EU regulator – registration with one EU regulator opens access, subject to certain further limited conditions, to marketing to professional investors across the EU under a EU passport or if it complies with national private placement regimes (where available).

Swedish selling restrictions

Generally in Sweden, offering securities is either covered under the Undertakings for Collective Investment in Transferable Securities Directive regime or under the Alternative Investment Fund Managers Directive regime. All Directives have been incorporated into Swedish law.

Undertakings for Collective Investments in Transferable Securities (UCITS)

UCITS, including those established in Sweden, have an EU passport which enables fund promoters to create a single product for marketing in all EU member states and on the completion of the appropriate notification procedure, a UCITS established in one member state can be sold in any other.

A UCITS intending to market in another member state must complete and submit to its home regulator a notification including certain specified information, including copies of key investor documents. The home regulator then completes a notification file which is sent in a regulator-to-regulator transmission, following which the UCITS can be sold in the other member state.

Alternative Investment Funds (AIFs)

Under the Alternative Investment Fund Managers Directive (implemented in Swedish law through the Alternative Investment Fund Managers Act 2013 (Lag om förvaltare av alternativa investeringsfonder (2013:561)), marketing is defined as: a direct or indirect offering or placement at the initiative of the Alternative Investment Fund Manager (AIFM) or on behalf of the AIFM of units or shares in an AIF it manages to or with investors domiciled or with a registered office in the EU.

An AIFM may only market an AIF to EU investors if it is authorized by a relevant EU regulator. Registration with one EU regulator opens access, subject to certain further limited conditions, to marketing to professional investors across the EU under a EU passport or if it complies with national private placement regimes (where available).

Reverse solicitation and the definition of ‘marketing’

Applicable in the context of professional investors, this is a sensitive area in Sweden and Europe generally. The Alternative Investment Fund Managers Directive generally continues to permit professional investors who wish to invest in AIFs based on their own initiative (reverse solicitation); however, the EU is currently reviewing this area during 2017 and may impose tighter requirements.

Marketing and advertisements must not contain any misleading or false information. The asset management company (which must be approved and licensed by the SEC) must provide investors with appropriate services and complete information relating to the funds and investments, especially if the funds have special features. Any information disclosed for the purposes of marketing or advertisement of investment products (including securities and derivatives contracts as well as funds and collective investment schemes established under foreign law) will be subject to the regulations of the SEC.

There are no selling restrictions applicable to offering securities under Ukrainian law.

UK selling restrictions

Generally, in the UK, offering securities is either covered under the UK Financial Conduct Authority's financial promotion regime, under the Undertakings for Collective Investment in Transferable Securities Directive regime or under the Alternative Investment Fund Managers Directive regime.

Undertakings for Collective Investments in Transferable Securities (UCITS)

UCITS, including those established in the UK, have a EU passport which enables fund promoters to create a single product for marketing in all EU member states and on the completion of the appropriate notification procedure, a UCITS established in one member state can be sold in any other.

A UCITS intending to market in another member state must complete and submit to its home regulator a notification including certain specified information, including copies of key investor documents. The home regulator then completes a notification file which is sent in a regulator-to-regulator transmission, following which the UCITS can be sold in the other member state.

Alternative Investment Funds (AIFs)

Under the Alternative Investment Fund Managers Directive, marketing is defined as: a direct or indirect offering or placement at the initiative of the Alternative Investment Fund Manager (AIFM) or on behalf of the AIFM of units or shares in an AIF it manages to or with investors domiciled or with a registered office in the EU.

An AIFM may only market an AIF to EU investors if it is authorized by a relevant EU regulator – registration with one EU regulator opens access, subject to certain further limited conditions, to marketing to professional investors across the EU under a EU passport or if it complies with national private placement regimes (where available).

Reverse solicitation and the definition of 'marketing'

Applicable in the context of professional investors, this is a sensitive area in the UK and Europe generally. The Alternative Investment Fund Managers Directive generally continues to permit professional investors who wish to invest in AIFs based on their own initiative (reverse solicitation); however, the EU is currently reviewing this area during 2017 and may impose tighter requirements.

Specifically in the UK, the Financial Conduct Authority has provided broad guidance on the definition of 'marketing' as follows:

• Marketing will, generally, not include secondary trading in the units of an AIF. Therefore, the listing of AIF units will not necessarily constitute marketing.
• The indirect offering or placement of units of an AIF will be considered as marketing (including the distribution through a chain of intermediaries or a placement agent).
• In certain circumstances, providing draft AIF documentation to potential investors will not constitute marketing.

The FCA also provides the following view specifically on reverse solicitation: confirmation from the investor that the offering or placement of units of shares of the AIF was made at its initiative, should normally be sufficient to demonstrate that this is the case, provided this is obtained before the offer or placement takes place.

