Following the March 2018 European Commission proposal to amend the Alternative Investment Fund Managers Directive (“AIFMD”) to provide for a uniform regime for “pre-marketing” of alternative investment funds (“AIFs”) across the European Union (“EU”) an agreement has now been reached on the text to be implemented. A two-year national implementation period began on 2 August 2019 for the Directive to be fully transposed from 2 August 2021.

The revised Directive proposes to implement a number of amendments to the current regime.

Pre-Marketing

Currently the AIFMD only regulates the “marketing” of AIFs to investors but not the “pre-marketing.” This has resulted in a situation in which activity in one EU member state would be regarded as pre-marketing and exempt from the AIFMD rules whilst in another it can be treated as marketing activity and trigger the application of the rules. This factor caused much confusion as to the moment in time where one must notify a local regulator. Thus, the AIFMD 2 aims to harmonise and clarify this position across all member states.

Under the new Directive, “pre-marketing information” is restricted to information in relation to an AIF which was not yet established. This restriction also covers an AIF which is established, but not yet notified for “marketing.” The definition also excludes documentation enabling investors to commit to investing in a particular AIF and information which amounts to a prospectus, offering documents or constitutional documents.

It has been further clarified that pre-marketing also includes information in draft but not final form provided that the necessary warnings are in place. There is also a requirement for the AIFM to notify its home member state regulator of the pre-marketing within two weeks of its commencement.

Reserve Solicitation

Under the current Directive, any subscription by an investor in relation to an AIF which has been the subject of pre-marketing is considered to be a result of “marketing” and notification/registration is required accordingly. This notion therefore defeats the argument that there has been reverse solicitation of an investor to whom there has been pre-marketing promotional activity. However, a particular provision in AIFMD 2 states that when a subscription takes place within 18 months of the AIFM beginning pre-marketing this will be deemed to have resulted from marketing and the necessary registrations are thus required.

Non-EU AIFMS

Recital 12 of AIFMD 2 states that compliance with the new rules should not put EU AIFMS in an advantageous position over Non-EU AIFMS.  Therefore, the definition of “pre marketing” will be applied to non-EU AIFMS as well. It remains unclear how the overall procedure will work for a non-EU-AIFM as the procedure under the current AIFMD assumes that the manager is regulated in the EU and that the notification process for the other EU regulators in the countries where pre-marketing takes place will be undertaken by the home regulator.

The Impact of Britain’s withdrawal from the EU

Britain’s withdrawal from the EU might significantly impact marketing by UK managers to UK investors assuming that the United Kingdom would not form part of the single market following its withdrawal from the EU. For instance, in the case of headquartered managers seeking to market their funds into the EU that are managed by a UK manager, the manager would need to comply with the second AIFMD in the same way as a U.S. manager would.

The UK’s regulatory stance on promotional activity is highly dependant on the UK government’s stance on membership of the single market with options varying from a long-term access deal for financial services with the EU to a complete break-off from the single market.

Article written by Dr Cherise Abela Grech and Dr Luke Mizzi.

For more information on the Alternative Investment Fund Managers Directive and the regulation of funds in Malta please contact Mr Reuben Portanier on rportanier@afilexion.com, Dr Cherise Abela Grech on cabelagrech@gtgadvocates.com and Dr Luke Mizzi on lmizzi@gtgadvocates.com

Disclaimer: This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.