Associate
Analysis & trends
Evidence of Enhanced Quality of Service by Distributors: A New Challenge for Management Companies?
The AMF Enforcement Committee’s decisions of 9, 15 September and 10 December 2025 clarify the obligations of portfolio management companies (AIFMs) concerning inducements paid to distributors. The Committee reiterated the prohibition of such payments unless there is evidence of an improvement in the quality of service provided to investors. AIFMs must therefore reflect this requirement expressly in their distribution agreements and implement proportionate, robust and auditable internal control frameworks. However, the lack of clear practical guidance on the nature and standard of evidence required continues to create legal uncertainty.
On 9, 15 September and 10 December 2025, the Enforcement Committee (Commission des sanctions) of the French Financial Markets Authority (the Autorité des marchés financiers, or “AMF”) issued three noteworthy decisions[1] concerning the “inducements” regime –well known to industry professionals–, addressing for the first time the checks that portfolio management companies (“AIFMs”) must perform when paying retrocessions to distributors of their products.
As financial regulation specialist will recall, when AIFMs use distributors to market the funds they manage, it is customary to remunerate those distributors by rebating to them a portion of the subscription fees and, where applicable, a share of the management fees collected for the collective management services rendered to the funds –and thus indirectly to their investors.
When such payments relate to the management of alternative investment funds (“AIFs”), they fall under Article 24 of Delegated Regulation (EU) no. 231/2013, which requires AIFMs to “demonstrate” that:
(i) investors in the AIF are clearly informed, prior to subscription, of the existence, nature and amount of the retrocessions; and
(ii) the payment of retrocessions to the distributor (a) is intended to enhance the quality of the service provided, and (b) does not impair the AIFM’s duty to act in the best interests of the AIF it manages or its investors.
Distributors themselves –such as financial investment advisers (conseillers en investissements financiers, or “CIF”) and investment firms– are subject to parallel obligations under the MiFID II Directive[2], as transposed into French law and further detailed in the AMF General Regulation and the guidance of both the AMF and ESMA. They too may be denied such payments unless they can demonstrate compliance with the abovementioned conditions[3].
The Enforcement Committee’s recent decisions concern the upstream stage of the distribution chain –namely, the due diligence required of AIFMs.
Applying the above provisions strictly, the Committee reiterated in its 15 September decision that AIFMs are “prohibited from paying remuneration or commissions to a third party (…) unless they can provide evidence that such payment is intended to improve the quality of the service provided“.
However, the key question remained: what constitutes sufficient proof, and under what conditions must it be obtained?
Because AIFMs generally have no direct relationship with the end client and play no role in the actual delivery of the enhanced service, they depend heavily on distributors to produce this evidence. Cooperation between these two links in the distribution chain is therefore essential.
While those decisions provide useful and practical insights, they nonetheless leave significant grey areas that, unless swiftly clarified by the AMF, risk undermining the legal certainty of AIFMs’ distribution frameworks.
Practical Takeaways
Let it be said: in neither case examined did the Enforcement Committee consider that sufficient evidence of an improvement in service quality had been provided, although the specific circumstances differed somewhat between the three decisions.
In the decision of 15 September, the AIFM had made various tools[4] available to the distributors that were intended to enrich the service to clients. However, the Enforcement Committee held that it could not automatically be inferred that these tools per se resulted in an improvement in the service provided.
The Enforcement Committee further observed that:
- the distribution agreements entered into with distributors “did not impose on [the distributors] any obligation to improve the service rendered or to justify such improvement, and did not provide for any [AIFM] controls on these points, nor any consequences in the absence of such justification“; and
- “neither the programme of operations nor the annual internal control plans submitted by [the AIFM] to the supervisory mission provided for any control by the [AIFM] over the improvement of the quality of the service provided by distributors.”
In the decision of 9 September, although the distribution agreement appeared to condition the payment of retrocessions on the distributor’s performance of certain due diligence obligations –thereupon reflecting the regulatory requirements–, apparently these provisions were not accompanied by any effective control. This contrasted with the AIFM’s internal “Client Onboarding and Relationship Monitoring” procedure, which did provide for distributor controls on a declarative basis.
Finally, in its decision of 10 December 2025, the Enforcement Committee observed that the AIFM had distribution agreements providing for (i) an obligation on distributors to contact clients at least annually to verify that the AIFs subscribed remained appropriate to the clients’ profile, and (ii) oversight of the distributors’ activities. Nevertheless, the Enforcement Committee found that no documentary evidence had been produced to demonstrate that such controls had in fact been carried out, either in respect of the distributors’ contractual obligations or the remuneration paid to them.
From these observations, we can identify the key elements that SGPs should now incorporate into their distribution frameworks:
- first, the inclusion in distribution agreements of a clear obligation on distributors to improve the service provided, with specific expectations as to the actions to be undertaken, and payment of retrocessions made conditional upon their effective execution;
- second, the establishment of suitable and effective internal controls by the AIFMs to ensure compliance with this obligation and to create an evidentiary record.
It is precisely this second aspect, however, that remains fraught with uncertainty.
Persistent Grey Areas
In both cases under review, since the AIFMs were unable to demonstrate an improvement in service quality, the infringement was automatically established, leaving no room for real debate as to the evidentiary standard or the nature of the required controls.
This issue is crucial: as is often the case in compliance matters, various types and levels of control exist, differing significantly in both intensity and cost.
One could imagine, as in the system examined in the 9 September decision, that the AIFM’s control might rely on a declarative basis; in other words, the distributor would have to formally attest to having performed the expected actions and achieved an improvement in the service ultimately provided.
However, this practice that remains widespread in the market, now appears to be on the verge of being disallowed. As confirmed by the decision of 10 December 2025, such attestations are now regarded as “purely declaratory“ and, in the absence of supporting documentation showing that the distributor actually performed the expected tasks, are considered to carry no probative value.
Such a position amounts to considering that distributors would provide false statements –and so, that they would act in bad faith–, which in terms of principles is unsatisfactory.
At the opposite end of the spectrum, AIFMs could be required to obtain comprehensive evidence of the improvement in service (such as suitability reports or client meeting summaries) and to perform detailed reviews based on that material.
If that approach were adopted, allowing AIFMs to perform only limited checks would nonetheless be necessary –for instance, on a sample basis– since imposing full-scale verification would be disproportionate, both in light of the volume of data involved and because a first-level review is already expected to have been performed by the distributors themselves.
The decision of 10 December 2025 appears to confirm this proportionate approach, as the Enforcement Committee criticised the AIFM for “failing to carry out any checks, even on a sample basis, to ensure that the payment of management fee retrocessions to distributors, in the context of the marketing of funds, served the purpose of improving the quality of service provided to investors“.
Accordingly, the performance of checks on a “sampling basis” would constitute an acceptable means of demonstrating that the payment of retrocessions is justified by an improvement in the quality of service provided to investors.
However, there is little doubt that further clarification will be required –for example, from the AMF Board- in order to reconcile the effectiveness of the “inducements” regime with the operational feasibility of the controls required of management companies.
