Fund management regulation

Regulatory framework and authorities

How is fund management regulated in your jurisdiction? Which authorities have primary responsibility for regulating funds, fund managers and those marketing funds?

Fund management is primarily regulated by the Investment Fund Act 2011 (IFA) (implementing Directive 2009/65/EC (the UCITS IV Directive) and Directive 2014/91/EU (the UCITS V Directive)), the Alternative Investment Fund Management Act 2014 (AIFMA) (implementing Directive 2011/61/EU (AIFMD)) and the regulations and executive orders made under these acts. In addition, some elements in the Securities Trading Act (STA) (implementing Directive 2004/39/EC (MiFID)) and the Norwegian MiFID II regulation of 4 December 2017 thereunder (implementing Directive 2014/65/EU (MiFID II)), such as investment advice and fund management under licence to conduct asset management, serves to supplement the regulatory environment.

The Norwegian Financial Supervisory Authority (NFSA) is the regulator responsible for the ongoing supervision of funds and fund managers and for the issuance of supplementary regulations and formal guidance to the aforementioned acts. The NFSA is responsible for ensuring that the business of fund managers is carried out in accordance with applicable laws and regulations, pursuant to the NFSA Act 1956 (NFSAA).

From a regulatory perspective, there are two broad categories of investment funds in Norway: UCITS funds and non-UCITS funds, which are defined as alternative investment funds (AIFs). The IFA applies to all collective fund structures (independent pools of assets that have arisen through capital contributions from an undefined range of persons against the issuance of units in the fund and that consist essentially of financial instruments or deposits in a credit institution). Specific regulations regarding UCITS are set out in Chapter 6 of the IFA, implementing the UCITS requirements, such as investment restrictions, borrowing restrictions and redemption rights. Specific regulations regarding AIFs in the form of mutual funds are set out in Chapter 7 of the IFA and specific regulations regarding AIF management are set out in the AIFMA. AIFs include domestic funds, special funds (such as hedge funds) and other AIFs (such as private equity funds). Domestic funds are funds established in Norway that do not qualify as UCITS and are regulated specifically in Chapter 7 of the IFA, with authorisation from the NFSA to derogate from some of the UCITS requirements regarding investment strategy and redemption rights. Special funds are a subcategory of domestic funds that derogate from an even wider spectrum of regulations, including borrowing restrictions.

Fund administration

Is fund administration regulated in your jurisdiction?

Yes, fund administration falls within the scope of the Norwegian definition of fund management and is thus regulated in the IFA, the AIFMA and the NFSAA.

Authorisation

What is the authorisation or licensing process for funds? What are the key requirements that apply to managers and operators of investment funds in your jurisdiction?

The establishment of investment funds in Norway requires authorisation by the NFSA. Authorisation to establish UCITS in Norway may be given to UCITS managers authorised by the NFSA or by managers authorised within the European Economic Area (EEA), under the ‘passporting’ process (see question 4). AIFs may be established by AIF managers authorised by the NFSA or with authorisation for management of similar funds within the EEA, pursuant to the passporting process.

Each fund shall be authorised separately and the application for fund authorisation shall include the following:

  • the fund’s articles of association as set by the board in the fund’s management company;
  • the depositary agreement; and
  • information about outsourcing, if applicable.

The NFSA shall determine the application within two months of receiving a complete application and authorisation shall be granted if the NFSA approves the management of the particular fund and if the statutory requirements of the fund’s articles of association, depositary and outsourcing are met.

Key requirements for fund managers providing services in Norway are as follows:

  • organisation restricted to limited liability companies or public limited liability companies;
  • authorisation by the NFSA or within the EEA (notified according to the passporting procedure where applicable); and
  • compliance with organisational and business requirements, including a fit and proper assessment, adequate policies and procedures for risk management, conflict of interest management, compliance, remuneration, transparency, valuation, financial reporting, due diligence and other business functions, as set out in the IFA.

A Norwegian alternative investment fund manager (AIFM) applying for authorisation to manage an AIF other than a Norwegian special fund would essentially need to comply with the requirements stipulated above and must be a limited liability company. The formation of the AIF (apart from AIFs formed as Norwegian domestic or special funds) is, however, not contingent upon the NFSA’s approval of the fund rules (or similar documentation).

Territorial scope of regulation

What is the territorial scope of fund regulation? Can an overseas manager perform management activities or provide services to clients in your jurisdiction without authorisation?

