“Who can we market to?” “How do we comply with financial promotion rules?” etc are some of the most frequently asked questions by a new manager, as ultimately without fundraising there is no fund. The UK has very clear and detailed financial promotion rules set out in various pieces of legislation but the concept of reverse solicitation has, in some cases perhaps, been open to abuse and so with Brexit ESMA has taken an opportunity to issue a public statement on the subject.
On 13th January 2021 ESMA issued a reminder to firms of the MiFID II rules on “reverse solicitation” in the context of the end of the UK transition period on 31 December 2020. They noted that they believed some “questionable practices” by firms around reverse solicitation had emerged. To highlight this ESMA listed various examples including firms appearing to try to circumvent MiFID II requirements by including clauses in the Terms of Business or through the use of pop up “I agree” boxes whereby clients state that any transaction is executed on the exclusive initiative of the client.
ESMA have made it clear that these are not acceptable and reminded firms in the statement that every communication used should be considered to determine if the client or potential client has been subject to any solicitation, promotion or advertising in the EU for the firm’s investment services or activities or on financial instruments. ESMA also reminded firms that such a solicitation, promotion or advertising should be considered regardless of the person through whom it is issued: the third country firms itself, an entity acting on its behalf or having close links with such third country fund or any other person acting on behalf of such an entity. In short this was a warning shot across the bow to firms whose practices may have become sloppy or thought post Brexit matters would change. Financial promotion in general and the correct certification of potential investors are a focus for the FCA at the moment and we can no doubt expect further from ESMA on this too.
Find ESMA's statement here