On 27 May 2021, ESMA published guidelines for UCITS and AIF marketing communications under the Regulation for cross-border distribution of funds (the Guidelines).  As per our previous briefing (see here), the Regulation requires UCITS and AIF marketing communications to be readily identifiable as such, describe risks and rewards in an equal manner and present information in a manner that is clear, fair and not misleading.   

The Guidelines, which are applicable to both UCITS managers and AIFMs (Fund Managers), set down compliance standards for the Regulation, which comes into effect on 2 August 2021. The Guidelines will be applicable from six months after the translated versions are published by ESMA. 

Broad List of In-Scope Marketing Materials

The Guidelines apply to all marketing communications address to investors or potential investors for UCITS and AIFs. While ESMA considered it beyond its mandate to define the term ‘marketing communication’ as used in the Regulation for cross-border distribution of funds (CBDF Regulation), the Guidelines set out a non-exhaustive, yet comprehensive list of materials in scope of the Guidelines’ disclosure standards:

• all advertising for a UCITS or AIF regardless of the medium, including paper and electronic documents, press releases/articles, interviews, advertisements, internet documents, webpages, videos, live presentations, radio messages or factsheets; 
• all broadcasts on social media which refer to any characteristics, including the name, of a UCITS or AIF such as on blogs, social networks (Twitter, LinkedIn, Facebook, Instagram, TikTok, YouTube, Discord etc.) or discussion forums and accessible by any means;  
• individually addressed investor materials as well as documents or presentations made available by a UCITS manager or AIFM on its website or other location; 
• advertising of a UCITS or AIF addressed to investors or potential investors located both in the Fund Manager’s home Member State or a host Member State; and 
• communications by a third party and used by a Fund Manager for marketing purposes. 

The Guidelines also set out those marketing communications which should not be considered in scope of the Guidelines:

• legal and regulatory documents/information of a fund e.g. the prospectus, KIID/KID, financial statements of a fund, the constitutional document or similar or shareholder meeting notices; 
• corporate communications of a Fund Manager describing its activities or recent market developments such as the disclosures of quarterly or half-yearly earnings, dividend or organisational  announcements or senior management changes which do not refer to a specific UCITS or AIF or group of same unless the Fund Manager’s activities are limited to one, or small number of funds which are implicitly identified; 
• short online messages, in particular those on social media platforms which only include a link to a where a marketing communication is available on a website but which do not contain specific details of a UCITS or AIF, or group of same; and 
• pre-marketing communications as defined under AIFMD.

UCITS & MiFID Rules

The Guidelines are not intended to replace existing national requirements and as such are to be read as additional to the Central Bank’s advertising standards for UCITS which are applicable in respect of UCITS marketing cross-border in Ireland and Irish UCITS marketed cross-border in a Member State that does not have any statutory regulation of marketing (this latter requirement will likely be impacted by the CBDF legislation which provides for harmonised, EU-wide marketing rules). 

The Guidelines are intended to be consistent with the fair, clear and not misleading requirements for client and potential client information under Article 44 of the MiFID II Delegated Regulation (2017/565). However, while the Guidelines are broadly in line with the MiFID requirements, they are more prescriptive as they do not follow the principles-based approach to marketing disclosures under the MiFID rules.  

Fund Manager Responsibility for Distributor Materials 

In a notable change from the consultation version published by ESMA last November, the Guidelines do not refer to the Fund Manager as responsible for ensuring that any investor marketing communications, regardless of the issuer of the communication or who distributes the fund, comply with the Guidelines.  However, while ESMA removed this reference in the final version of the Guidelines on the basis that ‘it went beyond the mere determination of scope’, the application of the Guidelines to all marketing communications addressed to investors or potential investors in UCITS and AIFs arguably imposes a wide-ranging burden on Fund Managers as the sole party in scope of the Guidelines.

The Guidelines

The Guidelines set out disclosure standards for the key requirements under the CBDF Regulation for UCITS and AIF marketing communications to (i) be readily identifiable as such, (ii) describe risks and rewards in an equal manner and (iii) present information in a manner that is clear, fair and not misleading.  A summary of the Guidelines under each of these requirements is set out below. 

Guidelines on the identification as such of marketing communications

• Marketing communications should include a disclaimer such as the following: “This is a marketing communication. Please refer to the  and to the (delete as applicable)] before making any final investment decisions.” 
• When this disclaimer is not fit to the format and length of an online marketing communication it may be replaced by a shorter identification of the marketing purpose, such as the words ‘Marketing Communication’ in the case of a banner or short videos lasting only a few seconds on a website or the word ‘#Marketing Communication’ for social media platforms. 
• The disclaimer should be clearly displayed and visible upfront on the first page of a paper-printed communication. In the case of a video presentation, the disclaimer should be embedded in the video and displaying the disclaimer just at the end of the video should not be considered appropriate. 

Guidelines on the description of risks and rewards in equally prominent manner

• Marketing communications should not refer to the rewards without referring to the risks or describe only the rewards and refer to another document for the description of the risks. 
• Both the risks and rewards should be mentioned either at the same level or one immediately after the other.
• The font and size used to describe the risks should be at least equal to the predominant font size used through the marketing document and its position should ensure such indication is prominent.   
• Information on risks should not be disclosed in a footnote or in small characters within the main body of the communication.   
• Presenting risks and rewards in the form of a two-column table or summarised in a list clearly differentiating the risks and the rewards on a single page is a good example of how risks and rewards can be presented in an equally prominent manner. 

Guidelines on the fair, clear and not misleading character of marketing communications.

• Suitability: UCITS and retail AIF marketing communications should always be considered as targeting retail investors and should comply with the retail fund requirements of the Guidelines. Conversely, a marketing communication promoting a fund open only to professional investors should be considered as targeting only professional investors. 
• Consistency: marketing communications should not be inconsistent with, add to, diminish or contradict any information mentioned in the legal or regulatory documents of the promoted fund. 
• Fund features: the Guidelines set down requirements and recommended practices for marketing communications which describe fund features including in respect of the terminology used, proportionality of detail, comprehensibility and neutrality of the communication. 
• Risks & rewards: if including risks and rewards, the communication should at least include the relevant risks set out in the KID/KIID/prospectus. Any ranking included may be based only on similar funds in terms of investment policy and risk/reward profile. 
• Costs: the overall impact of costs on returns should be explained and the impact of any currency or exchange rate fluctuations. 
• Performance: detailed requirements, including prescribed disclaimers, for the disclosure of past, simulated and expected future performance are set out in the Guidelines 
• Sustainability-related aspects: if disclosed, the communication should be consistent with and cross-refer to the legal and regulatory fund documents.