Marketing restrictions - UK

Funds: In the UK, it is necessary to consider the financial promotion restrictions applicable to marketing activities and the general prohibition rules applicable to selling/provision activities, which in each case may trigger authorisation requirements at a firm level.

There are a number of potential exemptions/exclusions available which may allow a firm to structure its activities so as to not to trigger restrictions or require authorisation, but these are subject to meeting certain conditions and care should be taken to check that the various requirements are met before proceeding to rely on an exemption/exclusion. A firm may also be able to sell units of a fund without triggering restrictions where the services are provided from outside the UK. 

Firms will also need to consider fund level requirements (which include a notification to the FCA and compliance with various other Associated Conditions) where marketing activities go beyond the scope of permitted pre-marketing in the UK. The requirements are more challenging to comply with where marketing to the public. 

Investment Management & Advisory Services (IMAS): Firms marketing/providing arranging, execution of orders on behalf of clients, investment advice and portfolio management need to consider the financial promotion restriction applicable to marketing activities and the general prohibition rules applicable to selling/provision activities. 

As with funds, there are a number of potential exemptions/exclusions available or, where the services are provided from outside the UK, a firm may also be able to provide certain types of IMAS without triggering restrictions.

Are the following activities permitted without: (I) the OFI being licensed; and/or (ii) the Fund being authorised/notified?

The following general marketing activities may trigger the restriction(s) on promotion;

• brand awareness
• activities referring to an investment strategy/particular characteristics
• publishing articles
• product/service line awareness
• speaking at a finance related event, and 
• distribution of business cards.

The chances of the Financial Promotion Restriction and, where relevant, the CIS Promotion Restriction being triggered increase where the general marketing identifies the firm and refers to a product/service line or a fund. Where triggered, firms should ensure the activities fall within an exemption/exclusion, including in particular the generic promotions exemption. See Active Marketing/Selling of Funds below for the most commonly used exemptions/exclusions.  

General marketing activities are however likely to fall outside the scope of fund level notification requirements.

Funds: Workable where activity falls within an exemption/exclusion and depending on how activity structured

1. Fund level requirements

Responding to a reverse enquiry is permitted without triggering the fund notification requirements where: 

• the Conditions for Permitted Reverse Enquiry are met; or
• the fund is a TMPR fund (see Additional Considerations below).

Conditions for Permitted Reverse Enquiry

• reverse enquiry can be specific or general;
• a separate reverse enquiry is not required for each separate transaction;
• a confirmation from the investor should be obtained, before the offering or placement takes place, that confirms the offering/placement was made following a reverse enquiry;
• the confirmation should be stored for at least 6 years; and
• reverse enquiries must be genuine. Investors should not therefore be invited to make general confirmations to the effect that they are happy to be contacted about future opportunities. Any confirmation should only be provided following a legitimate reverse enquiry from the investor.

It will however be more difficult to respond to a reverse enquiry where the request is from a member of the public, particularly given the restrictions on authorised persons marketing unauthorised funds to retail investors. 

2. Firm level requirements

Responding to a reverse enquiry is permitted without triggering the Financial Promotion Restriction (where the firm is unauthorised) or the CIS Promotion Restriction (where the firm is authorised) where it falls within scope of an exemption/exclusion (see Active Marketing/Selling of Funds below for details). Generally the exemptions/exclusions do not require a reverse enquiry, other than certain of the Overseas Communicators Exemptions, the Certified HNW Individuals Exemptions and the One-Off Communications Exemptions only apply where there has been a reverse enquiry. Particular care should be taken with respect to marketing to retail investors as it is unlikely that any of the exemptions will permit marketing to the public as a whole.

Responding to a reverse enquiry is also permitted without triggering the General Prohibition (applicable to selling interests in a fund) where an exemption/exclusion applies or depending on how the activity is structured (see Active Marketing/Selling of Funds below for details). Marketing which is at the initiative of the investor (i.e. which follows a reverse enquiry) is likely to satisfy the legitimate approach condition in the Overseas Person Exclusion.

IMAS:Workable where activity falls within an exemption/exclusion and depending on how activity structured. 

A firm will need to structure activities to fall within scope of an exemption/exclusion to the Financial Promotion Restriction (applicable to marketing activities) and/or the General Prohibition (applicable to provision of IMAS). See under Funds - Firm Level Requirements above and Active Marketing/Provision of IMAS below for details.

Workable where activity falls within an exemption/exclusion 

FCA notification and compliance with the Associated Conditions (see Active Marketing/Selling of Funds below) will not be required where an activity amounts to pre-marketing. Marketing activities typically amount to pre-marketing where they involve communications undertaken in an earlier stage of the marketing process (e.g. draft documents) and do not involve circulation of final documents upon which investors can make an investment in a fund. See the onscreen report for details of the types of documents which can be used to conduct pre-marketing.

However, compliance with the Financial Promotion Restriction (and the CIS Promotion Restriction where applicable) is required, unless an exemption/exclusion is available. A firm would also need to consider the General Prohibition where the pre-marketing activities include regulated activities such as the provision of investment advice or arranging. See Active Marketing/Selling of Funds below for details.

