AMF Doctrine Alert: Changes to the doctrine
The Autorité des Marchés Financiers (AMF) on 11 March 2020 published a doctrine (Position/Recommendation DOC-2020-03) imposing obligations on asset managers with the aim of ensuring that information they provide to investors in relation to non-financial criteria (and in particular relating to sustainable investing) is proportionate to the actual importance of these factors in the investment process (the “AMF Doctrine”). The impact of the AMF Doctrine is covered in our OnPoint “New requirements for marketing UCITS and retail-AIFs in France.”
On 27 July 2020, the AMF published an update to the AMF Doctrine. In this Alert, we report on the changes that this update introduces.
WHO IS IN SCOPE? The AMF Doctrine applies to all funds (AIFs or UCITS) that are authorised for marketing to non-professional clients in France (regardless of whether funds or units of these funds are actually only subscribed to by professional clients).
WHEN DO THE CHANGES TAKE EFFECT?
- Any fund making a new notification of cross-border marketing of a foreign-based UCITS to the AMF will need to comply with the provisions of the AMF Doctrine immediately.
- For funds existing on 11 March 2020, they will have to comply with the provisions of the AMF Doctrine by 10 March 2021.
- For funds that made a notification of cross-border marketing of a foreign-based UCITS to the AMF between 12 March 2020 and 27 July 2020, they will have to comply with the provisions of the AMF Doctrine by 30 September 2020.
WHAT ARE THE CHANGES?
The changes can be summarised as:
- the introduction of a new concept of “limited communication” where an approach is “engaging” but not “significantly engaging” for the purpose of the AMF Doctrine;
- for funds not making non-financial criteria a key aspect of their communication, the AMF will no longer permit the inclusion of some non-financial criteria in marketing materials where the communication in question is “very brief and very proportionate,” an approach which was tolerated under the previous version of the AMF Doctrine; and
- the widening of the assumptions as to what is significant in the context of a “significantly engaging” approach.
It is also important to note for the sake of completeness that, for French authorised management companies (ManCos) only, the revised AMF Doctrine includes new recommendations relating to policies for managing controversies and shareholder engagement.
1) Limited Communications
Original Position: the AMF made a binary distinction between:
i) funds that have adopted a ‘significantly engaging’ approach to the consideration of non-financial criteria – these funds could make non-financial criteria a key aspect of their communication; and
ii) funds that do not have a ‘significantly engaging’ approach and do not meet these minimum standards – these funds must present the non-financial criteria in a proportionate manner in the prospectus and the presentation of non-financial criteria in the marketing materials must be “very brief and very proportionate.”
Revised: rather than maintaining the binary approach, the AMF Doctrine now includes three distinct categories:
i) funds that have adopted a significantly engaging approach to the consideration of non-financial criteria (KEY);
ii) a new set of criteria for funds that do not have a significant engaging approach but are permitted to include a “limited” communication detailing the non-financial criteria that their management takes into consideration without being deemed as adopting a significantly engaging approach (LIMITED); and
iii) funds that do not meet the central or limited communication standards (RESTRICTED).
Funds that satisfy the requirements of the new “limited” category (option (ii) above) may include non-financial information (a) in the “Other information” section of the KIID (provided that the information is concise and balanced), (b) in the prospectus (provided that the reference is proportionate to the actual consideration of non-financial information) and (c) in marketing materials (provided that the reference to the non-financial information is concise).
This table summarises the various levels of communication of the AMF Doctrine following the update.
2) Very brief and very proportionate reference to non-financial characteristics in marketing materials no longer permitted
Original Position: for funds not making non-financial criteria a key aspect of their communication, the original AMF Doctrine permitted some non-financial characteristics to be included in marketing materials, provided that they were very brief and very proportionate.
Revised: following the update to the AMF Doctrine to include three categories as explained above, funds that do not meet the central or limited communication standards (i.e. funds that fall into category (iii) “Restricted” above) can no longer include any reference to non-financial characteristics in their marketing materials. The inclusion of “very brief and very proportionate” references to non-financial criteria in marketing materials has been removed. ”Restricted” funds may only refer to the non-financial characteristics in a proportionate manner in the prospectus – not in the KIID, marketing materials, nor the fund name.
It remains to be seen how the AMF determines what is a proportionate reference in the prospectus for a fund not meeting the key or limited communication standards.
3) Widening of the assumptions of significance in the context of a significantly engaging approach
Original Position: the AMF Doctrine identified two approaches that were presumed to be ‘significantly engaging,’ and if adopted by funds, allowed those funds to refer to non-financial criteria as a key aspect of their communications. These approaches required (i) the approach adopted to be engaging in that it “provides in the regulatory documents for measurable objectives concerning consideration of non-financial criteria” and (ii) that the consideration of non-financial criteria must have a significant impact on the objectives of the product, with the ‘significance’ being measured against three specified approaches:
(a) "Rating upgrade" approaches;
(b) "Selectivity" approaches; and
(c) Other approaches.
Revised: the AMF Doctrine has been amended so that there is a new approach against which “significance” can be measured. In addition to (a), (b) and (c) listed above, a new approach has been introduced – “Approaches for ‘extra-financial indicator upgrade’ in relation to the investable universes.” Examples of the extra-financial indicators are:
- Environmental factors: greenhouse gas emissions, volumes of waste produced or recycled, volumes of water consumed or recycled, total or renewable energy consumption, etc.
- Social factors: gender equity in the management of the company, employment rate of people with disabilities, frequency of accidents within the company, overall tax rate.
- Governance factors: number or percentage of independent directors, remuneration policies, etc.
For French ManCos only, new recommendations for managing controversies and shareholder engagement
The revised AMF doctrine introduces a new Recommendation 9 that only applies to ManCos authorised in France. Recognising that ManCos should be particularly vigilant about the presence of issuers subject to controversy in their portfolios, and the potential tensions and concerns with regards to compatibility between the non-financial characteristics of these issuers and the objectives of the fund, the AMF recommends that French ManCos that have non-financial criteria as a key aspect of communication should have policies for preventing and verifying controversies. The AMF wants to ensure that the information disclosed in relation to the non-financial characteristics of these funds is clear, accurate and not misleading.
In addition, the revised AMF Doctrine introduces a new Recommendation 10 relating to shareholder engagement. ManCos are already required, pursuant to the Shareholder Rights Directive, to publish a shareholder engagement policy describing how they integrate their role as shareholder into their investment strategies and must publish an annual report on the implementation of this policy. To encourage the development of best practices in the development of these shareholder engagement policies, the AMF Doctrine recommends that ManCos authorised in France that regularly communicate on the consideration of non-financial criteria should include specific provisions in their shareholder engagement policy.
On 10 July 2020, the AMF announced that non-French UCITS wishing to make non-financial criteria a key element of their marketing communications will need to complete a new form as part of the passport notification file sent to the AMF by their Home Member State Authority. This requirement applied from 10 July 2020. This is discussed in our update “New requirements for marketing UCITS and retail-AIFs in France.”
- Consider your own position. Are you in scope of the AMF Doctrine? Are you impacted by these changes? Do you need to amend any of your existing documentation?
WATCH THIS SPACE
- The AMF states that this is the “first update” of this AMF Doctrine. Further updates may follow.
The AMF has stated that the AMF Doctrine may be reassessed depending on the outcome of the work on the delegated acts of the Disclosure Regulation. Per the Disclosure Regulation, the European Supervisory Authorities are to develop, through the Joint Committee, draft regulatory technical standards by 30 December 2020.