Regulation

What is financial promotion?

Financial promotion refers to an invitation or inducement that encourages people to engage in investment activity, which is communicated in the course of business. It is a heavily regulated area that requires all promotions, including those on social media, PPC, digital, and print media, to be standalone compliant and clear, fair, and not misleading. Additionally, promotions must not lead on past performance and should include all relevant risk warnings.

The Financial Conduct Authority (FCA) is the conduct regulator for financial services firms and is responsible for setting out rules and guidance on financial promotions. When the FCA finds a financial promotion to be misleading, they can ask the firm to change or remove the advertisement, write to customers who may have been misled, warn or fine the firm, or ban the promotion.

Treating customers fairly

Treating customers fairly is a set of six principles that financial services firms must follow when dealing with their customers.
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1. Fair treatment 

FCA want companies to do the right thing because it’s in their corporate blood to do so. It’s all about integrity and honesty right from the outset, and making sure that everyone knows where they stand.​ 

Ex: If you have a large fund and people want money back, PM needs to sell shares in order to have the liquidity to return money back hence may sell shares at a lower price of current value, hence the value of the fund goes down. Investors still in the fund receive unfair treatment. That is why you close a fund to protect existing investors (fair treatment). Marketing is very important in how you convey the message.

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2. Meeting investors needs

Specific to retail investors. Many advisors or platforms use ATR (attitude to risk) tools where they try to assess how long th investors have, primary objectives, how much risks they can take so that investors get what they will get from the investment ​.

Ex: An example of this would be selling a 35 year mortgage term to a customer who’s five years away from retirement.


3. Most important principle from a marketing perspective: tell investors what’s going on an ongoing basis within the product.

4. Suitability

Advisors always have to produce a suitability report for their clients. As a platform/fund manager, you can ask an advisor to produce a report. Ex. Of an old woman investing in Vietnamese equities ​ 


5. Setting expectations  

An example of the correct way to set expectations in asset management could be providing investors with historical performance data of a particular fund or strategy, along with an explanation of the risks associated with the investment. The asset manager could also provide projections of potential returns, based on past performance and market trends, while also highlighting that these projections are not guaranteed and that there is always the potential for losses.


6. Ability to get your money back.  

On platforms, it is much easier with mainstream mutual funds. You do everything on the platform, instead of selling directly to the manager, getting the money, and then invest with another manager ​ 

Ex: In short, if you want to switch providers, make a claim, or even complain, it must be simple to do. 

Put it in writing is no longer an acceptable response when a customer wishes to complain or make their concerns known. For example, 3 months to switch bank accounts is not a reasonable amount of time, 7 days is. Insurance claims must be dealt with in a timely manner to meet the needs of the claimant.​ 

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Everyone within an organisation has to have these principles in mind and keeping them in mind in everything they do ​.

Marketing of Retail Funds

Every country has a regulatory body and framework.

There are three EU investment fund regimes (UCITS, AIFMD & NPPR) with different rules.

Fund registration is essential to promote funds to retail investors in a country. However, when targeting professional investors, there are far fewer restrictions, and funds don’t need to be registered.

A company can also build its brand before registration by promoting thought leadership, content, etc., as long as it doesn’t promote specific investment vehicles to the retail audience.

UCITS, Undertaking for Collective Investment in Transferable Securities, constitutes most of the retail funds in the EU.

Under the UCITS regime, UCITS established and authorized in one EU member state can be sold across the border into other EU member states without the requirement for additional authorization.

The European passport is central to the UCITS product as it enables fund promoters to create a single product for the entire EU rather than having to establish an investment fund product or a jurisdiction-specific basis. Therefore, upon completion of the appropriate notification procedure, a UCITS established in one member state can be sold in any other member state without the need for additional authorization.

Notification Procedure

Under the UCITS regime, the notification procedure for cross-border distributions of UCITS comprises a simple electronic regulator-to-regulator communication. It comprises the following documents (collectively known as the “Notification File”):

  • Standard model notification letter and accompanying documentation completed by the UCITS.
  • Standard model attestation completed by the regulator in the UCITS home member state (the home regulator).

It should be noted, however, that additional requirements are applied in certain EU jurisdictions.

A UCITS intending to market in another member state must complete and submit to its home regulator, via a designated email address, a standard model notification letter outlining details with respect to the UCITS.

There is also a fee to pay, which varies from country to country, but it is generally quite expensive (more expensive to authorize alts funds).

The UK:

The UK cannot use UCITS funds. Many countries have established temporary permission periods, but this is going to end. France is more rigid.

The UK has also set one up the other way so European funds can be sold in the UK.

Switzerland has made sure the process of registering and authorizing funds is straightforward in the EU. They have to be regulated with the Swiss regulatory body, and they charge them a high fee.

Issues:

Can get expensive and require different disclosures.

Will also be in the wrong language.”