France: Compliance with the AMF ESG doctrine should now be a priority

Whilst the gold-plating of ESG rules in the AMF’s (infamous) Position-recommendation 2020-03 has now been in force for four years, the AMF has been exceptionally tolerant of non-compliance. This tolerance appears to have ended.

The AMF has just published a summary of its SPOT supervisory checks on the promotional documentation of French and foreign UCITS marketed with a focus on ESG aspects. These SPOT supervisory checks are part of a joint supervisory action by ESMA on the theme of "commercial documentation" and the AMF’s publication signals that non-compliance with its ESG doctrine will no longer be tolerated.

Focus on the (broad) definition of marketing communications

The AMF has reminded promotors that it has a broad definition of “marketing communication”, which includes.

"Any promotional information addressed directly to potential or existing investors or likely to be relayed by distributors, in writing or orally, to their potential or existing clients."

The AMF noticed that market participants have not fully understood this definition and have instead retained in their procedures a list of documents they consider as marketing materials. This has been flagged as a bad practice. By way of example, the AMF has flagged that monthly reports can be considered as marketing materials when they go beyond simple factual reporting. Moreover, any written support used by marketing teams to promote a fund (even if such document is never directly sent to investors) should be treated as a marketing material.

Interestingly, the AMF has signalled that the absence of a precise and formalised definition of marketing materials is likely (of itself) to characterise a failure of the firm’s compliance procedures (at development, validation and control levels).

While the SPOT summary focuses on ESG issues, the AMF comments suggest that market participants should remind themselves of the general French marketing rules applicable to funds being sold in France.

Focus on the mechanisms implemented for the development, review, and validation of commercial documentation

The AMF reminds distributors that they are responsible for the clear, accurate, and non-misleading nature of the promotional communications they distribute. Whilst responsibilities may be contractually organised between management companies and distributors, they do not exempt distributors from their professional obligations.

More specifically on ESG characteristics, almost all of the controlled institutions did not integrate into their analysis the requirements of the AMF Position-recommendation 2020-03. Helpfully, the AMF have produced some suggestions of good and bad practices that can be followed:

Identified good practices:

• Organising training for employees on the requirements related to the integration of ESG criteria in marketing materials;
• Making a checklist of mandatory verification points available to operational teams drafting marketing materials;
• Maintaining a library of disclaimers developed by the compliance verification function and making it available to operational teams drafting marketing materials;
• Integrating the product governance mechanism with that of marketing materials;
• Arranging for the validation by management companies of all marketing materials that their distributors develop, especially regarding aspects related to the management of the relevant fund;
• Distributing marketing materials to the salesforce in PDF format so that these documents can’t be modified once validated.

Bad practices:

• Not verifying the adequacy of the distribution channels of marketing materials in light of the characteristics of the targeted investors;
• Not being able to trace documents that are actually provided to clients, regardless of their degree of accessibility to the public;
• Not restricting access to the internal intranet where commercial documents are stored (to ensure that only authorised employees can access them).

The AMF has also focused on managers outsourcing the production of marketing materials to group entities. In such circumstances the AMF insists that the group distributor must (i) know and fully understand the marketing document review and validation mechanism it has outsourced, (ii) determine whether it is the outsourcing of an essential or critical service, and (iii) equip itself with a control mechanism over the outsourced activity to ensure the robustness of the group support.

AMF's findings during its checks on marketing materials

To complete its investigations, the AMF control mission specifically carried out checks based on a sample of marketing materials. It appears that almost all of the marketing materials analysed present one or more anomalies.

In view of its findings, the AMF reminds market participants that:

• The information related to the ESG characteristics of a UCITS mentioned in a commercial document must be proportional and consistent with the content of the regulatory documentation;
• The use of visual elements must not impair the clear, accurate, and non-misleading nature of the commercial documentation;
• A commercial document can mention the generalist ESG practices of the management company, however, such mentions must not contravene the clear, accurate, and non-misleading nature of the document (notably through a disproportionate place in the document);
• Generalist funds cannot particularly emphasise an Environmental, Social, or Governance theme since they cannot claim to be a thematic fund;
• Funds that cannot communicate, either centrally or in a reduced manner, on ESG aspects must not communicate on the ESG aspects of these funds.

Some reminders specifically concern foreign UCITS:

• Funds that cannot comply with AMF doctrine 2020-03 must incorporate the disclaimer provided by position no. 7 of that doctrine;
• Marketing materials of funds established under a foreign law must specify if they do not have a prospectus translated into French; and
• Where an EU investment manager does not have access to the ROSA platform (because they don’t manage a French fund) it is no longer necessary to submit updated AMF ESG notification forms by email.

Have a great summer everyone!