New rules for cross-border fund distribution implemented in Norway

When the Alternative Investment Fund Managers Directive (the AIFMD) was introduced, it regulated "marketing", but not any of the activities that typically happen before the marketing phase. The result was that this was left to the discretion of each jurisdiction. Most EU/EEA jurisdictions have accepted some form of "pre-marketing", but practice has varied. The EU pre-marketing rules ensure more uniform practice in the EU/EEA area.

Member States are required to allow managers of alternative investment funds to pre-market in the EU/EEA area. The rules define pre-marketing as the "..provision of information or communication, direct or indirect, on investment strategies or investment ideas by an EU AIFM or on its behalf, to potential professional investors…", and include a formal notification process for pre-marketing.

EU/EEA managers wishing to pre-market their EU/EEA alternative investment funds in another EU/EEA state will have to notify their home state authority of this within two weeks after the start of pre-marketing activities. The notification should state in which EU/EEA countries pre-marketing will take place, and during which time. The pre-marketing activities should be briefly described in the notification. The EU/EEA manager will have to ensure that pre-marketing is adequately documented. 

It is important to note that pre-marketing activities will have to be undertaken by the EU/EEA manager itself or third parties in the form of authorized EU/EEA managers of alternative investment funds, authorized EU/EEA investment firms, tied agents of such investment firms, authorized EU/EEA credit institutions or authorized EU/EEA UCITS management companies. Non-regulated entities will not be able to pre-market on the manager's behalf in Norway (or in any other EU/EEA jurisdiction). 

In essence, the most important element of pre-marketing is that it should not be possible to commit/invest based on the information or documentation provided during the pre-marketing phase. The manager must ensure that investors are only accepted once the marketing notification procedure has been completed. Any subscription by investors within 18 months following the start of pre-marketing, shall be considered to be the result of actual "marketing", and completion of the marketing notification process for the relevant fund is required before any such investors may be accepted, effectively excluding the ability to accept investors based on reversed solicitation during that same period. 

The Directive and the Regulation do not regulate the rights of non-EU/EEA managers and non-EU/EEA alternative investment funds, so it is up to each member state to decide whether to allow these to use the pre-marketing regime or not.

Unfortunately, the new Norwegian rules on pre-marketing exclude non-EU/EEA managers, regardless of where the alternative investment fund is established. The same applies to Norwegian feeder funds to master funds established or planned to be established in non-EU/EEA countries. Since the definition of what constitutes "pre-marketing" is so wide, it is difficult to see that there would be room for any "pre-pre-marketing" (i.e. the stage "before" pre-marketing), but this remains to be seen in practice. 

The Directive and the Regulation also do not regulate pre-marketing and marketing to non-professional investors, so it is up to each Member State to decide whether to allow managers to pre-market to these or not. 

The initial draft from the Financial Supervisory Authority of Norway did not allow EU/EEA managers to pre-market to Norwegian non-professional investors, but after Schjødt submitted a request during the public hearing process, the rules now open up for this. 

The rules for pre-marketing to non-professional investors are essentially the same as for professional investors, but subject to the fundamental condition that the fund and its investment strategy must be able to obtain a subsequent marketing authorization with respect to non-professional investors in Norway. 

The EU rules on pre-marketing are only relevant for managers authorized under local law implementing the AIFMD. In addition, EuVECA and EuSEF contain rules on cross-border pre-marketing, and these funds may be managed by sub-threshold managers. EuVECA and EuSEF funds may also, subject to certain conditions, be pre-marketed and subsequently potentially marketed to certain categories of non-professional investors. 

Other sub-threshold managers will not be able to pre-market on a cross-border basis in the EU/EEA area, unless the local regime in the relevant jurisdiction allows for this. Norwegian sub-threshold managers may continue to pre-market to Norwegian professional investors, but if the relevant manager is not an EuVECA or EuSEF manager, the right to pre-market and potentially subsequently market in other EU/EEA countries will ultimately depend on the local regime in the relevant jurisdiction.

Norway consequently does not allow for EU/EEA sub-threshold managers that are not EuVECA or EuSEF managers to pre-market and potentially subsequently market their funds to Norwegian investors (both professional and non-professional). 

The Regulation also contains requirements for marketing communications for managers of alternative investment funds, EuVECA funds, EuSEF funds and UCITS funds, and ESMA has provided guidelines based on these requirements (the Guidelines).

The Financial Supervisory Authority of Norway has adhered to the Guidelines since they were made public in 2021, so the formal implementation of the Regulation will be more of a formalization of existing practice than a new regime.

The requirements for marketing communications and the Guidelines formally do not apply to sub-threshold managers unless these are also EuVECA or EuSEF managers, but the Regulation and the Guidelines would provide a suitable framework also for these managers.   

The new rules also introduce uniform rules for certain notifications for both alternative investment funds and UCITS funds, including for de-notification of marketing. This has previously been up to each jurisdiction to decide, and different countries have established different regimes. 

Since the AIFMD at the outset does not regulate non-professional investors, it is also of interest to note that the new rules now include requirements for facilities available to retail investors, however there is no requirement to have a physical presence or to appoint a third party locally. In Norway, these rules will apply to all managers authorized to market to Norwegian non-professional investors, regardless of whether such marketing is carried out on a cross-border basis or not. 

While it is good that these rules are now finally implemented in Norway, there are some issues that we think is worth mentioning.

Firstly, the delayed implementation of EU legislation in Norway is problematic for the Norwegian asset management industry, because it results in an uneven playing field and regulatory uncertainty. 

Secondly, when Norway has the discretion under EU legislation to choose how to regulate the asset management industry, we note that  in some instances the result is unnecessarily restrictive. As an example, the exclusion of non-EU/EEA funds and funds managed by non-EU/EEA managers from the pre-marketing regime has been proposed and adopted without anyone providing good reason to do so. The result of the exclusion is that these managers could, and we have seen this happening in practice, decide not to include Norway in their marketing plans, which again would result in that Norwegian investors have fewer products to choose from than what is the situation for investors in other EU/EEA countries.

Recently we have read stories in the media about Norwegian managers migrating their funds and activities abroad in a bid for a more stable and favorable environment for their business activities. The issues we have mentioned above will most likely not have caused this on an isolated basis, but it certainly does not help the Norwegian asset management industry reaching its full potential, which is unfortunate for the Norwegian asset management industry and Norwegian investors.