The document discusses new rules around financial promotions and marketing of investments. Key points include: - New rules restrict the promotion of non-mainstream pooled investments (NMPIs) to retail investors, allowing promotion only to certified high net worth, sophisticated, or existing investors. - The Alternative Investment Fund Managers Directive (AIFMD) also introduces marketing restrictions depending on whether a fund is located in the EEA and if its manager is above thresholds. - Proposed rules would restrict direct offer financial promotions for unlisted debt/equity to certified retail investors or those receiving advisory services. - Firms must consider financial promotion rules when using social media to discuss investments and ensure communications remain fair, clear and

1. Marketing in a brave new world
January 2014
Gillian Roche-Saunders, David Aylward and Ashley Kovas

2. 2
Contents
• Overview of the promotions regime
• New NMPI rules
• New AIFMD rules
• Proposed direct offer financial promotion rules
• Approach with social media.

3. A financial promotion can only be communicated
• by an authorised person or
• where the contents are approved by an authorised person.
The financial promotion must also meet certain rules which are
set out in the FCA Handbook (COBS).
There are alternative routes set out in statutory instruments:
• Promotion of CIS (Exemption) Order
• Financial Promotions Order.
.
The current regime
3
“Any invitation or inducement to engage in investment activity when
communicated in the course of business.” (s21 FSMA)

4. Non-mainstream pooled investments

5. For units in UCIS the statutory restriction in FSMA (s238) still
applies:
An authorised person must not communicate an invitation or
inducement to participate in a collective investment scheme.
For units in a UCIS (for an authorised firm) consider using:
• Promotion of CIS Order (PCIS)
• New COBS 4.12 exemptions.
For units in a UCIS (for an unauthorised person) consider using:
• Financial Promotion Order (FPO).
For a non-mainstream pooled investment (other than a UCIS) consider:
• Financial Promotion Order (FPO)
• New COBS 4.12 exemptions.
Restricting UCIS promotions
5

6. Non-mainstream pooled investment:
• Unit in an unregulated collective investment scheme
• Unit in a Qualified Investor Scheme
• Security issued by an SPV*
• Traded life policy investment
• Rights to or interests in the above.
Exclusions
• *SPV exclusions (including VCTs, Investment trusts etc)
• EIS and SEIS funds that are not UCIS are outside scope.
Extending the restriction
6
“A firm must not communicate or approve an invitation or inducement
to participate in, acquire, or underwrite a non-mainstream pooled
investment where that invitation or inducement is addressed to or
disseminated in such a way that it is likely to be received by a retail
client.” (COBS 4.12)

7. Key trade offs
7
Lost Gained
Advised sales
Previously used by firms to promote
the schemes where advice was
also provided
2 tiers of retail
Ordinary retail clients
vs.
Certified high net worth investors
Certified sophisticated investors
Self-certified sophisticated investor
Existing participants
Now only when the NMPI is closing
and the scheme promoted is
intended to absorb the assets
Capability assessment
Where the firm assessed the
investors expertise, experience
and knowledge

8. Some differences between 3 certified routes under COBS & PCIS
• Certified high net worth investor
and
• Self-certified sophisticated investor
- Must do a ‘preliminary assessment’ that investment is likely
to be suitable for that client, based on the client’s profile and
objectives.
• Certified sophisticated investor
- can promote any non-mainstream pooled investment
- does not need third party firm to sign certificate.
COBS certification routes
8

9. Increased emphasis on client’s best interest rules and the
Principles. Applies to FPO, PCIS Order and COBS 4.12.
• Certified high net worth investor
- take reasonable steps to ascertain that the client does meet
the the income and net assets criteria
- check that the promotion is in the interests of the client
and that it is fair to communicate it to them it.
• Self-certified sophisticated investor
- satisfy itself that client has the requisite experience,
knowledge or expertise to understand the risks
- check that the promotion is in the interests of the client
and that it is fair to communicate it to them it.
• Certified sophisticated investor
- check that fair and reasonably assessed as a
sophisticated investor in light of complexity of NMPIs.
All certification routes
9

10. • CF10 – or an employee that reports to and is supervised by
them – must make a record certifying that a financial
promotion for a NMPI complies.
• If an employee is used, the CF10 must have reviewed and
approved the process for certification of compliance within
the last 12 months.
• The record must state which exemption was used and why
it applied, and make a record of any relevant certificates,
investor statements and warnings or indications required by
the exemption.
Sign off and record-keeping
10

11. Before purchasing a NMPI in a discretionary management
arrangement, the DIM should “have regard to” whether that
product could have been promoted to the client (even though
the purchase itself does not involve a promotion).
If it could not, the DIM should “exercise particular care” to
satisfy himself that the transaction is suitable for the client and
in the client’s best interests.
Discretionary investment management
11

