Management Companies Must Demonstrate Distributors ‘Improve Client Service Quality’ – Publications

In its decision dated September 15, 2025, France’s AMF Sanctions Commission established that it is incumbent upon a management company to demonstrate that its distributors actually improve the quality of services provided to clients. The fulfillment of this condition is indeed required to enable distributors to receive inducements over time (AMF Position-Recommendation 2013-10).

Those who closely follow the AMF Sanctions Commission’s decisions will not be entirely surprised: this scenario had already been foreshadowed in earlier rulings (notably its April 29, 2021 decision).

While the rules governing inducements (Articles 314-16 and 325-16 of the AMF General Regulation for MIFID II investment firms, Article 325-16 for independent financial advisers (CIFs), Article 24 of Delegated Regulation No. 231/2013 for AIFMs, and AMF Position 2013-10) are among the best-known provisions to practitioners, some had overlooked the fact that the latter applies not only to those receiving inducements, but also to those paying them (“…shall not pay or receive…”).

The AMF Sanctions Commission has finally applied this principle: a management company that pays inducements must ensure that such payments are intended to improve the quality of services provided to clients.

PRACTICAL IMPLICATIONS

• Merely including a reminder of regulatory obligations in distribution agreements, while useful and advisable, will clearly be insufficient
• Requiring distributors, through the provisions of the distribution agreement, to implement internal control mechanisms on inducements is also likely to fall short
• A previously common, but later neglected, practice—conditioning the payment of inducements on the distributor’s submission of an annual statement confirming that the client was contacted during the 12 months preceding the payment of inducements—may now see renewed relevance

However, there is a risk that such a statement may not constitute sufficient evidence (to use the Sanctions Commission’s own language, merely echoing Article 24 of the AIFM Delegated Regulation), particularly in the absence of any independent verification by the management company.

For example, random audits could be carried out based on documents prepared by the distributor, formalizing the annual assessment of portfolio suitability. The implications for producers could then be significant. In this context, it is hard to ignore the clarification made by the Sanctions Commission at the end of its analysis: “[N]either the activity program nor the annual internal control plans provided by [the management company] include any control of the distributors’ improvement of the quality of services provided.”

Does this mean that such controls are mandatory? Or are they merely one element, among others, that may lead the AMF Sanctions Committee to find that the requirement to demonstrate improved service quality has been met? In other words, could a “converging evidence” approach be applied by combining several supporting elements, such as the distributor’s internal procedures on inducements and the aforementioned annual certificate?

Alternatively, must distributors be required to submit to the management company all annual reports documenting the suitability reviews of their client portfolios corresponding to the inducements received? This maximalist interpretation would represent a major shift for the industry.

Undoubtedly, future decisions will shed more light on the Sanctions Committee’s expectations in this area.