FSA: Advice could be subject to new EU fund marketing rules

Distribution of shares or units in investment funds could fall under the scope of new fund marketing rules that are being introduced as part of the European Union’s Alternative Investment Fund Managers Directive, according to the Financial Services Authority.

In a 102-page discussion paper on the implementation of the AIFMD rules, which apply to hedge funds, private equity, property, listed funds, funds of funds and commodity funds in the EU, the City watchdog highlights new rules covering the marketing of a fund where this is ‘initiated’ by the manager of the fund.

However, the FSA says that the directive “does not provide any specific details or a test to determine who has initiated an investment transaction”, which could mean that distribution conducted by third parties will come under the scope of the new rules.

The regular states that the directive in its current form restricts certain types of firm “including intermediaries which are Mifid investment firms” from “offering or placing units or shares” of funds to investors.

This, the FSA says, could prevent advisers and investment firms from distributing shares or units of funds unless the manager for that particular fund is permitted to do so.

Given that currently third parties such as investment advisers that have no relationship with a particular fund manager account for much of the distribution of funds in some instances, the FSA says that it is therefore “necessary to consider in which instances offering or placement is undertaken on behalf of the AIFM.”

The paper adds: “We must also consider how an activity undertaken by a third party on behalf of the AIFM which is also a Mifid investment service or activity should be treated for the purposes of the AIFMD ‘marketing’ definition.”

Marketing rules that are brought in under the directive would replace the FSA’s existing rules on the marketing of EU funds to UK investors.

The deadline for responses to the paper is 23 March 2012