Legal Alert – Finnish Legislation Implementing the AIFM Directive in Force
The Finnish Act (AIFM Act) implementing the EU Directive on Alternative Investment Fund Managers (AIFMD) entered into force on 15 March 2014. The domestic lower-level decrees addressing, i.a., certain matters relating to non-professional investors entered into force on 29 March 2014.
Alternative investment funds (AIFs) mean collective investment undertakings which raise 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. UCITS funds are separately regulated and therefore excluded from the scope of the new regulation. Alternative investment fund managers (AIFMs) are legal persons whose regular business is managing one or more AIFs. Despite certain exemptions, the scope of the new law is very broad. Depending on its AUM (assets under management) an AIFM will either be required to be authorized or registered.
In addition to the AIFM Act and the related domestic decrees, also EU level regulation needs to be taken into account, in particular the Delegated Regulation 231/2013 and, with respect to venture capital funds, the EuVECA regulation (345/2013). Even though the AIFMD aims to harmonize the regulation of AIFs within the EEA, so far it seems that there are a number of differences in its implementation in different jurisdictions. Furthermore, when it comes to marketing funds, the concept of marketing and the transitional rules, i.a., may vary in different jurisdictions and may require separate evaluation in every country where a fund is intended to be marketed.
Some of the most essential points relating to marketing an AIF in Finland are presented below. Some key aspects relevant for Finnish AIFMs were briefly summarized in our previous legal alert (only in Finnish)
Marketing based on the transitional provisions
If an AIF has been marketed to Finnish professional investors prior to 15 March 2014, the marketing may be continued until 22 July 2014 on the basis of the transitional provisions, i.e. without having to comply with the marketing rules of the AIFM Act in full. The AIFM only needs to submit a notification to the Finnish Financial Supervisory Authority (FFSA) by 15 April 2014.
The threshold for when an activity can be regarded as marketing for the purposes of the AIFM Act is set rather high. The preparatory works of the AIFM Act indicate, i.a., that soft circling is not marketing and that circulating the agreements of a fund that has not yet been formed does not constitute marketing.
The above-mentioned notification to the FFSA shall include a clarification on that the AIFM will comply with certain general principles and policies set out in the AIFM Act. These include, i.a., requirements relating to good securities markets practice, management of conflicts of interest, acting honestly, and equal treatment of investors. At least for the moment, there is no prescribed form for the notice.
Regardless of whether the transitional rules apply, it is also relevant to consider the requirements of the Securities Markets Act (although in most cases the offering of an alternative investment fund on a private placement basis would not give rise to any formal prospectus requirements).
Cross-border marketing to Finland
In case the transitional provisions are not applicable, and in any case after 22 July 2014, the marketing of AIFs is subject to more burdensome rules.
If the question is of an AIFM authorized within the EEA, marketing of an AIF (Finnish or within the EEA) is allowed through so-called passporting, i.e.by submitting a notification to the authority in the home country and obtaining approval by that authority.
AIFMs that are not authorized but only registered within the EEA and managing an EEA-AIF will have to submit a marketing notification to the FFSA (i.e. these smaller players may market based on and within the requirements set in the Finnish domestic legislation, as the AIFM Directive allows).
AIFMs from outside the EEA may market the interests in EEA-AIFs or third country AIFs after having obtained approval by the FFSA of their marketing notification.
The AIFM Act sets out more detailed requirements for the content of the notifications. However, there are no specific forms available for the notifications to be made by non-Finnish AIFMs. It may be noted that the FFSA charges fees for many of its functions under the AIFM Act, i.a. for handling the marketing notifications.
In addition to submitting the notifications, the AIFMs should note the related requirements such as the requirements concerning compliance with the know-your-customer obligations, the information to be provided to the investors in connection with the marketing and regularly thereafter, the reporting to the FFSA, the drafting of financial statements, and the additional obligations and restrictions concerning the acquisition of control in unlisted target companies.
Restrictions concerning non-professional investors
The transitional provisions and cross-border marketing rules described above apply to the marketing of a fund to professional investors. Finland also permits marketing to non-professional investors, provided certain additional requirements are met.
Authorized EEA-AIFMs may market interests in an AIF to non-professional investors provided certain additional requirements are fulfilled. Especially, non-professional investors must receive a key investor information document prior to making the investment. Furthermore, generally only EEA-AIFs may be marketed to Finnish non-professional investors. Non-professional investors may not be obliged to make additional investments (which would however not prevent drawing commitments in several instalments), and there are also other requirements applicable to non-professional investors. However, the FFSA may grant exemptions from these requirements. The grounds for granting such exemptions are laid down in a decree issued by the Ministry of Finance. The FFSA may also permit a registration-only AIFM (i.e. an AIFM that has been registered but that is not required to be authorized due to the AUM thresholds) to market a fund to non-professional investors.
However, as regards non-professional investors, marketing by non-EEA AIFMs is not allowed.
With respect to AIFs and AIFMs falling under the EuVECA regulation and the related EuVECA marketing passport, a slightly questionable regulatory peculiarity should be noted: Where the target group comprises Finnish non-professional investors, the AIFM would still (regardless of the EuVECA regulation and passport) need to apply for an exemption from the FFSA in order to market the relevant venture capital fund. According to the relevant decree, however, the FFSA is obliged to grant such an exemption.