Alternative Investment

Time Up for Reverse Solicitation? Case Study:  Monaco 


This detailed explanation of a practice, and how regulators apply it in jurisdictions such as Monaco, sheds light on the world of fund and financial products distribution and marketing. We hope wealth management readers find this of value.

This news service is pleased to share insights about a
practice affecting distributing and marketing funds in the
European Union – “reverse solicitation.” It is the sort of
complex area that wealth managers whose clients are involved in
hedge funds and private equity portfolios, for example, must be
aware of. The authors of this article are Geoffroy Michaux
(pictured below), managing partner AML Monaco Advisory,
founder and partner GPM Avocats, and Cathy Brand (main
picture), CEO Global Sales Compliance Ltd.® The usual
editorial disclaimers apply to views of guest contributors. Jump
into the conversation! Email



Reverse solicitation as a sales practice is under increasing
scrutiny by country regulators and the European Securities and
Markets Authority (ESMA). In December 2021 the new chair of
ESMA, Verena Ross, wrote to the European Commission regarding
reverse solicitation in the context of the Cross Border
Distribution of Funds regime (“CBDF”).  The letter was
issued following a previous 2021 request for evidence from the
European Commission on the levels of the use of reverse
solicitation in the EU.  

ESMA has conducted surveys of several National Competent
Authorities (“NCAs”) about their knowledge of the prevalence and
use of Reverse Solicitation by Alternative Investment Fund
Managers (AIFM)s and asset managers. Many NCAs suspect that
reverse solicitation is being “over-used” (abused) as a sales
practice to circumvent EU rules on AIFM/AIF passporting under
AIFMD or notifications under NPPR, UCITS passporting requirements
and/or to circumvent MiFID-II licensing rules for the promotion
of funds in the EU, especially in light of Brexit. This article
will focus on the use of Reverse Solicitation for Alternative
Investment Funds (“AIFs”).  

So reverse solicitation as a sales practice is in
the regulator’s crosshairs 

While the principality of Monaco is a third country with respect
to the European Union (EU), it is still an important example of
how reverse solicitation, which was a previously “tolerated sales
practice” with investors in Monaco, is now prohibited and how the
Monaco regulator, the “Commission de Contrôle des Activités
Financières” (Financial Activities Supervisory Commission)
(“CCAF”) has addressed reverse solicitation through legislation.

In this SRMO news article, we analyse Monaco as our reverse
solicitation case study for legal and compliance insight
into reverse solicitation. The Monaco legal perspective is
provided by expert Monaco counsel Geoffroy Michaux, and marketing
compliance commentary is from Global Sales Compliance Ltd.®,
cross-border marketing compliance consultants.  

Monaco legal perspective:  AML Monaco

Because the principality of Monaco is not a member of the
European Union, EU regulations do not apply in Monaco. Monaco is
under no general obligation to transpose EU Directives into
Monegasque legal order. However, under a monetary agreement
between the European Union and the principality of Monaco of 29
November 2011 (1) (the “Monetary Agreement”), the principality of
Monaco shall, pursuant to article 9 of the monetary

a. apply all appropriate EU legal acts or rules listed
in Annex A relevant to the application of Article 11(2),
including those which are directly applied by the French Republic
or those measures taken by the French Republic for the
transposition of the relevant legal acts or rules in accordance
with the modalities set out in Articles 11(2) and 11(3);

b. adopt measures to comply with the legal acts or rules
listed in Annex B, which are either directly applied or
transposed by the Member States, in accordance with the
modalities set out in Articles 11(4), 11(5), and 11(6) of
this Agreement, in the following fields:

— banking and financial legislation, as well as the
prevention of money laundering in the domains and in accordance
with the modalities set out in Article 11[…]

Relating to financial products and their distribution, and within
the framework of the Monetary Agreement, EU Directive
2011/61(AIFM) and 2014/65 (MiFID II) have only been incorporated
into the Monegasque legal order in 2021 (2). 

Therefore, and until recently, neither the concept of “marketing”
or “pre-marketing” of financial products in the principality of
Monaco, nor the relating practices, including their distribution
products, were specifically addressed under Monegasque law. 

Prior to that, the only applicable piece of legislation
applicable to financial activities in Monaco in general, was
law 1,338 (3), under which the exercise of any financial
activity in the principality (as defined in the said law) is
subject to obtaining a licence from the local regulator

Accordingly, foreign managers were not allowed to directly market
their products to any investors in Monaco. Only duly authorised
and CCAF-licensed entities could distribute financial products in
Monaco, within the framework of a “distribution agreement.”


However, applicable regulations did not formally forbid informing
potential investors residing in Monaco in response to an
unsolicited approach from that investor (the so-called reverse
solicitation), and practice had it that reverse solicitation was
tolerated provided that:

— the unsolicited approach was not a recurrent scheme;

— the fund manager was at all times able to prove that the
initial solicitation was initiated by the investor;

— meetings and/or transactions took place outside Monaco;

— the fund manager had no physical or legal presence in

This “loophole” practice raised a very high degree of uncertainty
and risk for both CCAF-licensed entities; non-Monegasque managers
and financial entities, and the Monegasque financial sector had
requested clarification on this practice from CCAF for a very
long time. 

It has finally been heard through the enactment of law 1.515
dated December 23, 2021, which modified law 1.338 as at 7 January
2022, in the perspective of the adhesion process of the CCAF to
the International Organization of Securities Commissions

Under the new law: “Non-licensed companies are
prohibited under the present law from canvassing, whether based
on active or reverse solicitation, in order to offer, financial
services or financial products, regardless of the place and
medium used.”

This new piece of legislation raised many questions from
CCAF-licensed entities, local legal practitioners and foreign
managers and financial entities as to the actual intention of the
legislator to completely forbid the marketing and distribution of
financial products to all Monaco-based individual and entities as
no exceptions were included in law 1.515.


Law 1.529 of 29 July 2022 clarified this matter establishing
a number of exceptions (4), for (i) institutional investors, (ii)
CCAF-licensed entities and (iii) clients of such licensed
entities provided that such canvassing is conducted through such
CCAF-licensed entities. Also, the prohibition does not apply to
events organised in the principality gathering professionals from
the banking and financial sectors, subject to prior notification
to the CCAF.

On the contrary, law 1.529 establishes a clear prohibition of
unrequested solicitation, carried out remotely, by any
non-CCAF-licensed entity with a view to offer, regardless of the
place or the means used, services, financial instruments, or
products, to people domiciled in the principality, except when
the person domiciled in Monaco is a client of such entity. 

Finally, Article 29 of law 1529 creates an Article 29-2 in law
1338 prohibiting CCAF-licensed companies from carrying out
unrequested solicitation at the investor’s domicile, residence,
or place of work, with a view to offering services, financial
instruments or products to people domiciled in the

Marketing Compliance Perspective:  Global Sales Compliance

For the past two decades, GSC Ltd. has investigated the sales
practice of reverse solicitation with our legal counsel network,
including Monaco. We have queried over 50 law firms in 50
jurisdictions about whether AIFMs and asset managers can utilise
the sales practice of reverse solicitation as a regulatory
carve-out, waiver or exemption from local country fund marketing
and licensing laws with respect to the cross-border solicitation
of funds and/or financial services.  

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