CSSF observations for the period 2021-2023 on marketing communications

In 2022, the CSSF launched a thematic review on the content and use of marketing communications (“MCs”) by Luxembourg investment fund managers (“IFMs”) to verify their compliance with the applicable requirements under Article 4 of Regulation (EU) 2019/1156 on facilitating cross-border distribution of collective investment undertakings (the “CBDF Regulation”) during the period from 1 April 2021 to 31 March 2023.

In the context of its supervisory work, the CSSF provides the following observations and expectations:

(i) Identification as such of MCs

• The CSSF identifies that the main weakness observed is that the indication of the commercial character of the document was only displayed in a disclaimer at the end of the document among other information. Furthermore, the relevant message was not flagged at all as a MC.
• The CSSF expects that all MCs are identified as such by means of a prominent disclosure of the terms “marketing communication” even if the support is a website or a social media platform.

(ii) Consistency with fund’s documents

• The CSSF notes that the data in the MCs are either not in line with content of the fund’s documents or do not include sufficient information for the target investors/potential investors to understand the key elements of those features (e.g. leverage, type of eligible assets, recommended holding period, etc.).
• The CSSF expects that the wording and indicators used in the MC, the key information documents (“KID”) or key investor information documents (“KIID”), the prospectus or equivalent, and the SFDR required disclosures are consistent.

(iii) Suitability of the MC for the target investors or potential investors

• The CSSF observed difficult-to-read disclaimer sections containing most of the legal information such as requirements of Articles 4(2), 4(3) and 4(5) of the CBDF Regulation. Either the text was too small, and/or the information was presented in a block of text without spaces, sometimes over several pages. The CSSF also notes that sometimes the vocabulary and/or the indicators used did not allow for easy reading and understanding of the MC, especially when addressed to retail investors.
• The CSSF expects that all information contained in a MC is easily readable, that all acronyms and all terms describing the investment used in the MC are properly defined and understandable by the target investors. Additionally, the CSSF expects that information in notes or disclaimers is easy to find and to read. The CSSF recommends that the MC clearly identifies the type of investors targeted, in particular, when the MC only targets one type of investor while the fund/sub-fund is open to both retail and professional investors.
• When the MC displays a label, a certification or ratings, the CSSF expects that, firstly, the information is sufficiently precise concerning the fund/sub-fund rewards and the year concerned (where applicable); and secondly, that there is a reference to the entity that granted this label, i.e. that there is at least a hyperlink to a website where an investor/potential investor can find further information.
• Regarding hyperlinks, the CSSF expects that use should be limited and that if used, such hyperlinks point to the exact place where the relevant information may be found. In addition, these hyperlinks should be maintained over time to ensure that investors do not find broken links where information is no longer available.

(iv) Mandatory references to the availability of fund documents

• The CSSF observed that either the required references were not included at all, or that they were only partially displayed, e.g. there was reference to the existence of the fund’s documents but there was no indication in which language they are available nor where to obtain them.
• The CSSF reminds of the requirements that all MCs (of UCITS and AIFs which publish a prospectus or have a KID) indicate that a prospectus exists and that the KIID is available. MCs shall specify where, how and in which language investors/prospective investors can obtain the prospectus and KIID and shall provide hyperlinks to, or website addresses for those documents. Additionally, MCs of UCITS shall specify where, how and in which language investors or potential investors can obtain a summary of investor rights and shall provide a hyperlink to that summary. Such MCs shall also contain clear information that a manager or management company may decide to terminate the arrangements for the marketing of its collective investment undertaking.

The CSSF expects that this information is, in principle, included in the MC.

(v) Information on risks and rewards

• The CSSF observed the main areas for improvement concern the lack of consistency of information disclosed with the fund’s documents and the lack of indication on where to find complete information on risks.
• The CSSF expects that sections related to risks are properly tailored to the fund/sub-fund promoted (e.g. the risks for equity or bond sub-funds should not be the same) and that a prominent indication on where to find complete information on risks is disclosed even for MCs addressed to professional investors only.

(vi) Information on costs

• The CSSF notes that when disclosed, the presentation of costs in the MC was not satisfactory because either the information disclosed was not in line with the fund’s documents or the CSSF deemed the information to be insufficient.
• The CSSF provides that to be fair, clear and not misleading, a MC that presents costs should display the periodicity of these costs as well as a prominent indication that not all costs are presented, and that further information can be found in the prospectus or equivalent.

(vii) Information on performance and benchmark

• The most frequent elements of non-compliance observed by the CSSF are the following:
  (a) The reference period chosen to disclose performance is not the required 10-year period for funds establishing a KIID/KID or 5 years for other funds.
  (b) The performance for the current year is not updated at the end of the most recent quarter but at the end of the most recent month.
  (c) For nearly launched funds, no performance data is disclosed in the KIID/KID, but performance data based on a related group strategy (or equivalent) is displayed.
  (d) For funds resulting from a merger or a contribution in kind, this event is not properly displayed in the MC while performance data is displayed for the period before the creation of the fund.
  (e) Details on the use of the benchmark are not sufficient and/or not prominently disclosed.

• The CSSF expects that:
  (a) The periodicity criteria are respected.
  (b) The consistency with fund’s documents is ensured.
  (c) Any changes significantly affecting the past performance of the promoted fund is prominently disclosed.

• Additionally, more transparency on the use of a benchmark is required. The CSSF recommends including the same information in the MC as in the fund’s documents.

(viii) Information on sustainability-related aspects

• The CSSF observed on one hand that the link provided in the MC points to generic information on the sustainability-related aspects (i.e. not in relation to the fund/sub-fund promoted), and on the other hand, that in some cases the MC was only focused on sustainability-related aspects.
• The CSSF reiterates that a link to a given websites points to information related to the specific fund/sub-fund promoted. The CSSF expects a good balance between disclosures on sustainability related aspects and other aspects of the investment strategy of the promoted fund/sub-fund.

(ix) Short MCs

• The CSSF noted in very rare cases, a MC that is not neutral. Additionally, the CSSF observed that the required link did not point to a webpage where the information documents of the fund/sub-fund are available but rather to the homepage of the IFM.
• The CSSF reiterates that hyperlinks used in MCs refer to webpage(s) where the actual information documents of the fund/sub-fund are available.