A Bill to implement the AIFMD in Norway (the “AIFM Act”) was suggested in Mid-April, and will likely come in force 1 July 2014. This newsletter gives a brief summary of the proposed AIFM Act, with a particular view on non-Norwegian Alternative Investment Fund Managers’ (“AIFMs”) possibility to market Alternative Investment Funds (“AIFs”) in Norway. Norway is a member of the European Economic Area (“EEA”), which currently comprises Norway, Iceland and Liechtenstein and 27 Member States of the European Union excluding Croatia.
1. Who the AIFM Act affects
The Norwegian AIFM Act will govern Norwegian domiciled AIFMs of Norwegian and foreign domiciled AIFs, in addition to marketing in Norway of Norwegian or foreign domiciled AIFs. AIFs as such will not be regulated under the AIFM Act, unless the AIF is self-managed.
An AIF is defined as a collective investment undertaking not being a UCITS, which raises capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors. A large number of various collective investment structures fall within the definition of an AIF, such as private equity funds, real estate funds, infrastructure funds, hedge funds, etc.
An AIFM is defined as someone whose regular business is to manage AIFs. Management of AIFs is defined as portfolio management and risk management of AIFs. AIFMs may, on certain conditions, delegate portfolio management or risk management to third parties.
The AIFM Act will affect a large number of AIFMs, some of which are already regulated and a wide range are currently unregulated.
2. Registered AIFMs / Authorised AIFMs
Norwegian domiciled AIFMs are to be either authorised by, or registered with, the FSAN, depending on the overall size of the assets under management (AUM).
Registered AIFMs can manage a portfolio less than EUR 100 million or EUR 500 million if the AIFs are unleveraged and have no redemption rights exercisable during a period of 5 years following the date of initial investment in each case.
Authorised AIFMs may manage a portfolio whose size exceeds the above described thresholds.
Authorised AIFMs shall have initial capital of EUR125,000 whereas self-managed AIFs shall have initial capital of at least EUR 300,000. Other requirements include, but are not limited to, organisational requirements, valuation requirements, rules on delegation, remuneration, transparency, and a requirement of using a depositary. Registered AIFMs will not have to comply with the bulk of the aforementioned requirements, but will on the other hand not benefit from (e.g.) passporting rights and may not market to non-professional investors unless they opt-in to be licensed under the AIFM Act.
A Norwegian AIFM which is authorised under the AIFM Act may manage non-EEA AIFs which are not marketed in the EEA, provided that the AIFM complies with the requirements in the AIFM Act (except annual report and depositary requirements), and provided further that appropriate co-operation agreements are in place between the supervisory authority in the AIF’s home state and the FSAN.
EEA AIFMs authorised by their home state regulators will benefit from an EEA-passport, and may manage Norwegian AIFs and/or market EEA AIFs on a freedom of services basis or through a Norwegian branch, subject to a regulator-regulator notification process.
The AIFM Act does not (yet) regulate non- EEA AIFMs’ right to manage Norwegian AIFs. A non-EEA AIFM’s right to manage or be an advisor to Norwegian AIFs are thus so far governed by the existing Norwegian legislation.
3. Marketing AIFs to professional investors in Norway
Information on the current private placement regime governing marketing of foreign AIFs in Norway is summarised in our previous newsletter which can be found here.
As of the effective date of the AIFM Act, the following applies with respect to marketing of AIFs in Norway:
- Norwegian AIFMs which are registered with the FSAN may only market Norwegian AIF’s to professional investors in Norway.
- Norwegian AIFMs which are authorised by the FSAN may market Norwegian and EEA AIFs to professional investors in Norway, following a notification to the FSAN. These AIFMs also benefit from an EEA marketing passport, and may thus market Norwegian and other EEA AIFs to professional investors in other EEA-states following a regulator-regulator notification process. Such AIFMs may also, subject to pre-approval from the FSAN in each case, market non EEA AIFs to professional investors in Norway. A Norwegian authorised AIFM’s marketing activities of AIFs in non-EEA countries will be subject to the applicable regulations in such non-EEA countries.
- EEA AIFMs which are registered with their home state regulatory authorities may not employ a cross-border passport in Norway. Such EEA AIFMs may neither manage Norwegian AIFs nor market foreign AIFs in Norway.
- EEA AIFMs which are authorised by their home state regulatory authorities to manage AIFs may employ an EEA marketing passport, and may market EEA AIFs to professional investors in Norway following a regulator-regulator notification process. Subject to pre-approval from the FSAN in each case, such AIFMs may also market non-EEA AIFs to professional investors in Norway.
- Non-EEA AIFMs managing EEA- or non-EEA AIFs may market to professional investors in Norway, subject to pre-approval from the FSAN in each case, and provided further requirements are met, including that appropriate cooperation agreements shall be in place between the supervisory authority in the AIF’s home state and the FSAN.
Reference is further made to section 6 below where we describe further different scenarios.
4. Marketing AIFs to retail investors in Norway
The AIFM Act distinguishes between marketing to professional and non-professional investors (retail investors). Retail investors are investors who do not qualify as professional investors under MiFID.
Only EEA AIFMs with an authorisation under AIFMD (as implemented in their home state) may market AIFs to retail investors in Norway. The FSAN shall pre-approve the marketing of each AIF that will be marketed in Norway, cf. Section 6 below. Thus, EEA AIFMs which are registered with their home state regulators under AIFMD, and non-EEA AIFMs, may not market AIFs to retail investors in Norway.
The Ministry of Finance has drafted a regulation to the AIFM Act, which aims to implement the EU Commission Delegated Regulations under the AIFMD. The draft regulation proposes additional requirements for marketing AIFs to retail investors, inter alia, through licensing requirements for the AIFM (regardless of the size of AuM); a requirement of drafting and publishing certain investor information documents (KIID); and a requirement of conducting a suitability test of each non-professional investor, similar to that under MiFID. For further information please see our previous newsletter about the proposed regulation here.