Norwegian fund regulation applies to funds, management and other regulated fund activities carried out in Norway or marketed to investors in Norway. Initially a division has to be made between managers established inside and outside of the EEA. In the former case, the manager would need an authorisation in its home country and activities may subsequently be performed in Norway, either from the overseas manager’s home country or from inside Norway, subject to the establishment of a Norwegian branch office. If the manager has already been granted authorisation in its home country within the EEA pursuant to either the UCITS V Directive or the AIFMD, the overseas manager may ‘passport’ its licence into Norway via the competent supervisory authority in its home country, and a separate authorisation from the NFSA is thus not necessary. Following such ‘passporting’ it is also possible for the overseas manager to manage Norwegian funds, provided that the manager’s authorisation in its home country includes management of fund types comparable to the type of Norwegian fund the manager wishes to manage. However, in relation to management of a Norwegian UCITS or a Norwegian domestic or special fund, a separate authorisation must be obtained from the NFSA, which includes approval of the (revised) fund rules. The manager must also ensure that it can make disbursements to unitholders, redeem units, provide investors with required information and handle complaints in Norway. If an overseas manager wishes to manage a Norwegian AIF that is not a domestic or special fund, no separate authorisation from the NFSA is required.

A fund manager established outside the EEA may only perform management activities or provide services to Norwegian investors provided that the manager has been granted an authorisation from the NFSA in accordance with the Norwegian regulatory requirements.

Management of all investment funds in Norway thus requires that the manager is authorised either in Norway or by the authorities in the EEA home state where the passporting procedure applies. There is, however, one exception to the authorisation requirement: in accordance with article 3(2) of the AIFMD, management of AIFs below the relevant thresholds may be carried out without authorisation provided that the AIFMs are registered in an NFSA register. Note that unauthorised, registered AIF managers may only carry out marketing activities to professional investors (see question 7). The exception applies to managers that manage AIFs whose assets under management in total do not exceed either:

  1. €500 million when the portfolios consist of AIFs that are unleveraged and have no redemption rights exercisable during a period of five years following the date of the initial investment in each AIF; or
  2. €100 million for types of AIFs other than those mentioned in (i).

These managers are only subject to Chapter 9 of the AIFMA regarding supervision by the NFSA and the registration and reporting requirements pursuant to the AIFMD.

Acquisitions

Is the acquisition of a controlling or non-controlling stake in a fund manager in your jurisdiction subject to prior authorisation by the regulator?

Acquisition of a qualifying holding in a management company may only take place after the acquirer has notified the NFSA thereof. ‘Qualifying holding’ is defined as a direct or indirect holding in an investment fund management company that represents at least 10 per cent of the capital or the voting rights, or a holding that makes it possible to exercise a significant influence over the management of the manager in which that holding subsists.

Additional authorisation is required when a holding in an investment fund management company exceeds thresholds of 20, 30 and 50 per cent of the capital. The NFSA may refuse such acquisitions within three months of receiving the notification if the acquirer cannot be considered fit to ensure sound and prudent management of the company.

Changes in the qualified holding of authorised managers of funds that fall outside the scope of the IFA (see definition of ‘investment fund’ in question 1) require notification to the NFSA, as such changes are considered changes to the basis for authorisation.

Restrictions on compensation and profit sharing

Are there any regulatory restrictions on the structuring of the fund manager’s compensation and profit-sharing arrangements?

The IFA sets out remuneration rules that govern managers’ compensation and profit-sharing agreements, and implements the UCITS V Directive regarding fund managers. Key requirements are that management companies shall establish and practise remuneration policies and practices that promote sound and effective risk management, consistent with the investment strategy of the funds managed by the management company. The remuneration policies shall apply to employees with material impact on the risk profiles of the management company or funds subject to its management, including senior managers, employees with control tasks and employees receiving similar remuneration as senior managers. The remuneration policies shall be proportionate to the nature, extent and complexity of the business.

The AIFMA sets out similar remuneration rules for AIF mangers, in line with the objective in the UCITS V Directive of harmonising remuneration rules within the capital market and especially in UCITS and AIFs.

UCITS management companies are further subject to restrictions on remuneration from or to anyone other than the investment fund, which is only allowed in the following circumstances:

  • if the unitholders are informed about the type and value of the remuneration, or the calculation method if the value cannot be determined; or
  • if the remuneration is suitable to improve the quality of the business and will not impair the manager’s compliance with the fund’s interests.

