A large portion of unregulated investment fund operations will be brought into the scope of securities markets regulation and authority supervision in Finland when the Act on Alternative Fund Managers enters into force. The act is based on the AIFM directive (Alternative Investment Fund Manager Directive, 2011/61/EU) and introduces numerous obligations for managers of alternative investment funds marketed to professional investors. The Government submitted its proposal for legislation concerning managers of alternative investment funds (government proposal HE 94/2013) on 5 September 2013, and the act is due to enter into force at the beginning of next year at the latest. The time to prepare for the changes this new legislation will bring is now.
Extensive Scope, Few Exemptions
As a baseline, the act regulates the management of all collective investment not regulated in the current Mutual Funds Act. The act primarily applies to hedge funds and real estate and venture capital investments, but the scope is not limited by legal form. However, the act includes a few express exceptions, such as holding companies, joint ventures, group investment companies, pension institutions and public bodies. The new law is not intended to regulate general commercial or industrial business operations. However, its scope is so wide that, at least to begin with, the distinction will probably have to be made on a case-by-case basis.
Licence or Registration Obligation?
In future, managers of alternative investment funds will require a licence granted by the Financial Supervisory Authority or, if the thresholds set in the act are not exceeded, registration with the Financial Supervision Authority. The licence obligation for alternative investment fund managers is triggered when the total value of managed assets exceeds 100 million euros and the assets include leveraged assets. The licence obligation is also triggered when the value of the managed assets exceeds 500 million euros, the assets are not leveraged and none of the managed funds permit redemption during the first five years following the initial investment.
The intent in Finland is to also permit the sale of alternative investment funds to non-professional investors, which always requires a licence. If a fund has been marketed to professional investors before the entry into force of the act, this marketing can continue until 22 July 2014 without a licence. However, the Financial Supervisory Authority must be notified of this within one month of the act entering into force. Correspondingly, the management of closed-end funds can also continue without a licence provided that the Financial Supervisory Authority has been notified.
How to Prepare
It is worth beginning to review your own position by asking this question: do I manage assets from a number of investors that are invested to generate pooled return and according to a defined policy? Keep in mind that the intention is to apply the new legislation expansively. If your answer is yes, you should think about whether one of the specified exemptions applies to your situation. The act also includes the possibility to apply to the Financial Supervisory Authority for a binding decision on the applicability of the act.
If it seems likely that the act will apply, you should begin preparing strategic decisions and plans. Managers of existing alternative investment funds need to prepare for the new act on a best-effort basis, by taking, 'all actions necessary for compliance with the legislation'. This includes the obligation to prepare for submission of a licence or registration application and appointing a depositary.