12. Further consultations may follow:
• Widening the net of NMPI
• Adjusting the monetary limits for high net worth
certification
“That is not to say that we necessarily believe that the
products no longer falling within scope of the marketing
restriction should be marketed to all types of retail investors or
that they are generally suitable for all retail investors.”
Future developments
12

13. Further developments are likely in due course.
Right now, firms should:
1. Ensure you are only promoting the right products to the
right people.
2. Ensure you can sufficiently demonstrate that exemptions
are used correctly.
3. Ensure that you have robust procedures in place for
compliance sign off.
Firms may need to ensure that they have sufficient oversight of
their distribution networks.
Points to take away
13

14. Marketing under AIFMD
(Alternative Investment Fund Manager Directive)
14

15. • Investment at investor’s “own initiative” does not count
• FCA’s current view is AIFMD marketing does not include
marketing using draft documentation
• Marketing restrictions depend on:
- location of the AIF (fund)
- location of the AIFM (manager)
- is the AIFM above or below threshold?
AIFMD Marketing vs Financial Promotions
15
“A direct or indirect offering or placement at the initiative of the AIFM
or on behalf of the AIFM of units or shares of an AIF it manages to or
with investors domiciled or with a registered office in the Union”
(AIFMD, Article 4 (1)(x))

16. Full scope: where the AIFM holds assets under management
above a certain threshold or has opted in to the full regime.
• AIFMD passport available to enable marketing to
“professional investors” within EEA
• Detailed rules control contents of marketing material
• Restrictions beyond that – eg to retail, HNWI, or non-EEA
countries – up to individual countries
• Three stages of marketing controls in the Directive (2013-
2015, 2015-2018, 2018 onwards).
Rules for full-scope marketing
16

17. Sub-threshold: where the AIFM’s assets under management
are below the relevant threshold and manager did not opt in to
full regime.
• AIFMD passport is not generally available
• Entirely reliant on rules and restrictions in country
marketing in each country – the private placement regime
• Assuming UK-based firm, marketing an AIF in UK little has
changed. Most AIFs, but not necessarily all, will be NMPIs.
• EuVECA and EuSEF – passport is available.
Rules for sub-threshold marketing
17

18. Direct Offer Financial Promotion

19. A financial promotion that specifies or provides the means of
responding.
Currently, when issuing, firms must include specified
information about
• the firm
• its services
• the investment(s) offered.
Further additional information, depending on whether the
direct offer relates to MiFID or non-MiFID business.
Propose to limit further who a DOFP can be sent to in relation
to unlisted equity or debt…
Direct Offer Financial Promotion
19

20. Retail clients can only receive such a DOFP for unlisted debt
or equity if they meet certain categories:
1. ‘Restricted investor’ certification
Certify will only invest 10% of net investible portfolio in unlisted
debt and equity in 12 months
2. Advisory or discretionary management service
3. NMPI certification routes (HNWI or sophisticated investor)
Appropriateness test is required.
Restriction does not apply to venture capital contact or a corporate
finance contact.
Proposed restriction
20

21. Social Media

22. A way for firms to raise profile, engage with customers,
gain trust and develop reputation.
Financial promotion rules affect all mediums of
communication.
• Having opinions vs. giving advice or recommendations
• Updating regularly vs. compliance sign off
• Interacting with others vs. appropriate for general public
Social Media
22

23. Things to consider:
• Online presence makes you more visible
• Ability for viewers to share beyond intended audience
• Employees use of own social media accounts
• Compliance resource for instantaneous responses
and regular updates
Remember all social media communications, whether promotions
or not, must meet the fair, clear and not misleading tests.
Understanding the risks
23

24. Standalone compliance risk
• partial information
• risk warnings
• balance
• jargon.
The Twitter Challenge
24
"If you can't make the promotion compliant within the allocated
space, you can't advertise“
Clive Gordon, Head of Conduct Risk, FCA

25. Five first steps
25
1. Agree and communicate
your firm policy
2. Raise awareness of
financial promotions rules
3. Regular online sweeps to
check information is up to date
4. Ensure promotions are standalone
5. Consider combining media

26. Round up

27. Don’t forget
• all communications must be fair, clear and not misleading.
• product providers and distributors responsible for making
sure promotions end up in the right hands.
Operating in the current regime
27
• What are you marketing?
• e.g. equities, NMPI, AIFsWhat?
• Who are you marketing to?
• e.g. retail, certification routesWho?
• How are you communicating?
• e.g. Twitter, direct offerHow?

28. Questions?
28

29. Let us know if you need a CPD
Don’t forget Feedback Forms…
Thanks for coming