These restrictions do not, however, apply to actual costs that ensue or are necessary in order for the company to continue its business, including costs for the depositary, the market place, the securities register and legal advisers unless the cost may raise conflicts with the management company’s obligation to act in an honest and professional manner in accordance with the fund’s interests.

Note that fund managers who offer investment advice or active funds management are subject to the restrictions regarding remuneration from anyone other than the customer (inducements), as set out in MiFID II (implemented in the Norwegian MiFID II regulation). In short, this entails that such fund managers shall not receive any remuneration, discounts or non-monetary benefit from anyone other than the customer, except for minor non-monetary benefits.

Fund marketing

Authorisation

Does the marketing of investment funds in your jurisdiction require authorisation?

UCITS

Norwegian UCITS may be marketed in Norway by foreign managers, provided notification of the marketing is sent to the NFSA, pursuant to the passporting procedure. The same applies to UCITS established in another EEA state, which may be marketed in Norway by Norwegian or foreign managers after the competent authority in the fund’s home state has transmitted notification of marketing to the NFSA, pursuant to the passporting procedure.

AIFs to non-professional investors

AIFs that are not domestic funds may be marketed to non-professional investors by a manager authorised by the NFSA. Managers authorised in another EEA country may apply for such authorisation by providing the following information:

  • a business plan that identifies the fund and the fund’s home country;
  • information about the fund, which is available for investors;
  • a key investor information document (KIID), which fulfils the EU packaged retail and insurance-based investment products requirements (Regulation (EU) No. 1286/2014);
  • confirmation from the home state that the fund can be marketed to non-professionals; and
  • a description of the planned marketing and sale, and the measurements to ensure marketing to non-professionals in accordance with good business practice.

If the AIF is established outside the EEA, the following additional criteria must be met: the manager complies with the AIFMA (except for rules regarding depositaries) and the manager’s home state is not listed as a Financial Action Task Force country.

Foreign investment funds that are not considered UCITS (not covered by the EEA rules corresponding to the UCITS V Directive), may be marketed to non-professional investors in Norway subject to Norwegian authorisation from the NFSA. Such authorisation may be granted on the following conditions:

  • the manager of the investment fund has transmitted such information and documentation to the supervisory authority as required by the NFSA;
  • satisfactory supervisory cooperation has been established between the supervisory authority in the management company’s home state and Norway;
  • the investment fund and its management are subject to adequate supervision in the home state;
  • the investment fund and its management meet the requirements imposed for carrying on business in the home state, and these requirements provide investors in Norway with protection at least in line with the protection provided to them when investing in domestic funds;
  • the manager of the investment fund makes the arrangements necessary to make payments to the participants, redeem units and provide the information that the undertaking is required to prepare pursuant to the rules in the home state; and
  • the sale in Norway of units in the investment fund takes place through one of the following:
    • an authorised management company (with a Norwegian authorisation, an EEA authorisation pursuant to the passporting process or with Norwegian permission for foreign managers authorised outside the EEA);
    • a credit institution entitled to carry out financing activities in Norway;
    • an insurance company entitled to carry out insurance activities in Norway; or
    • an investment firm entitled to provide investment services in Norway.

Norwegian special funds may be marketed to non-professionals provided the fund and the manager comply with Chapter 7 of the IFA, and the market communication makes it clear that the fund is a special fund. The NFSA may, however, restrict the fund manager of a special fund from marketing and selling the fund to non-professionals.

AIFs to professional investors

The marketing of Norwegian AIFs to professional investors may be carried out by Norwegian-authorised fund managers, but also by registered fund managers without authorisation, provided that such managers are covered by the small manager exemptions set out in the AIFMD, as described in question 4.

AIFs established in another EEA state can be marketed to Norwegian professional investors by authorised EU fund managers by notification to the NFSA via the EU marketing passporting procedure, giving the NFSA 20 days to assess whether to deny the marketing in case of non-compliance with relevant regulations.

What marketing activities require authorisation?

The definition of marketing varies depending on the type of investment fund. Marketing of UCITS is defined in the IFA regulation as an invitation or inducements to participate in a fund, which is targeted at or is particularly suitable to have effect in Norway. Marketing of AIFs is, however, defined in the AIFMA as to directly or indirectly offer units or shares of an AIF to, or place such units or shares with, investors, on the initiative, or on behalf of, the manager.

