Reverse Solicitation Under Pressure: A UK Manager, a German Pension Fund and a Dublin Office
Trafalgar Asset Management is a UK firm authorised by the FCA to manage investments. Since Brexit it has no EU passport. A German occupational pension fund, Nordlicht, approached Trafalgar in January after seeing its website. Trafalgar's sales director visited Frankfurt in March, gave a presentation to Nordlicht's investment committee and sent a draft discretionary management agreement. A German law firm says the activity is covered by reverse solicitation because Nordlicht made the first approach. However, Trafalgar's website includes a 'request a meeting' form, its newsletter goes to 4,000 EU contacts, and the Frankfurt trip included a seminar for 30 prospective clients. The firm also has a small Dublin office providing 'marketing support' that is not authorised by the Central Bank of Ireland for investment services. Nordlicht wants to invest €75m. The compliance officer must advise the board before the mandate is signed.
1. Analyse whether Trafalgar can rely on reverse solicitation for the Nordlicht mandate, and identify the facts that weaken that position.
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Reverse solicitation is narrow. It applies where the client initiates the service at its own exclusive initiative and does not permit the firm to market or solicit. The facts weaken Trafalgar's position: the website has a 'request a meeting' form, the newsletter goes to 4,000 EU contacts, and the Frankfurt trip included a seminar for 30 prospective clients. Those are marketing activities, not passive responses. Nordlicht's initial approach may have been unsolicited, but the subsequent presentation, the draft agreement and the broader marketing mean the firm cannot safely assume the exemption covers the whole relationship. The German law firm's opinion should be tested against the actual facts, not the label. The firm should obtain local advice on whether the activities constitute investment services requiring authorisation, and should not sign the mandate until it has a defensible basis: either a local licence, a permitted cross-border route, or a documented reverse solicitation limited to Nordlicht and untainted by the firm's marketing.
2. What are the risks arising from the Dublin office and the EU marketing activities, and what steps should the firm take before accepting the mandate?
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The Dublin office is a significant risk: 'marketing support' can itself be a regulated activity, and the Central Bank of Ireland may take the view that the office is carrying on business in Ireland without authorisation. The EU marketing through the website, newsletter and seminar creates a footprint that may be treated as solicitation in multiple member states. The firm should suspend the EU marketing campaign, conduct a jurisdictional review of all EU and EEA activities, document the basis for any cross-border service, and consider whether the Dublin office needs authorisation or should be closed or relocated. It should also identify existing EU clients onboarded through solicitation and assess whether remediation or notifications are needed. The €75m mandate should be deferred until the permissions are clear. A single local law opinion should not be treated as sufficient where the facts are multi-jurisdictional.
3. How should the firm document its cross-border permissions and client categorisation, and what governance should oversee this?
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Documentation should include a cross-border permissions matrix by jurisdiction and service; client categorisation (retail, professional or eligible counterparty) with the basis; the nature of the client's approach; evidence of reverse solicitation such as dated correspondence and meeting notes; local law advice; and the firm's marketing controls. Governance should sit with the board and a cross-border committee, with compliance having a clear escalation right. The SMF16 and SMF17 responsibilities should be mapped so that no one assumes the sales director owns the permissions question. Sales staff should be trained that 'reverse solicitation' is not a general licence and that marketing triggers local rules. Records should be retained for the applicable period. If the firm cannot document the basis, it should assume the activity is regulated and either seek authorisation or stop.