 Workable where activity falls within an exemption/exclusion and depending on how activity structured

It is necessary to consider fund level notification requirements as well as authorisation requirements that apply at a firm level. 

1. Fund level requirements

Private Placement: Unless the fund is a TMPR fund, notification to the FCA and compliance with the Associated Conditions is required where marketing goes beyond the scope of permitted pre-marketing. In the UK, marketing that requires notification generally involves distribution of investor information in materially final form upon which an investor can make a binding commitment. 

Associated Conditions

These relate primarily to:

• reporting;
• disclosure;
• appropriate cooperation agreements being in place between the FCA and the competent authorities of the fund/fund manager; and
• the country where the fund/fund manager is established not being listed as a "Non-Cooperative Country and Territory" by the Financial Action Task Force. 

Certain closed-ended funds may also require an approved prospectus unless an exemption applies. 

Marketing/selling to the public: Unless the fund is a TMPR fund, funds are required to have been recognised on a case-by-case basis by the FCA under the s.272 regime. Funds will only be successfully registered if certain requirements are met. It is unlikely that a closed-ended fund would be recognised as suitable. This route has, to date, only been used in a small number of cases for funds wishing to market to the public, and the application process is generally considered to be lengthy (with a 6 months’ deadline for the FCA to consider complete applications) and onerous. See also under Additional Considerations – Future changes in the UK below for discussion of the future Overseas Fund Regime. 

It will also be necessary to consider the requirements that apply and which derive from the PRIIPs SI when marketing to the public. 

2. Firm level requirements

A firm will need to consider the restrictions that apply to:

• marketing activities; and 
• selling activities (and marketing activities that include regulated activities such as the provision of investment advice or arranging). 

A. Restrictions on marketing a fund

Financial Promotion Restriction: Marketing of funds to investors in the UK is subject to the restriction on making financial promotions unless:

• the firm is an authorised person; or 
• an exclusion or exemption applies. 

CIS Promotion Restriction: An authorised person is also restricted from marketing certain funds (i.e. those which are not a UK-authorised or recognised scheme) to investors in the UK unless an exemption applies. 

The exclusions/exemptions to the Financial Promotion Restriction and CIS Promotion Restriction are broadly similar. The most likely to be relevant are:

• Investment Professionals Exemption: applies to UK authorised persons (e.g. banks, investment firms, insurance companies), the Bank of England and a small number of international organisations, governments and local authorities. 
• High Net Worth Entities Exemption: applies to entities which meet certain criteria (e.g. body corporate, unincorporated association/partnership or trust) and which have a net worth over a certain prescribed threshold. 
• One-Off Communications Exemptions: applies to a non-real time communication or a real time communication solicited by the investor where the communication is made only to one recipient or one group of recipients in the expectation that they would engage jointly in investment activity, the identity of the product/service has been determined having regard to the particular circumstances of the recipient and the communication is not part of an organised marketing campaign.
• Overseas Communicators Exemptions: certain specific exemptions are available for overseas communicators which may be useful if no other exemption is available. The firm will need to ensure that it is relying on the correct exemption depending on its status and the product it is marketing. Note certain of the exemptions only apply where there has been a reverse enquiry.
• Certified HNW Individuals Exemptions: applies to individuals who have certified that they are high-net-worth (meeting certain threshold criteria) within 12 months ending on the date the communication is made. This exemption is only available in respect of funds that make certain types of investments and also only relates to written communications or oral communications to the extent that they are solicited (i.e. it does not apply to cold calling). Certain additional requirements (e.g. specific warnings) may also need to be considered, including for example requirements that apply to authorised persons marketing non-mainstream pooled investments (NMPIs). 
• Self-Certified Sophisticated Investors Exemption: applies to individuals who have certified that they are sophisticated investors within 12 months ending on the date the communication is made. This exemption is only available in respect of funds that make certain types of investments. Certain other requirements (e.g. specific warnings) may also need to be considered, including for example requirements that apply to authorised persons marketing NMPIs. 
• Approval by Authorised Person Exclusion: only applies to the Financial Promotion Restriction. Applies where the content of a non-real time communication (i.e. does not apply to telephone calls or face-to-face meetings) is approved by an authorised person, who will be subject to certain requirements, including compliance with the new FCA regulatory gateway.
• COBS 4.12B Exemptions - Professionals Clients: only applies to the CIS Promotion Restriction. Category 7 "Non-retail clients" is particularly important since this confirms that an authorised person can market a fund to an "eligible counterparty" or a "professional client".

Particular care should be taken with respect to marketing to retail investors as it is unlikely that any of the exemptions will permit marketing to the public as a whole. A written disclaimer is recommended (and in certain cases required) when relying on an exemption/exclusion. 

B. Restrictions on selling interests in a fund

General Prohibition: The selling of units/interests of funds (and conducting marketing activities which amount to the carrying on of a regulated activity) is restricted unless: 

• the firm is an authorised person or exempt person (which is unlikely); 
• the activity is not conducted in the UK. The General Prohibition only applies to regulated activities carried on by the firm in the UK. If the activity (other than investment advice (which is deemed given where it is received)) takes place overseas the firm will not be caught by the General Prohibition; or
• an exclusion applies.