Notwithstanding that the above definitions are different, the analysis of what constitutes marketing and thus requires an authorisation would, in practice, be the same for a UCITS and an AIF, and marketing is considered to be all types of advertising or promotion of funds, such as advertising in the mass media, cold calling, emails, oral information provided at the offices of the fund or its promoter (if the offices are located in Norway) and websites using the Norwegian language or otherwise containing information specific to the Norwegian market or Norwegian investors. All activities aimed at a potential investor, such as information given prior to an investment, are considered to constitute marketing. This means that the scope of marketing activities requiring authorisation is wide.

Territorial scope and restrictions

What is the territorial scope of your regulation? May an overseas entity perform fund marketing activities in your jurisdiction without authorisation?

The territorial scope of the fund marketing regulation is ‘marketing in Norway or marketing activities from outside of Norway which is targeted towards Norway or is in any way tailored to have an effect in Norway’.

See question 7 regarding authorisation requirements for marketing.

If a local entity must be involved in the fund marketing process, how is this rule satisfied in practice?

An overseas manager conducting marketing of a UCITS or an AIF must ensure that payments (eg, dividends), redemptions and disclosure of information relating to the fund can be made in relation to investors. These requirements may be satisfied through the appointment of a local paying agent to be responsible for the aforementioned activities (see question 7).

Commission payments

What restrictions are there on intermediaries earning commission payments in relation to their marketing activities in your jurisdiction?

The general requirements regarding good business conduct in the IFA, AIFMA and STA will apply to such activities. See also question 6.

Retail funds

Available vehicles

What are the main legal vehicles used to set up a retail fund? How are they formed?

‘Retail funds’ are commonly referred to as being funds available and generally eligible for non-professional investors. ‘Non-professional investors’ are defined as investors other than professional investors. ‘Professional investors’ are defined in accordance with the definition set out in MiFID II, implemented in Norway in the STA and the Norwegian MiFID II regulation thereunder. The following apply to funds available to non-professional investors.

Open-ended retail funds

Investment funds are categorised as UCITS or AIF, and the latter includes domestic funds, special funds and other AIFs (see question 1). Open-ended retail funds may be structured as UCITS or domestic funds.

Norwegian ‘investment funds’ are classified as a special type of legal vehicle or entity. All such funds established in Norway have their own business register number and are registered in the Norwegian register of business entities as mutual funds. A Norwegian fund is, however, of a semi-contractual nature, and does not have its own board of directors, managing director or employees. Investment funds may only be established by an authorised fund manager (authorised in Norway or within the EEA where the passporting process is applicable) and funds are formed by adoption of the fund’s articles of association and the NFSA’s approval of the articles and the application for authorisation. The fund manager is appointed in the fund’s articles of association and the manager acts on behalf of the fund. Unitholders in the fund exercise influence in the fund’s management through representation in the management company’s board of directors and not in the fund itself.

Collective investment structures established as legal vehicles other than the above-mentioned ‘funds’, such as a limited liability company (AS) or as a partnership (ANS, DA or KS) or similar foreign entities, may also fall within the scope of Norwegian fund regulation, based on individual assessments. Open-ended funds will usually fall within the scope of the IFA. The AIFMA regulates managers and not funds as such, and is therefore not restricted to certain kinds of legal vehicle. If Norwegian fund regulation applies to such other legal vehicles, the requirements regarding authorisation and establishment by a manager described above apply.

Closed-ended retail funds

Investment funds subject to the IFA shall, in general, be open for subscription and redemption twice a month (open-ended). The NFSA may, however, grant permission for domestic funds, to some extent, and for special funds, to derogate from these requirements and thus be closed-ended funds, which may be available to non-professional investors, subject to the general investor protection rules in MiFID II and the STA. Funds subject to further restrictions than these permitted restrictions fall outside the definition of investment funds and are thus not subject to the IFA and the retail protection therein. Such closed funds are generally not considered retail funds. There are no restrictions regarding the legal vehicle used to establish closed-ended funds in Norway.

Laws and regulations

What are the key laws and other sets of rules that govern retail funds?

The establishment and operation of all investment funds, including open-ended retail funds, are governed by the IFA regulations and effective orders made by the NFSA. In addition, the rules of the specific fund, as well as regulations, guidelines and recommendations by the Norwegian Fund and Asset Management Association, apply. AIFs are also governed by the AIFMA, the AIFM regulations and executive orders made thereunder.

