The CSSF’s Review of the Industry’s Compliance with ESMA’s Marketing Guidelines

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Article written by Mark Shaw, Partner at Pinsent Masons


At the end of August 2023, the CSSF published its findings and observations on the industry’s compliance with the marketing communications rules under the Cross-Border Distribution Regulation. It should be noted that each of the National Competent Authorities are required to undertake such a review.

As a reminder, the Cross-Border Distribution Regulation accompanied the Cross-Border Distribution Directive and introduced specific rules on marketing communications for EU managers to safeguard investor protection. It mandates that that marketing communications for UCITS and AIFs comply with the Guidelines on marketing communications under the Regulation on cross-border distribution of funds (the “Guidelines”) issued by the European Securities and Markets Authority (ESMA). The obligation for compliance sits with ManCo’s and AIFMs irrespective of any delegation of marketing activities.

While it was not specified that these also apply to non-EU managers, given the over-arching principles of investor protection and that non-EU managers should not be advantaged vis-à-vis EU managers, these rules should also be complied with by non-EU AIFMs distributing AIFs in the EEA.

The Guidelines are significant, yet their applications seemed to have passed a number of market participants by. While they are not particularly complicated, they are prescriptive, and the CSSF concluded that market participants had been found to be lacking in their compliance across a number of areas.

Before we consider the CSSF’s findings and make recommendations, it’s worth noting one of the common complaints about the Guidelines is that there is no prescriptive definition of “marketing communication”. As such, the CSSF has made it clear that it is for fund managers to determine whether or not a certain message or communication addressed to investors or potential investors qualifies as “marketing communication” by referring to the examples in the Guidelines.

The CSSF’s Findings:

Identification of marketing communications

The CSSF found a common problem being that the indication of the commercial character of a marketing communication was only displayed in a disclaimer at the end of the document amongst other information. This approach of handling compliance via the disclaimer is out-dated and does not ensure compliance.

In order to comply with the Guidelines, marketing communication need to be identified as such at the top of the document or web page. It should also be remembered that this requirement also applies to all social media engagements that are marketing communications (but not more general corporate communications).

Consistency with fund documentation

Whilst one might hope that consistency with fund documentation would be a fundamental requirement of all marketing documents, the CSSF found shortcomings. A lack of consistency with fund documentation also means that the marketing communications cannot meet the requirement for them to be fair, clear and not misleading.

Suitability for target investors

The CSSF found various shortcomings which centre on the fair, clear and not misleading requirement. It’s possible that AIFMs have struggled with this more than UCITS ManCo’s, as this existing requirement for communications to retail clients that now applies across the board. In particular, it should be noted that that the requirement does not just apply to the content of the marketing communication, but also the wording of the disclaimer.

Another risk issue is the overuse of acronyms. Ultimately, this fair, clear and not misleading requirement places a significant burden on alternatives managers, particularly those pursuing complex investment strategies or investing in esoteric assets, but nonetheless needs to be complied with in all cases.

References to fund documents

At all times, managers need to make it clear where the legal documents for the fund are available, not simply state the fact that they are available, including providing a hyperlink to where they are available. While it should go without saying that these hyperlinks should be maintained and up-to-date, this was another shortcoming identified by the CSSF.

Information on risks and rewards

The Guidelines require that “marketing communications […] describe the risks and rewards of purchasing units or shares of an AIF or units of a UCITS in an equally prominent manner”. The CSSF observed that the typical shortcoming in this area was an inconsistency with the equivalent disclosures in fund documents and a lack of indication on where to find complete information on risks.

This should not prevent the usual legal practice of over-disclosure in risk factors, but the more immediate and pertinent risks, such as liquidity risk, need to be given due prevalence in the marketing communication.

Information on costs

Here, the CSSF found that the presentation of costs in marketing communications was typically not satisfactory because either the information disclosed was not in line with the fund’s documents or because the information was deemed to be insufficient, either because the disclosure was incomplete or because the periodicity of costs was not disclosed. Again, a reference should also be made to the relevant section(s) of the fund documents.

Information on performance and benchmark

This is a particularly granular section of the Guidelines and the CSSF found a range of shortcomings. There are specific requirements about data presentation and periods, within which the CSSF found various breaches, the use of benchmarks and disclosures around degrees of freedom from them, and clear disclosures around any changes that significantly affected the past performance of the promoted fund.

Whilst many might consider it to be Performance Disclosure 101 to disclaim that “past performance does not predict future returns”, the CSSF nevertheless found shortcomings here. Managers should note that this statement must precede the performance disclosure, not follow it, and certainly not be buried in a broader disclaimer.  

Information on sustainability-related aspects

As a general point beyond the CSSF’s findings, managers should note that the website disclosures under SFDR should be considered to be an area to provide much more granularity than the pre-contractual pro forma disclosures. This is relevant here because the CSSF noted that this website should be linked where marketing communications also include sustainability information.

The CSSF also noted sustainability-related disclosures need to be fund specific, not just firm level, but that managers need to balance these disclosures to the point that they don’t outweigh the extent to which the investment strategy of the product integrates sustainability-related characteristics or objectives (i.e. avoid over-emphasising green issues).


Closing Remark:

The CSSF’s findings should have come as little surprise, since the Guidelines seemed to catch many promoters unaware, and continue to do so. The areas reported on by the CSSF are a summary and managers should ensure that they comply with the Guidelines in their entirety.

With the exception of the performance disclosure rules, which are rather granular, they are relatively straightforward. However, compliance teams need to ensure that they are up to speed with all aspects of the Guidelines.

While there may have been a relative lack of fanfare in the industry when the Guidelines were introduced, they are hugely important. Aside from the obvious regulatory risk of non-compliance, a failure to comply also creates an easy and demonstrable breach that could be used by an aggrieved investor in the event of a legal dispute with the manager.