FRANCE Trends and Developments Contributed by: Hugues Bouchetemble and Sophie Perus, Kramer Levin Naftalis & Frankel
ers (AMF) before being marketed to retail clients. It must also appoint a custodian and a manage - ment company. Given that the qualification criteria for “other AIFs” is very broad and gives little visibility to French market participants, the European Secu - rities and Markets Authority (ESMA) has clarified some of these conditions. Among the clarifica - tions made by ESMA was the exclusion of “other AIF” status when investors have day-to-day man - agement powers over the company’s operation - al activities. This makes it possible to distinguish passive investors, such as those who subscribe to an investment fund, from active investors who are involved in the company’s operational man - agement, which they do not entrust solely to the management company. Under these conditions, the main focus of the professionals structuring such deals was to ensure that the investors had day-to-day management powers over the com - pany’s operations. However, recently, the French regulator interpreted this condition for the first time. The regulator began by stating that such pow - er must be direct. This means that it must not be filtered through an executive committee, a management committee or a board of direc - tors. The regulator has also specified that this power must give investors greater rights than those already granted to them by law. By way of illustration, this means that giving investors the same powers as those they already enjoy at general meetings is insufficient. Since then, noting that professionals provide for such rights when structuring transactions, simply to avoid being classified as “other AIFs”, the regulator wishes to go even further and verify, among oth - ers whether these rights are significantly greater than those already enjoyed under ordinary law, or by verifying whether these investors actu -
ally exercise their rights in an effective manner. These criteria, which are partly subjective, cre - ate a lack of visibility and legal certainty for the market. They may lead to the transaction being reclassified as an “other AIF” even though this was not the intention of the parties, particularly when these transactions are reserved for a very One of the main obstacles to allowing financial investment advisers to distribute unlisted trans- actions is that they are prohibited from providing RTO (reception and transmission of orders) – ie, receiving subscription forms and transferring them to the producers (or custodians, provided they are authorised). This led to the emergence of the practice of sending subscription forms to the issuing company itself rather than to a regu - lated institution. small number of investors. Scope of the RTO service Since then, the RTO service has been redefined to cover subscription forms sent to any third par - ty. This means that financial investment advisers, who are responsible for most of the fundraising for these products, cannot receive subscription forms and send them to the issuer, even if the issuer is not regulated. Investment service restrictions The offering of unlisted products by financial investment advisers is in principle prohibited, insofar as this activity constitutes the service of placing of financial instruments without a firm commitment basis, which is a service that they are not authorised to provide. The only exception is where the product quali - fies as a savings product. This category includes structured products and investment funds, including AIFs. This means that when financial investment advisers are involved in marketing
208 CHAMBERS.COM
Powered by FlippingBook