Europe: Reverse Solicitation in the EU Attracting Regulator Scrutiny

By: Philip Morgan

In a letter to the EU Commission published on 3 January 2022, ESMA has drawn attention to the fact that most EU regulators do not request or hold information on the extent of the offering of AIFs into the EU on a reverse solicitation basis (as opposed to through active marketing). 

Notable exceptions are Italy and Cyprus. CONSOB has reported that in Italy 25% of the total subscriptions in funds gathered by Italian asset managers directly were done on the basis of reverse solicitation.  It seems that this relatively high figure may have raised eyebrows, and sharpened ESMA’s focus on the issue.

Pointedly, ESMA refers to the view of several national regulators that “reverse solicitation is used in practice to circumvent the rules of the third-country and EU passport regimes.” For ESMA this “raises some concerns in terms of investor protection but may also create an unlevel playing field between EU asset managers and non-EU asset managers operating in the Union via reverse solicitation. However, this assumption could not be confirmed by any tangible data from NCAs.” I.e. there’s an element of guess work, but ESMA wanted to go public with this statement anyway, and thinks that there could be a problem. Notably, ESMA concludes by suggesting that the EU Commission might wish to consider introducing an EU-level reporting requirement relating to the use of reverse solicitation. 

Greater regulator visibility on reverse solicitation seems unlikely to be a positive development for asset managers who take in capital in this fashion, regardless of the degree of care taken in ensuring full compliance with relevant regulatory requirements, and we will accordingly be keenly awaiting further developments.