The exclusion most likely to be relevant is:

• Overseas Person Exclusion: applies to overseas persons in respect of certain regulated activities, most notably the provision of investment advice. In order for an overseas person to be able to rely on this exemption in respect of investment advice, the investment advice must be carried on as a result of a legitimate approach, which is an approach to, by or on behalf of an overseas person that either has not been solicited by him in any way or does not breach the Financial Promotion Restriction. An overseas person includes a person who does not carry on any regulated activities, or does not offer to do so, from a permanent place of business maintained in the UK. Where the regulated activity that the overseas person wishes to conduct is arranging, the position is more restrictive. 

Recognition Schemes: A mutual recognition scheme between the UK and Hong Kong has been announced allowing eligible Hong Kong public funds and United Kingdom retail funds to be distributed in each other’s market through a streamlined process. In addition, the UK has agreed arrangements for Gibraltar-based firms to continue to operate in the UK as they did prior to Brexit. 

Marketing/provision of IMAS:Workable where activity falls within an exemption/exclusion and depending on how activity structured

Marketing and provision of IMAS is subject to the Financial Promotion Restriction and General Prohibition and the associated possible exemptions/exclusions as set out under Active Marketing/Selling of Funds above.

The analysis in this section is also likely applicable to the marketing/provision of a single investor vehicle, a segregated managed account or a family office undertaking (although counsel would not typically expect there to be any marketing of a family office undertaking). For single investor vehicles, assessment should be made on a case-by-case basis as to whether the vehicle falls:

• within the definition of a collective investment scheme in which case a firm that is an authorised person marketing such vehicle will be caught by the CIS Promotion Restriction, unless an exemption applies; and/or
• within the definition of an alternative investment fund, in which case the fund level requirements set under Active Marketing/Selling of Funds above will also need to be considered.

Intermediaries

It is not necessary to use a local intermediary where the firm is able to rely on an exemption/exclusion and/or structure its activities to be outside the UK, as applicable. However, a firm may use a locally licensed intermediary to avoid triggering:

• the Financial Promotion Restriction by acting in accordance with the Approval by Authorised Person Exclusion; or
• the General Prohibition by acting in accordance with the Overseas Person Exclusion. For example, this might occur where the person with whom the firm deals is an Authorised Person or where the arrangements the firm makes are for transactions to be entered into by such a person.

Fly-in meetings

May be permitted where conducted in accordance with the terms of an exemption/exclusion. Note in particular:

• the General Prohibition, which will be triggered where the activity is considered to be undertaken in the UK, unless an exclusion applies. Firms should take care that fly-in meetings are not overly regular where relying on the Overseas Persons Exclusion; and
• the exemptions/exclusions to the Financial Promotion Restriction, which are subject to meeting certain conditions, including in certain cases that the activity takes place from outside the UK. Caution is required to check that the various requirements are met before proceeding to rely on an exemption/exclusion. Particular care should be taken with respect to activities at fly-in meetings.

Temporary permissions regime for EEA firms and EEA Funds 

Following the Brexit implementation period completion date, i.e. 31 December 2020 (IPCD), EEA firms and funds no longer benefitted from single market passporting rights into the UK. However, the UK government introduced a temporary permissions regime (TPR) for firms based in the EEA and temporary marketing permissions regime (TMPR) for EEA-based investment funds to enable relevant EEA firms and funds that were passporting into the UK prior to IPCD to continue operating temporarily in the UK. 

The TPR for firms based in the EEA ends on 31 December 2023. The FCA has now determined most of the applications for full UK authorisation from firms in the TPR and expects any firms remaining in the TPR that do not have active applications for full UK authorisation to either apply to cancel their temporary permission or indicate that they expect to enter the UK’s financial services contracts regime to run-off any remaining UK business (if they are eligible).

With respect to the TMPR, in order to take advantage, EEA funds must have taken active steps to notify the FCA of their desire to do so before the end of 30 December 2020. If a fund benefits from the TMPR:

• it can continue to be marketed in the UK in the same manner as was permitted prior to 31 December 2020 for a limited period of up to 5 years; and 
• following the expiry of the relevant time periods, assuming no further deal is agreed between the UK and the EU by that time, the fund will be subject to fund level notification requirements. 

Future changes in the UK

The UK government and regulatory authorities have been consulting on a number of measures to re-shape the UK financial services framework post-Brexit. 

We note in particular the introduction of the Overseas Fund Regime (OFR), a new, streamlined regime that will allow funds domiciled outside the UK in jurisdictions that are deemed equivalent, to be marketed and sold to UK retail investors. The OFR is intended to provide a relatively straightforward process for funds currently marketed in accordance with the TMPR to continue to be marketed and sold to UK investors once the TMPR expires. The OFR came into force on 23 February 2022 and it is currently expected that it will be implemented in April 2024.