UK selling restrictions

Generally in the UK, offering securities is either covered under the UK Financial Conduct Authority's financial promotion regime, under the Undertakings for Collective Investment in Transferable Securities Directive regime or under the Alternative Investment Fund Managers Directive regime.

Undertakings for Collective Investments in Transferable Securities (UCITS)

UCITS, including those established in the UK, have a EU passport which enables fund promoters to create a single product for marketing in all EU member states and on the completion of the appropriate notification procedure, a UCITS established in one member state can be sold in any other.

A UCITS intending to market in another member state must complete and submit to its home regulator a notification including certain specified information, including copies of key investor documents. The home regulator then completes a notification file which is sent in a regulator-to-regulator transmission, following which the UCITS can be sold in the other member state.

Alternative Investment Funds (AIFs)

Under the Alternative Investment Fund Managers Directive, marketing is defined as: a direct or indirect offering or placement at the initiative of the Alternative Investment Fund Manager (AIFM) or on behalf of the AIFM of units or shares in an AIF it manages to or with investors domiciled or with a registered office in the EU.

An AIFM may only market an AIF to EU investors if it is authorized by a relevant EU regulator – registration with one EU regulator opens access, subject to certain further limited conditions, to marketing to professional investors across the EU under a EU passport or if it complies with national private placement regimes (where available).

Reverse solicitation and the definition of ‘marketing’

Applicable in the context of professional investors, this is a sensitive area in the UK and Europe generally. The Alternative Investment Fund Managers Directive generally continues to permit professional investors who wish to invest in AIFs based on their own initiative (reverse solicitation); however, the EU is currently reviewing this area during 2017 and may impose tighter requirements.

Specifically in the UK, the Financial Conduct Authority has provided broad guidance on the definition of ‘marketing’ as follows:

• Marketing will, generally, not include secondary trading in the units of an AIF. Therefore, the listing of AIF units will not necessarily constitute marketing.
• The indirect offering or placement of units of an AIF will be considered as marketing (including the distribution through a chain of intermediaries or a placement agent).
• In certain circumstances, providing draft AIF documentation to potential investors will not constitute marketing.

The FCA also provides the following view specifically on reverse solicitation: confirmation from the investor that the offering or placement of units of shares of the AIF was made at its initiative, should normally be sufficient to demonstrate that this is the case, provided this is obtained before the offer or placement takes place.

Onshore UAE

Funds promoted and introduced to investors based onshore in the UAE will need to be registered with the UAE Securities and Commission Authority (SCA) unless a statutory exemption applies (noting that the regulations provide for exemptions for reverse solicitation and for marketing to "Qualified Investors", among others). For an issuer to be able to obtain a licence to promote funds to investors in the UAE, the issuer must:

• seek appoval of the SCA ;
• meet certain minimum capital requirements;
• pay applicable licence fees; and
• undertake to comply with the relevant SCA rules and conditions.

Once the fund is registered then, in order to market securities/units in the fund, the issuer will be required to comply with various rules regarding prospectuses, documentation regarding key investor information and ensuring that the fund has an investment policy.

DIFC

In the Dubai International Financial Centre (DIFC), "Public Funds" are required to be registered with the Dubai Financial Services Authority (DFSA). An application to register a Public Fund must include, among other things, the fund's constitution and prospectus. Other funds established in the DIFC such as "Exempt Funds" and "Qualified Investor Funds" are not required to be registered with the DFSA, however the DFSA must be notified prior to any offering of securities/units with respect to such funds.

When it comes to offering securities/units, the governing regulations (i.e. the Collective Investment Law DIFC Law No. 2 of 2010 (Collective Investment Law)) provide that before any offer a prospectus must be prepared by a qualified fund manager which, for Public Funds, is to be registered with the DFSA.

Funds that intend to market securities to the public in a registered transaction under the Securities Act of 1933 (Securities Act) must comply with the public offering rules set forth therein. Funds that intend to issue securities in private placements not subject to registration under the Securities Act must comply with the marketing restrictions in the relevant exemption. Under the most commonly-used exemption from registration under the Securities Act, Regulation D, sponsors marketing funds in a private placement may not engage in 'general solicitation' or 'general advertising' relating to the offering. This includes any advertisement, mass mailing, cold calls, article, notice, or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio, and also any seminar or meeting whose attendees have been invited by any general solicitation or advertising.

Under certain circumstances an issuer using Regulation D may engage in general solicitation or general advertising if the issuer takes additional steps to ensure that all securities sold in the offering are sold to accredited investors. Issuers choosing to market in this fashion must elect to do so and, once they have elected to do so, may not change their election.

Issuers in both registered and unregistered offerings of securities are liable for violations of the anti-fraud provisions of the Securities Exchange Act of 1934 relating to the contents of the disclosure materials provided in connection with the offering.