Authorisation

Must retail funds be authorised or licensed to be established or marketed in your jurisdiction?

The establishment and marketing of funds available to non-professionals require authorisation, either from the NFSA or by the regulator in an EEA state where the passporting procedure applies (see questions 3, 4 and 7).

Marketing

Who can market retail funds? To whom can they be marketed?

There are no formal restrictions governing who may market retail funds or the intended recipient of such marketing. Instead, retail funds can be marketed to any type of investor. Furthermore, the marketing entity does not need to be licensed or authorised provided that the marketing does not include the offering of funds or would otherwise require a licence pursuant to MiFID II or under the STA. See, however, questions 7 and 8.

Managers and operators

Are there any special requirements that apply to managers or operators of retail funds?

The IFA generally applies to retail funds, as the Act is aimed at protecting non-professionals. Non-retail funds are, however, subject to specific regulations and exceptions in Chapter 7 of the IFA. The AIFMA provides specific regulation of AIFs marketed to non-professionals, such as the requirement for authorisation (compared with unauthorised registered managers of AIFs to professionals) and the additional requirement for Norwegian marketing authorisation for each fund.

Retail funds are characterised by extensive consumer protection rules whereby a manager of a retail fund must comply with a variety of special requirements that are not applicable in relation to other types of investment fund.

The most prominent requirement is the obligation to act exclusively in the common interest of the unitholders. Furthermore, the manager is required to, inter alia, maintain or cause to be maintained a register of all holders of units in the fund, immediately redeem a unit upon request from a holder and to maintain a suitable diversification of investments in accordance with the principle of ‘risk spreading’ (see question 17).

Investment and borrowing restrictions

What are the investment and borrowing restrictions on retail funds?

Investment restrictions

The investment of retail funds shall follow the risk-spreading principle and be made in financial assets associated with high liquidity, including transferable securities, money market instruments, derivative instruments, units in other UCITS and deposits with credit institutions. As a general rule, however, subject to exemptions, the value of the instruments issued by any single issuer may not exceed 5 per cent of the fund’s value.

Borrowing restrictions

A management company may not raise loans on behalf of an investment fund, impose on the fund surety or guarantee obligations or post the investment fund’s assets as security. A management company may not sell financial instruments not owned by the fund, unless specifically approved by the NFSA. This borrowing restriction does not, however, restrict the management company from, on behalf of the fund, raising short-term loans of up to 10 per cent of the fund’s assets and posting the fund’s assets as security for fulfilment of derivative contracts.

Tax treatment

What is the tax treatment of retail funds? Are exemptions available?

Norwegian retail funds that are organised as investment funds, as described in question 12, will be covered under the Norwegian participation exemption method and be tax exempt for gains on shares in, and distributions from, companies resident in the EEA. An investment fund will also be tax exempt for gains on shares in companies outside the EEA. Three per cent of dividends that are exempt under the exemption method will be subject to a taxation of 23 per cent.

Regarding taxation of interest income, a retail fund organised as an investment fund will, as a starting point, be taxable with 23 per cent on interest income received. Securities funds may claim income deductions in respect of the amounts distributed to their unitholders. Deductions can, however, only be claimed to the extent that the distributions shall be taxed as interest on the part of the unitholders.

On rare occasions, funds organised as limited liability companies, limited partnerships and other legal vehicles may be considered retail funds. If so, they are subject to taxation regulation applicable to the specific legal vehicle; see question 29 regarding tax treatments of legal entities other than investment funds.

Asset protection

Must the portfolio of assets of a retail fund be held by a separate local custodian? What regulations are in place to protect the fund’s assets?

The assets of all Norwegian investment funds shall be administered by and entrusted to a depositary for safekeeping. The fund manager must appoint a single independent depositary for each fund that it manages.

Only EEA credit institutions (with licences granted in an EEA home country and established in Norway through a branch) may act as depositaries. The engagement of a custodian may not be permitted for an entity whose interests may come into conflict with the management company or the unitholders.

The IFA and regulations thereunder set out certain commitments and obligations on depositaries and funds, which mirror the obligations regarding depositaries in the UCITS V Directive.

The organisational and governance requirements for UCITS also contribute to the protection of the fund’s assets.

Governance

What are the main governance requirements for a retail fund formed in your jurisdiction?

