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For the past 2 decades, Global Sales Compliance (GSC) has worked closely with AIFM/Asset Manager marketing and sales teams to provide compliance advisory and sales practices guidance on cross-border marketing rules.

During this experience, we have heard various feedback about cross-border marketing compliance from the industry generally as well as clients. 

Generally speaking, there is a lot of confusion and misperceptions in the financial services industry about cross-border marketing compliance, thus fuelling myths that we aim to dispel. 

In the first of our series of blogs on Key Myths of Marketing Compliance, we examine the initial 5 industry-wide myths we have observed.

What are cross-border marketing compliance myths?

A myth can be defined as, “a widely held but false belief or idea”, a “misrepresentation of the truth” or a “popular belief or tradition that has grown up around something or someone”. 

The myths in relation to cross-border marketing compliance generally serve to create a false sense of security that no laws apply to cross-border marketing and/or that this activity is risk-free. 

Myths: The power of repetition

Sales compliance myths that are repeated over and over without any clarification by regulators or law firms become something like a tradition (close to gospel) and taken as generally accepted industry-wide practices. This is where myths become dangerous in relation to cross-border marketing compliance. 

Below are a mix of actual and implied statements we have heard made by financial services industry players including fund managers, financial institutions and distributors about cross-border marketing compliance. These widely held mythical beliefs become excuses for non-compliance with local marketing regulations. 

KEY MARKETING / SALES COMPLIANCE MYTHS

Myth #1: Flying below the radar. “We are not subject to any local laws on marketing or solicitation because we are ‘flying below the radar’, operating below the threshold level at which marketing laws are triggered.” 

Myth Dispelled: Solicitation of funds or the provision of financial services is a regulated activity which is subject to local country laws. Read our blog post Cross-Border Marketing Compliance: What you need to know.

Myth #2: Business-to-Business. “We are only having a B-to-B conversation about our funds. Can’t two companies just have a dialogue together about our funds and investment process without worrying about triggering any marketing laws?”

Myth Dispelled: Regulators consider solicitation of funds and financial services a regulated activity even between companies. Read our blog post: Cross-Border Marketing Compliance: What you need to know.

Myth #3: Denial. “We’re not marketing (making proactive outreach) in any foreign jurisdiction, so local marketing rules or cross-border marketing compliance is not relevant to us (an AIFM/Asset Manager). Why do we have investors from foreign countries in our fund?  These were ALL inbound reverse enquiries so no marketing regulations apply to us.”

Myth Dispelled: It is rather unlikely in real life to see multiple and repeated instances of investor subscriptions in the fund from “reverse enquiry” without the fund manager or its sales team breaching the initiative test by making proactive outreach to the investor in some form. See our blog post What is Reverse Solicitation?

Myth #4: Investment capabilities: world-wide waiver of all regulations. “We’re not soliciting our investment vehicles (segregated managed accounts or funds) to any investor cross-border. We are only marketing our investment capability and so we don’t have to comply with local fund marketing regulations or the provision of financial services in any country.”

Myth Dispelled: Regulators generally always consider the substance test in any fund or financial services promotion activity. Any investment capabilities promotion inevitably leads to an investment vehicle discussion with the investor, and this requires compliance with local laws on fund or financial services promotion. 

Myth #5: Institutional investor targets. “We are only marketing to institutional investors in all jurisdictions, so no laws apply to the promotion of our funds or financial services to investors who are institutions, right? We understand institutional investor marketing is world-wide blanket waiver of all laws and regulations. We don’t have to worry about marketing compliance.”

Myth Dispelled: Any promotion of funds or financial services cross-border has to comply with local country regulations, which differ country-by-country. Each country has specific definitions of the category of institutional investors that can be targeted under local exemptions. If you market to the wrong category of institutional investors, you could be in breach of local laws. Read our blog post Cross-Border Marketing Compliance: What you need to know.

See more myths and the truth behind them in our post Key myths about marketing compliance Part II.

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