On 27 May 2021, ESMA published the final report on its Guidelines for marketing communication under the regulation on cross-border distribution of funds (CBDFR), which applies to European managers (AIFMs, UCITS management companies, EuVECA managers and EuSEF managers) managing European funds from 2 August 2021.

The guidelines apply to all marketing communications addressed to investors and provide a non-exhaustive list of communications that may be considered as marketing communications and those which should not be regarded as such.

Communications that may be considered as marketing communications

a) All messages advertising for a UCITS or an AIF, regardless of the medium, including paper printed documents or information made available in electronic format, press articles, press releases, interviews, advertisements, documents made available on the internet, as well as webpages, video presentations, live presentations, radio messages or factsheets.

b) Messages broadcast on any social media platform, when such messages refer to any characteristics of the fund. For the purpose of these guidelines, the term “social media” should be understood as any technologies which enable social interaction and the creation of collaborative content online, such as blogs and social networks (Twitter, LinkedIn, Facebook, etc.) or discussion forums, accessible by any means (in particular electronic means, via a computer or mobile applications for example).

c) Marketing material addressed individually to investors or potential investors, as well as documents or presentations made available by the manager to the public on its website or in any other places (fund manager’s registered office, distributor’s office, etc.).

d) Communications advertising a fund addressed to investors or potential investors located both in the home Member State of the fund manager or in a host Member State.

e) Communications describing the characteristics of the fund, which are handed down to distributors by the manager, which are eventually addressed to investors or potential investors, even if such communications were not meant to be handed down to investors or potential investors.

f) Communications by a third party and used by a manager for marketing purposes.

Communications that should not be considered as marketing communications

Examples of communications that should not be considered as marketing communications include, inter alia:

a) Legal and regulatory documents of a fund, such as the prospectus or the KIID and/or KID, the annual and half-yearly reports, the Memorandum & Articles of Association, By-Laws, or similar documents required to legally establish a fund.

b) Corporate communications broadcast by the fund manager describing its activities or some recent market developments and which do not refer to a specific fund or a group of funds. This doesn't apply if the activities of the fund managers are limited to one fund or a small number of funds which are implicitly identified in such corporate communication.

c) Short messages broadcast on-line, in particular on social media platforms such as Facebook or Twitter, which only include a link to a webpage where a marketing communication is available, but which do not contain any information on a specific AIF, UCITS or group of AIFs or UCITS.

Other key takeaways

The other key takeaways from such guidelines are briefly discussed below.

1) Marketing communications should be identifiable as such

ESMA’s guidelines require that marketing communications be identifiable as such in that they include sufficient information to make it clear that the communication has a purely marketing purpose, is not a contractually binding document or an information document required by any legislative provision, and is not sufficient to take an investment decision, a fact which many investors often fail to consider.

In this context, a marketing communication should be deemed to be identified as such when it includes a prominent disclosure of the terms “marketing communication” such that any person looking at it, or listening to it, can identify it as a marketing communication. Additionally, marketing communications should include appropriate disclaimers.

2) Description of risks and rewards in an equally prominent manner

While information on risks and rewards in marketing communications is not mandatory, when marketing communications do include such information, both risks and rewards need to be afforded equally prominent disclosure. The font, size and position used to describe the rewards should be the same as those used to describe the risks, and information on risks should not be disclosed in a footnote or in small characters within the main body of the communication.

3) Marketing communications to be fair, clear and not misleading

• All marketing communications, regardless of the target investors, should contain fair, clear and not misleading information. However, the level of information and the way that the information is presented may be adapted to whether investment in the promoted fund is open to retail investors (i.e. UCITS or retail AIFs), or to professional investors only (i.e. non-retail AIFs). In particular, marketing communications promoting funds open to retail investors should refrain from using technical wording, provide an explanation of the terminology used, be easy to read and, where relevant, provide adequate explanation on the complexity of the fund and the risks arising from investment to assist investors’ understanding of the characteristics of the promoted fund.

• When it comes to the language of marketing communications for a fund open to retail investors, marketing communications should be considered clear for the target audience of the promoted fund if they are written in the official language(s), or one of the official languages, of the Member State in which they are provided. However, when promoting a fund open to professional investors only, marketing communications may be considered clear for the target audience of the promoted fund if they are written in a language customary in the sphere of international finance.

• Within the context of the requirement for marketing communications to be fair, clear and not misleading, the guidelines also make reference to the following.

• The information presented in the marketing communication should be consistent with the fund’s legal and regulatory documents (e.g. the fund prospectus, the KIID or KID, the fund’s annual and half-yearly reports).

• When referring to the costs associated with purchasing units or shares of an AIF or units of a UCITS, marketing communications should include explanation to allow investors to understand the overall impact of costs on the amount of their investment and on the expected returns.

• When no information on the past performance of the promoted fund is available, in particular when it has been recently set up, marketing communications should avoid disclosing a simulated past performance based on non-pertinent information.

• When marketing communications describe the investment policy of the promoted fund, the words “passive” or “passively managed” should be included in addition to the words “index-tracking” for index-tracking funds; and when the promoted fund is actively managed, the terms “active” or “actively managed” should be used. Active funds that are managed in reference to an index should provide additional disclosure on the use of the benchmark index and indicate the degree of freedom from the benchmark.

• In the case of short marketing communications, such as messages on social media, the marketing communication should be as neutral as possible, and it should indicate where more detailed information is available, in particular by using a link to the relevant webpage where the information documents of the fund are available.

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