A fund established in Norway as an investment fund is semi-contractual, based on the articles of association, and does not have its own board of directors, managing director or employees. These functions are fulfilled by the manager of the fund. Unitholders in the fund exercise influence in the fund’s management through representation in the management company’s board of directors and not in the fund itself. The fund itself only has a unitholders’ meeting, which decides on changes to the fund’s articles of association and mergers. Such decisions require consent from a qualified majority of 75 per cent. Fund managers are, however, subject to detailed regulation regarding governance requirements etc, implementing the UCITS V Directive governance requirements, primarily including risk management, handling of potential conflicts of interest and acting in a manner that maintains the public’s confidence in the fund market. More detailed guidance is provided by the NFSA.

In connection with the authorisation process (and upon revision thereof), the management company is required to submit to the NFSA a number of documents, including, for example, the prospectuses, KIIDs, an annual report and a semi-annual report. Upon authorisation being granted, the fund manager and the retail fund will be registered in the NFSA’s public register. The management company must have a board of directors that consists of at least five members and a managing director, and is obliged to maintain, or cause to be maintained, a register of all holders of units in the fund.

In addition, a management company must document and preserve each portfolio transaction for all UCITS it manages. The documentation must be retained for at least five years and must contain sufficient information in order to reconstruct each transaction performed.

Reporting

What are the periodic reporting requirements for retail funds?

A management company must submit a semi-annual report containing a profit and loss account and a balance sheet for the management company itself to the NFSA. Quarterly reports must also be submitted for each retail fund managed, including information on, for example, the type of fund managed, net asset value of the fund assets, fees charged for the subscription and redemption of units in the fund and the assets and liabilities of the fund.

For each fund, the manager shall publish an annual report with annual financial statements and a management report, as well as a semi-annual report.

The semi-annual report shall contain information, inter alia, on the following:

  • the fund’s financial instruments;
  • bank deposits;
  • liabilities resting on the fund;
  • number of units issued;
  • the value of a unit less redemption fee;
  • all obligations resulting from the fund’s transactions undertaken in the reporting period;
  • returns in the reporting period and returns in the last five years;
  • other matters that are assumed to be of interest to the unitholders and that are necessary in order to assess the fund’s development and position; and
  • the management fee.
Issue, transfer and redemption of interests

Can the manager or operator place any restrictions on the issue, transfer and redemption of interests in retail funds?

A Norwegian UCITS is, by statute, an open-ended investment fund available to the public. As such, the fund must accept investments. In general, no restrictions may be placed on the issue, transfer and redemption of units in the funds. However, it is possible to impose rules stipulating, for example, a minimum subscription amount. Upon the request of a unitholder, a unit must be redeemed immediately and may only be postponed under extraordinary circumstances.

A Norwegian domestic or special fund may, however, subject to the NFSA’s consent, incorporate restrictions on the issue of units in the fund. In addition, a special fund may limit the possibility for investors to redeem their units to once per year. Restrictions must be incorporated in the fund rules that must be approved by the NFSA in connection with the formation of the fund.

Investment funds shall be open for subscription and redemption of units in cash at least twice a month. A unitholder may request redemption of his or her units unless:

  • otherwise prescribed by agreement on defined contribution pension pursuant to the Defined Contribution Pension Act or an individual pension scheme pursuant to the Individual Pension Schemes Act;
  • under special agreement with major unitholders the management company limits the number of units whose redemption may be requested by the latter during specified periods;
  • if called for in the interest of the unitholders or the public, the NFSA orders the management company to wholly or partially suspend the right of redemption; or
  • the management company adopts a decision to liquidate the fund or the management company’s authorisation has lapsed or been withdrawn, after which units of a fund must not be issued or redeemed after.

Non-retail pooled funds

Available vehicles

What are the main legal vehicles used to set up a non-retail fund? How are they formed?

Non-retail funds are commonly referred to as being funds solely available and eligible for professional investors.

Different types of legal vehicle may be used for the establishment of a non-retail fund and in general the fund type will govern the choice of vehicle. In this context, and from a Norwegian perspective, non-retail funds comprise AIFs.

The main legal vehicles used to set up non-retail funds in Norway are investment funds, limited liability companies and limited partnerships considered AIFs. Limited liability companies are formed through the signing of a memorandum of association, while limited partnerships are formed through the acceptance of the partnership agreement.

