Pre-marketing and the BaFin consultation paper

On 12 August 2021, BaFin released a consultation paper in relation to its existing "Frequently asked questions about the marketing and acquisition of investment funds pursuant to the German Investment Code (Kapitalanlagegesetzbuch - KAGB)" as of 16 March 2018 (BaFin FAQs). The consultation period runs to 13 September 2021.

In the consultation paper, BaFin proposes to amend the existing BaFin FAQs with respect to information on its administrative practice regarding pre-marketing, such as the procedure for submitting pre-marketing notifications to BaFin and reverse solicitation. As we note below, many questions in relation to the new pre-marketing rules remain.

Pre-marketing and reverse solicitation; lack of guidance in case of a simultaneous occurrence

Section 1.1/1.3 of the consultation paper proposes the following clarification in relation to the 18 month lock-up period of subscribing to an AIF which has been mentioned in pre-marketing materials:

Within 18 months from the commencement of the pre-marketing of an AIF, an investor may only subscribe to that AIF if the AIF has already been successfully registered for distribution.

While the consultation paper proposes to clarify that there is no case of marketing or pre-marketing, where the initiative to subscribe to units or shares in an AIF comes from the potential investor (so-called reverse solicitation), BaFin does not provide for definite guidance on the exact interplay between pre-marketing and reverse solicitation.

This raises a practical question, in which the AIFM - to take a simple example - has two potential investors:

Investor A has been contacted actively by the AIFM with pre-marketing information of an AIF , while Investor B  has approached the AIFM on his own initiative with respect to (the investment strategy of) such AIF without having been pre-marketed to by the AIFM.

In this respect, the consultation paper lacks a clear statement whether the AIFM may accept subscriptions from Investor B within 18 months (i) after having commenced pre-marketing to Investor A and (ii) without already having completed the relevant marketing notification procedure.

In other words, is it possible to distinguish between Investor A and Investor B to the effect that Investor B's subscriptions can be accepted by the AIFM in line with section 1.4 of the consultation paper, which states that in the case of reverse solicitation there is no pre-marketing? Put another way, in the case of investor B, can you disregard the AIFM's pre-marketing to Investor A and prior completion of the relevant marketing notification procedure for such AIF?

In absence of further clarification by the BaFin, in our view there should be a more restrictive interpretation: Even if Investor B has not been individually contacted as part of pre-marketing of an AIF, but pre-marketing of that AIF has taken place in relation to Investor A, subscriptions from either investor may only be accepted if the fund has been successfully registered for distribution in Germany.

Procedure for submitting pre-marketing notification letters to BaFin

In relation to the filing of pre-marketing notification letters, the consultation paper proposes the submission of such letters to BaFin via email. It does not contain any statement, though, as to whether such letters must be in German or if an English language version is also acceptable. Since the German Federal Administrative Procedure Act (Verwaltungsverfahrensgesetz) states that the official language is German and, in line with the BaFin guidance notices in relation to the relevant marketing notification procedure (which explicitly state that notifications must be submitted in German), in our view AIFMs should submit pre-marketing notification letters in German or at least in a bilingual format.

While the KAGB states that a third party will be subject to the pre-marketing rules, submission of pre-marketing notification letters by third parties are not required/accepted by BaFin. Therefore, only the AIFM itself is required to submit a pre-marketing notification letter.

Lack of guidance in relation to information to be provided in the pre-marketing notification letter

The consultation paper offers no further guidance on what information must be provided in the pre-marketing notification letter with respect to "a list of the AIFs and compartments of AIFs which are or were the subject of pre-marketing". As a result, it is unclear, whether this requirement is to be read that only such AIFs must be listed along with the AIF which is notified to BaFin on the same date or whether this list must include any and all AIFs which are, or have been, the subject of pre-marketing by the AIFM since the pre-marketing rules came into force.

Again, in the absence of any further guidance by BaFin in this respect, we take the view that the latter is required in order to provide the BaFin with a complete list.

In addition, BaFin has provided no guidance on the content of the "brief description of the pre-marketing" in respect to the case if pre-marketing is on-going until the respective AIF will have successfully registered for distribution. In this regard, the following question arises: Is it sufficient to disclose only the pre-marketing activities that have already taken place at the time of notifying BaFin, (for example,  that there have been discussions on an investment strategy)? Or should the information also include anticipated pre-marketing activities, such as further supporting documents and presentations, even though, the scope of further pre-marketing activities may still be unclear at the time the letter is submitted to BaFin?  

Unfortunately, many practical questions still remain as to how an AIFM is meant to fulfill the requirements of providing the relevant information in the pre-marketing notification letter. For further guidance on pre-marketing and marketing notifications, please refer to our client note.

In view of the above, we are happy to provide you with practical assistance to support you to file the respective notifications with BaFin.