A Government bill for legislation on alternative investment fund managers is submitted to Parliament
A Government bill, prepared by the Ministry of Finance’s Financial Markets Department, for legislation on alternative investment fund managers has been submitted to Parliament. The objective of the bill is to implement the Directive of the European Parliament and the Council on Alternative Investment Fund Managers (AIFMD, 2011/61/EU). A new Act on Alternative Investment Fund Managers will implement the directive. In addition, implementation will require amendments to 30 other statutes, of which the most significant are the Investment Fund Act and the Act of the Financial Supervisory Authority. It is intended that the legislative proposals included in the bill would come into force on 1 January 2014 at the latest.
The proposed legislation relates to alternative investment fund managers under the directive. Alternative investment funds themselves will not be regulated directly. The definition of alternative investment fund is very wide and basically covers all such collective investment that is not practised in an investment fund according to the Investment Fund Act. The main areas falling within the scope of regulation are special investment funds as well as real-estate and venture capital investments. The possible legal form of an alternative investment fund is not, however, restricted; in any assessment, it is the activity practised by the fund that is significant. In this way, regulation is extended to cover a very wide range of collective investment activity. Many entities, such as joint venture or family office vehicles, fall outside the area of application, however.
An alternative investment fund must have a nominated alternative investment fund manager who is responsible for the activity of the fund. The alternative investment fund manager must have an operating licence granted by the Financial Supervisory Authority or it must be registered with the Financial Supervisory Authority. A licensed alternative investment fund manager must ensure that there is a depositary appointed for every alternative investment fund. The duties and responsibilities of a depositary referred to in the legislation have been specified in more detail than in those of a depositary referred to in the Investment Fund Act. An alternative investment fund’s depositary has many responsibilities relating to the holding of the fund’s assets and the monitoring of the actions of the alternative investment fund manager, and the sanctions arising from the neglect or violation of these responsibilities are severe.
A basic premise of the directive is the marketing of alternative investment funds to professional investors. It is proposed that the key general provisions prescribed in the Securities Market Act for operating in the securities markets be also applied to alternative investment fund managers. The bill also includes national additional regulation allowed by the directive to strengthen investor protection when an alternative investment fund is marketed to non-professional customers. The main elements of this are the operating licence of the alternative investment fund manager and a prospectus, which are required for the managing of such an alternative investment fund.
The bill brings previously unregulated activities within the scope of financial market regulation and official supervision. Regulation might create in the market consolidation pressure, because large market operators generally have better resources to bear the administrative and other burden arising from regulation than smaller operators. At the same time, regulation arising from the directive will create on the European Union level a uniformly regulated investment product that can be marketed and managed cross border. The bill aims to minimise the adverse impact of new regulation on the Finnish market and it is believed that the bill will enhance the functionality and appeal of the domestic market.
The bill will also create conditions for the dissemination of Global Legal Entity Identifiers (LEI) in Finland. The identifiers are needed initially for the unambiguous identification of parties operating in the financial markets. This identification is used in the reporting of derivatives trades to trade information registers under the EU’s market participant regulation.
The use of identifiers will be extended in future also to official reporting. The National Board of Patents and Registration will become the distributing authority for identifiers in Finland, and the Financial Supervisory Authority the coordinating authority for the international cooperation involved in the distribution of identifiers.
Inquiries: Mr Ilkka Harju, senior legislative councellor, [email protected]