Norwegian private equity funds and real estate funds are primarily formed as limited partnerships but may also be formed as limited liability companies. An essential difference between a retail fund and a non-retail fund is that the latter does not have to be separate from the fund manager and merely consist of the fund assets. Consequently, a non-retail fund can be a legal person with the ability to assume rights and obligations. Furthermore, a non-retail fund could be internally or externally managed. In the former case, the fund is the manager and the entity is required to possess all functions necessary to be able to comply with applicable laws and regulations.

Laws and regulations

What are the key laws and other sets of rules that govern non-retail funds?

Funds that are solely marketed and sold to professional investors are regulated by the fund’s rules, the IFA and the AIFMA, but are exempted from the particular statutory requirements protecting non-professional investors, such as investment restrictions and redemption and subscription rights. Specific regulations regarding the marketing and sale to professional investors are set out in Chapter 6 of the AIFMA.

Authorisation

Must non-retail funds be authorised or licensed to be established or marketed in your jurisdiction?

With the exception of non-retail funds in the form of domestic funds or special funds, subject to the IFA, there is no requirement to obtain authorisation for the establishment of a non-retail fund (AIF). The activities requiring authorisation are, instead, the management of a non-retail fund (see the AIFMA regarding implementing the AIFMD). Marketing is subject to notification (see the AIFMD and AIFMA) and licence for managers established outside the EEA.

Marketing

Who can market non-retail funds? To whom can they be marketed?

Anyone can market a non-retail fund, provided that the marketing does not go beyond the concept of ‘promotion’. The marketing entity would not need to be licensed or authorised unless the marketing activities include the offering of the funds or would otherwise require a MiFID II licence or authorisation pursuant to the AIFMA.

As a main rule, non-retail funds may only be marketed to professional investors as defined in the STA and the Norwegian MiFID II regulation (implementing MiFID and MiFID II). Marketing of non-retail funds to non-professional investors is subject to a licence requirement for each fund. In addition, special requirements for sound business conduct will apply, effectively limiting the ability to market non-retail funds to non-professional investors to an extent that only leaves a small window for compliant marketing.

Ownership restrictions

Do investor-protection rules restrict ownership in non-retail funds to certain classes of investor?

No. Even though a non-retail fund may only be marketed to retail investors subject to certain prerequisites, there is no prohibition on an investment being made by a retail investor on a reverse-solicitation basis.

Managers and operators

Are there any special requirements that apply to managers or operators of non-retail funds?

Fund managers of AIFs directed at professional investors are required to establish arrangements to avoid the funds being marketed to retail investors. In general, however, there are fewer requirements imposed on managers of non-retail funds as opposed to managers of retail funds. Special regulations for domestic funds and special funds, which may be considered non-retail, are set out in Chapter 7 of the IFA, and special regulations for the marketing of AIFs that are not domestic funds are set out in Chapter 6 of the AIFMA.

Tax treatment

What is the tax treatment of non-retail funds? Are any exemptions available?

Non-retail funds organised as investment funds are subject to the same tax regulation as described in question 18.

Non-retail funds organised as a limited liability company will be covered under the participation exemption method and be tax-exempt for gains on shares in, and distributions from, companies resident in the EEA. Such funds will also be tax-exempt for gains on shares in, and distributions from, companies outside the EEA provided that the fund holds at least 10 per cent of the share capital for a period of at least two years and that the company is not resident in a low-tax jurisdiction. However, 3 per cent of dividends, which is exempt under the exemption method, will be subject to a taxation of 23 per cent. Interest income of non-retail funds that are organised as limited liability companies will be taxed at 23 per cent.

Non-retail funds that are organised as partnerships will be treated as transparent entities for tax purposes and taxed in the hands of the partners. Any partner of the partnership that is organised as a limited liability company will thus be covered under the participation exemption method to the same extent as if the investment was done directly by the partner.

Interest income of non-retail funds that are organised as partnerships will be taxed at 23 per cent in the hands of the partners.

Asset protection

Must the portfolio of assets of a non-retail fund be held by a separate local custodian? What regulations are in place to protect the fund’s assets?

Managers of AIFs shall ensure that a single depositary is appointed for each AIF it manages. The AIFMA implements the AIFMD regulations on depositaries and funds’ assets protection, including depositary qualifications and regulations regarding, inter alia, liability, control, cash management, conflict of interest, outsourcing and reporting to the NFSA. See question 19.

Governance

What are the main governance requirements for a non-retail fund formed in your jurisdiction?

