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It’s important to not just MIND but CLOSE the Marketing Compliance Gap. Here are 5 telltale signs you have a Marketing Compliance Gap.

Increasingly, Alternative Investment Fund Managers (AIFMs) and Asset Managers are fundraising outside their home country to access pools of institutional capital from leading investors in foreign jurisdictions seeking unique sources of alpha. 

Since 2006, Global Sales Compliance (GSC) has worked closely with AIFM/Asset Manager marketing teams to ensure compliance with cross-border marketing rules. Unless the AIFM/Asset Manager’s funds are seeded 100% by in-house proprietary capital, sales teams need to fundraise from investors in countries frequently located outside their own home jurisdiction (overseas). Marketing teams need support from legal and compliance on various queries about cross-border marketing regulations.

What’s the Marketing Compliance Gap?

It is not uncommon for the AIFM/Asset Manager’s overseas business development campaign timelines to occur far ahead of in-house compliance team’s resourcing and support of cross-border marketing initiatives. This is the Marketing Compliance GAP.

Invariably, the sales team’s cross-border (overseas) marketing campaigns and business development timeline happen faster than in-house legal and compliance resourcing can support cross-border marketing compliance. It’s a game of “catch-up” by compliance to meet sales team’s requirements on overseas marketing. This phenomenon happens in all size firms, both large and small: The business development growth timeline is far ahead of the legal and compliance support platform (timeline).

Here are the 5 telltale signs you have a Marketing Compliance Gap.

Marketing Compliance Gap signs

• Gap Sign #1: AIFM/Asset Manager Management underestimates the scale of cross-border regulatory complexity and therefore does not allocate in-house resourcing of a team of legal and compliance staff to handle cross-border marketing queries and requirements to support overseas fundraising.
• Gap Sign #2: Sales staff set up offices in far-flung jurisdictions or establish on the ground presence in jurisdictions and start conducting solicitation activities without getting clearance from compliance (CCO), frequently in breach of local licensing rules.
• Gap Sign #3: Sales staff contact local law firms to get legal advice on marketing rules in the local jurisdiction. This is because sales cannot get the quick answers they need from the in-house compliance team on local jurisdiction’s marketing laws.
• Gap Sign #4: Management takes the easy way out and buys into “throw away” legal advice from some commercially driven global law firms to label sales activities in foreign jurisdictions as “reverse solicitation”, a high distribution risk strategy. Management falsely believes this approach ends the enquiry and no further resources or company budgets are required to support cross-border marketing campaigns. Read all about this sales practice and its associated risks in our Blog posts: Reverse Solicitation: Is it a Safe Harbour? and Reverse Solicitation: Beware of Throwaway Legal Advice.  
• Gap Sign #5: Your marketing team has no strategic approach to client/country selection all over the globe, using the 100% opportunistic distribution approach of “throw spaghetti at the wall to see what sticks” instead of focusing on “low hanging fruit” countries for which the regulations are easy to comply. The non-strategic distribution approach burns through compliance resources and legal budgets, compliance staff experience burnout, wastes time and potentially increases the firm’s 5 key distribution risks. Read our Blog posts: What’s the Best Way to Fundraise Cross-Border? and our article Efficient Cross-Border Distribution: Insights from the CEO.   

What are the downside risks to a Marketing Compliance Gap?

Signs of “blow ups” could start to appear if a company’s marketing compliance gap persists or grows: lawsuits by investors accompanied by investor rescission rights claims start trickling in.  Investors could claim that the sales team breached local laws, therefore the contracts are null and void and the investor wants their money back. Local offices in foreign jurisdictions conducting activities in breach of local laws start to appear on the local regulator’s radar, with license breach notices. Worse, the local regulator wants an inspection of the local office’s activities leading to regulatory sanctions of the unit. High-profile contentious litigation by clients could potentially ruin the AIFM/Asset Manager’s reputation and subject them to business franchise risk.

See our blog, 5-Key Distribution Risks for cross-border marketing.

How to close the Marketing Compliance Gap:

Allocate company budgets: Management must realise that fundraising overseas in multiple jurisdictions requires headcount resourcing for a marketing compliance platform. You need to staff an in-house team of legal & compliance to manage cross-border jurisdictional requirements.

Build a marketing compliance platform. This platform enables sales and compliance to market across countries in compliance with all country regulations to mitigate the firm’s distribution risks. A marketing compliance platform includes 7 components:

1. Sales Road Map© for every country covering all funds marketed and services provided in that country
2. Legal advice from a trusted local law firm
3. Fund registrations where needed
4. License registrations where needed
5. Sales team training
6. Compliance records
7. Ongoing compliance filings where required

Allocate time to build the platform. If the firm has no marketing compliance platform, it takes time to build it. This is the foundation upon which cross-border marketing can be conducted. It cannot be built overnight, even while ongoing business growth demands marketing compliance support. You’ll be on the right track to mitigate your distribution risks, although you’ll need to protect against potential “blow ups” that could occur during this time gap while building the platform.

See our blog: 5-Key Distribution Risks for cross-border marketing

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