5. Key content requirements for marketing materials
The proposed requirements for marketing materials mirror AIFMD Article 23. Information requirements include, but are not limited, to:
- description of the investment strategy and objectives of the AIF;
- key information about the AIF, AIFM, depositary, auditor and other service providers;
- information about any delegation of AIFM functions;
- asset investment specification, including description of the valuation procedures, liquidity and risk management;
- a description of the professional indemnity insurance or the AIFM’s own funds to cover potential professional liability risks;
- a description of fees, charges and expenses directly or indirectly borne by the investors in the AIF, including maximum amount of such fees/charges;
- a description of how the AIFM ensures fair treatment of investors;
- a description of the AIF’s leverage and limits thereof;
- the AIF’s latest annual report;
- the AIF’s historical performance; and
- a description of procedure and conditions for the issue and sale of units or shares.
If marketing to retail investors in Norway, the AIFM will also have to provide a key investor information document (KIID) for each AIF it will be marketing in Norway, cf. section 4 above.
6. Marketing in Norway: Authorisation/notification process
From 1 July, marketing of closed-ended AIFs to Norwegian investors will require notification to, or pre-approval from, the FSAN, depending on the category of investors the AIF will be marketed to and the nationality of the AIF/AIFM (EEA/non-EEA).
Marketing in Norway of open-ended AIFs qualifying as investment funds (hedge funds and national funds) already requires pre-approval from the FSAN, regardless of the categorisation of the targeted investors.
Section 6.1 to 6.4 below briefly describes the different scenarios.
6.1 EEA AIFM authorised in the home state marketing EEA AIF to Professional investors in Norway: notification process
EEA AIFMs authorised in the home state to manage AIFs are holders of an EEA marketing passport. Such AIFMs may market EEA AIFs to professional investors in Norway, once the AIFM’s home state regulator has confirmed to have sent a notification letter to the FSAN.
EEA AIFMs registered with their home state regulators may not utilise an EEA marketing passport and may not market AIFs in Norway.
6.2 EEA AIFM authorised in the home state marketing non-EEA AIF to professional investors in Norway: authorisation process
Marketing in Norway of non-EEA AIFs by authorised EEA AIFMs will be subject to pre-approval from the FSAN for each non-EEA AIF the EEA AIFM intends to market in Norway. Approval can be granted (i.e., the FSAN has discretion to reject) if the following conditions are satisfied:
- The EEA AIFM satisfies the rules and requirements in the AIFM Act, save for the rules regarding depositaries, albeit the AIFM will have to verify that another entity than the AIFM itself carries out depositary functions;
- A cooperation agreement is in place between the FSAN and the AIFs home state regulatory authority (covering also supervision and systematic risks);
- The EEA AIFM does what is considered necessary in Norway to make payments to the shareholders/unitholders of the non-EEA AIF, to redeem units and provide the information the EEA AIFM shall prepare in accordance with the rules in the EEA AIFM’s home state; and
- The home state of the non-EEA AIF is not listed as a Non-Cooperative Country and Territory by the Financial Action Task Force on Money Laundering (FATF).
6.3 Non- EEA AIFM marketing AIF to professional investors in Norway: authorisation process
Marketing of AIFs by non-EEA AIFMs in Norway will be subject to pre-approval from the FSAN. Approval can be granted (i.e., the FSAN has discretion) if the following conditions are satisfied:
- The AIF and the non-EEA AIFM are subject to prudent supervision in the home state and the non-EEA AIFM fulfils the requirements for carrying out fund management in the home state;
- The non-EEA AIFM satisfies AIFMD Articles 22, 23 and 24 (and Articles 26 to 30 where an AIF marketed in Norway falls within the scope of Article 26 (1);
- The non-EEA AIFM does what is considered necessary in Norway to make payments to the shareholders/unitholders of the AIF, to redeem units and provide the information the non-EEA AIFM shall prepare in accordance with the rules in the non-EEA AIFM’s home state;
- A cooperation agreement is in place between the FSAN and the non-EEA AIFM’s home state regulatory authority (covering also supervision and systematic risks); and
- The home state of the Non-EEA AIFM is not listed as a Non-Cooperative Country and Territory by the Financial Action Task Force on Money Laundering (FATF).
6.4 EEA AIFM marketing AIF to retail investors in Norway; authorisation process Marketing of AIFs to retail investors in Norway is reserved for EEA AIFMs authorised in the home state, and requires pre-approval from the FSAN for each AIF. Non-EEA AIFMs will not be permitted to market AIFs to retail investors in Norway.
An application shall be filed with the FSAN and shall, inter alia, include (not exhaustively listed below):
- A business plan identifying the AIF that the EEA AIFM intends to market and information on where the AIF is established;
- Information about the AIF being available to the retail investors, including the information required by AIFMD article 23, cf. Section 5 above;
- Key investor information document (KIID) for each AIF;
- Confirmation that the AIF can be marketed to retail investors in the home state; and
- A description of how marketing and sale of units/shares in the AIF will be made in Norway, including precautions to safeguard that marketing and sale will be carried out in accordance with the AIFM Act’s requirements on good business practice (which includes a requirement of conducting a MiFID suitability test for each investor).
The FSAN may impose additional conditions, e.g. additional disclosure requirement, and may in particular circumstances also prohibit marketing in Norway of an AIF to retail investors.
If the AIF is a non-EEA AIF managed by a EEA AIFM, the requirements mentioned in Section 6.2 will apply equally.
The EEA-AIFM cannot start marketing the AIF to retail investors in Norway before the FSAN has approved the AIF for marketing.