The manager of non-retail funds shall comply with the governance requirements set out in the AIFMA, implementing the AIFMD. These include conducting operations in a professional manner so that the public’s confidence in the fund market is maintained, as well as adequate risk and liquidity management, handling of potential conflicts of interest and establishing a remuneration policy compatible with such requirements, designation of a depositary and filings to the NFSA. Members of the board, the general manager and other executive officers in the management company must satisfy the fit and proper requirements at all times.

Reporting

What are the periodic reporting requirements for non-retail funds?

AIFMs shall provide a report to the NFSA on a semi-annual basis.

The reporting requirements regarding non-retail funds vary depending on the fund type and the value of assets under management. In general, the manager or the fund (as the case may be) must report more frequently and in greater detail in relation to funds that are marketed to retail investors and whose asset value exceeds certain thresholds. For funds applying gearing, reporting requirements are found in the Commission Delegated Regulation (EU) No. 231/2013.

Separately managed accounts

Structure

How are separately managed accounts typically structured in your jurisdiction?

Management of separate accounts (discretionary portfolio management) is typically structured through an agreement between the investor and the manager whereby an investment strategy (portfolio allocation etc) is determined based on the investor’s investment horizon and risk profile. The manager then makes investments relating to the portfolio on a discretionary basis without having to obtain prior approval for each transaction from the investor.

Key legal issues

What are the key legal issues to be determined when structuring a separately managed account?

The key legal issues to be determined include standard of care, indemnification, the parties’ obligations to cooperate, fee structure, reinvestments, distributions, transparency and reporting requirements towards investors. Initially, the manager must categorise the investor as either professional or non-professional and such categorisation thereafter governs the obligations of the manager.

Regulation

Is the management or marketing of separately managed accounts regulated in your jurisdiction?

The management of separate accounts is a regulated activity falling within the scope of the STA and the MiFID II regulation, implementing MiFID and MiFID II. The regime differs from fund management. Management of separate accounts may be provided by investment firms authorised by the NFSA, investment firms authorised within the EEA who have fulfilled the notification requirement pursuant to the MiFID passporting procedure, and by authorised managers of UCITS and AIFs with additional authorisation to provide individual portfolio management.

Marketing in the sense of ‘promoting’ separately managed accounts is not a regulated activity and does not require authorisation. All marketing material is, however, subject to the Norwegian Marketing Practices Act and requires the marketing to be consistent with generally accepted marketing practices.

General

Proposed reforms

Are there proposals for further regulation of funds, fund managers or marketers of funds in your jurisdiction?

No.

Public listing

Outline any specific requirements for stock-exchange listing of retail and non-retail funds.

Exchange traded funds (ETFs) can be authorised as investment funds under the IFA. The European Securities and Markets Authority Guidelines on ETFs and other UCITS issues are implemented in Norway and the NFSA supervises the ETF’s compliance with the requirements set out therein, including specific requirements regarding the prospectus, the KIID and other marketing material. Non-retail exchange traded funds are subject to the general requirements for stock exchange listing set out in the STA and the Norwegian Stock Exchange Act.

Overseas vehicles

Is it possible to redomicile an overseas vehicle in your jurisdiction?

No, it is not possible to redomicile a foreign UCITS or equivalent to a Norwegian special fund in Norway. Especially in cases where the overseas vehicle has variable capital (eg, a SICAV), Norwegian legislation would not permit the maintenance of such funds. However, Norwegian legislation would allow for the merger between a Norwegian UCITS and a foreign UCITS where the Norwegian fund is the receiving fund. A merger between a foreign AIF and a Norwegian AIF is not regulated by Norwegian investment fund legislation.

Foreign investment

Are there any special rules relating to the ability of foreign investors to invest in funds established or managed in your jurisdiction or domestic investors to invest in funds established or managed abroad?

No.

Funds investing in derivatives

Are there any special requirements in your jurisdiction relating to funds investing in derivatives?

Yes, investment funds regulated by the IFA (collective fund structures) are subject to special requirements. Collective fund structures (UCITS and domestic funds) are subject to requirements in the IFA and regulations thereunder on the use of derivatives that mirror the obligations in the UCITS V Directive. Domestic funds, which are divided into special funds and other domestic funds, are exempted from some of the UCITS V obligations, including requirements relating to liquidity, counterparty restrictions, permissible derivatives products and total exposure. Special funds have greater flexibility with regard to permissible derivatives products and total exposure requirements compared to other domestic funds.