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Councils in clear as LGPS firms 'bear risk' under marketing regulations

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The risk of falling foul of regulations on the marketing of financial products and services to Local Government Pension Scheme (LGPS) clients will lie entirely with companies making the promotion, LGC has learned.

Rules regarding the communication of financial products and services under the Markets in Financial Instruments Directive II (MiFID) include tight restrictions on companies promoting products and services to councils classified as ‘retail’ rather than ‘professional’ investors.

Guidance recently issued to firms by the Investment Association, the LGPS Advisory Board and law firm Simmons & Simmons, seen by LGC, says companies can promote retail products to individual councils regardless of a local authority’s status.

However, companies must ‘opt-up’ LGPS clients before promoting professional-only products and services.

The guidance also says LGPS clients should not be “enticed” to opt-up and a request must be issued by councils themselves, which can be done “with prospecting in mind and not only in respect to a concluded mandate/investment”.

It also adds firms should not “actively permit” LGPS clients to attend events featuring financial promotions of non-retail products the council represented cannot acquire.

However, such products could be discussed at events with LGPS clients in “a very generic and/or educational” way.

Under pooled arrangements classified as ’professional’, the restrictions would not apply as long as a firm communicates via the pool rather than under a separate client relationship.

LGC has been told the guidance has been interpreted as the risk of breaching regulations on promotions “lies entirely” with the asset management company as it is its responsibility to check the status of a client.

This followed concern councils may have been held responsible for any breach of regulation.

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