Introduction
In July 2024, a series of thematic short inspections, "SPOT", was conducted on the commercial documentation of French and foreign collective investment schemes (CIS). These inspections particularly focused on the integration of environmental, social, and governance (ESG) characteristics in promotional documentation. The primary goal of these inspections is to ensure that the information provided to investors is clear, accurate, and not misleading.
Context and Scope
The inspections were carried out on six investment service providers (ISPs), mostly private banks, distributing French and foreign CIS. These institutions either create their own commercial documentation or use that of the asset management companies (AMCs) of the CIS. The inspections focused not on the producers but on the distributors who have direct contact with investors.
Applicable Regulations
The inspections are based on several regulations, including Article L.533-12 of the Monetary and Financial Code (MFC), which requires all information, including promotional communications, to be clear, accurate, and not misleading. Other directives include the AMF's (Autorité des Marchés Financiers) positions and recommendations 2011-24 and 2020-03.
Methodology and Themes
The investigations focused on the system implemented for commercial documentation, including ESG aspects. The aspects studied included definitions and use of commercial documentation, the control system, and distribution agreements between ISPs and AMCs.
Findings and Analysis
Commercial Documentation System
The commercial documentation is mainly created by the AMCs of the distributed CIS. However, it was found that distributors do not systematically review these documents before dissemination, especially when the AMC belongs to the same group as the distributor.
Best and Worst Practices
ISPs have not adopted a formal definition of commercial documentation, although the AMF’s 2011-24 position-recommendation provides one. Most institutions have a list of documents considered promotional communications, but without a formal definition, which can be seen as a poor practice. However, providing training on ESG requirements and using checklists to verify commercial documents are observed as good practices.
Analysis of Commercial Documentation Integrating ESG Characteristics
The inspections revealed that ESG characteristics are not sufficiently highlighted in commercial documentation. The AMF's 2020-03 position-recommendation on communicating extra-financial criteria is not widely applied by the institutions inspected. This is partly due to the complexity and evolving nature of ESG regulations.
Proportionality and Consistency of Information
Information on the ESG characteristics must be proportional and consistent with the regulatory documentation content. However, several analyzed commercial documents showed inconsistencies that could mislead investors.
Availability and Balance of Information
Commercial documents must include warnings about the potential limitations of extra-financial strategies as visibly as the advantages. However, these warnings are often absent or not prominently displayed.
Use of the Term "SRI"
If the term "SRI" (Socially Responsible Investment) is used, it must be specified if the CIS has the SRI label. If not, this must be clearly indicated in the commercial documentation.
Conclusions and Recommendations
The SPOT inspections identified several good and poor practices among the panel of ISPs. Institutions must strengthen their processes for reviewing and validating commercial documents, particularly for ESG aspects. It is also crucial to incorporate the requirements of the AMF's 2020-03 position-recommendation into the creation of commercial documents to ensure clear, accurate, and not misleading information for investors.