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Attorneys-at-Law TRUST.
The Basic Rules on Offering and
Operating of Funds in Finland
June 2014 - Mika J. Lehtimäki
AIF/AIFM
Non-EEA
AIF/AIFM
Fund manager or fund is located within
European Economic Area
The opposite of the above
Offering of Fund
Shares and Registration
There are four potential fund registration scenarios:
Mika J. Lehtimäki, partner, attorney
LLM Helsinki, M.Jur Oxford, M.St. Oxford
tel. +358 40 534 2273
Attorneys-at-Law TRUST.
Mika. @theTRUST.fi
Lehtimaki
The Basic Rules on Offering and
Operating of Funds in Finland
The categorization is simple: UCITS funds are
funds fulfilling the EU directives on UCITS funds;
all other funds are alternative investment funds.
However, there legislation applying to alternative
investment funds contains a number of exemptions
from its scope. We’ve outlined these in our first
AIFM update of 2013. Our second funds update of
2013 addresses the main changes to PE/Hedge
Fund Deal Structuring due to AIFM legislation.
Both are available at www.theTrust.fi
AIF
An alternative investment fund (any type
except an UCITS fund)
AIFM
fund manager of an AIF
UCITS
A fund falling under EU and Finnish
UCITS legislation
EEA
Registration or licensing under the
Finnish Act on Mutual Funds (MFA)
(fund: UCITS);1
(ii)
Registration or licensing under the
Finnish Act on Alternative Investment
Managers (AIFMA) (fund: AIF (any other
fund than an UCITS; fund manager:
AIFM);2
(iii) Filing and approval of a prospectus by
the
Finnish
Financial
Supervision
Authority (FSA) in relation to offering of
securities under the Finnish Securities
Markets Act (Prospectus Obligation);
and
This update contains certain basic rules for foreign
funds considering setting up a fund in Finland and
offering of foreign or Finnish fund shares. The
focus is on triggering of registration and marketing
rules and on legends used in the materials.
The text assumes that the entity offering shares is a
“fund”. There are two types of funds UCITS funds
and funds falling under applying to “alternative
investment managers”.
(i)
(iv) Licensing under the Finnish Investment
Companies Act or the Credit Institutions
Act in for provision of investment
services (in relation to fund shares).3
The obligations under (i)-(iv) may be overlapping.
Exemptions to Registration
The rules on UCITS implement the directive
2009/65/EC on the coordination of laws, regulations and
administrative provisions relating to undertakings for
collective investment in transferable securities.
2
The rules on AIFM implement the directive
2011/61/EC on Alternative Investment Fund Managers.
3
The rules on Prospectus Obligation implement directive
2010/73/EU on the prospectus to be published when
securities are offered to the public or admitted to trading
and 2004/109/EC on the harmonization of transparency
requirements in relation to information about issuers
whose securities are admitted to trading on a regulated
market and directive 2003/71/EU on the prospectus to
be published when securities are offered to the public or
admitted to trading and amending Directive
2001/34/EC.
1
Attorneys-at-Law TRUST.
The licensing and registration requirements in the
legislation mentioned above (i)-(iii) do not apply
where the UCITS manager, AIFM, investment
services company or bank does not take any
measures in Finland or solicit investors domiciled
in Finland. E.g. The AIFMA contains a number of
detailed exceptions to the scope of their application
(e.g. certain group funding situations, JVs, family
investment companies and holding companies).
Generally the AIFMA applies to all funds and
offering of fund shares unless the fund falls under
the UCITS rules. However, there is one type of a
Finnish fund (non-UCITS) that falls under the
MFA, called “Special Investment Fund”. Such a
fund is governed by the MFA but the fund
manager is governed by the AIFMA.
PROSPECTUS OBLIGATION
The SMA provisions on the duty to prepare a
prospectus are only applicable to the marketing of
funds of a closed-ended type (securities). The
Prospectus Obligation is triggered by offering of
securities to the public and when listing securities
on a regulated market. The most important
exemptions for publishing a prospectus under the
SMA are securities offerings:
(i)
(ii)
addressed
solely
to
"professional
investors" or "qualified counterparties";
addressed to fewer than 150 investors in
each EEA country, other than so-called
"qualified investors";
(iii) addressed to investors who can acquire
securities for a consideration of at least
100,000 euros per investor;
(iv) provided
that the securities are
denominated in amounts of at least
100,000 euros; or
(v)
the consideration for all securities offered
is less than 1,500,000 euros (within the
EEA) over a 12 month period; or
(vi) the consideration for all securities offered
is less than 5,000,000 euros (within the
EEA) over a 12 month period (national
prospectus rules apply for offerings
between MEUR 1.5-5).
There are also other more detailed exemptions and
the FSA may in certain cases grant a discretionary
publishing exemption.
What is Marketing or
Offering to Investors?
Generally, FSA considers the marketing of units as
to refer to all promotion in Finland, e.g. marketing
of shares includes the advertising in mass media,
direct marketing channels (such as telephone, fax,
mail and the Internet) and specific investor
presentations. Marketing also includes the
distribution of advertising material or brochures
and oral presentation of information on the
premises of the offeror or agent and in investor
meetings.
Use of websites is not likely to be considered crossborder provision of services or fund shares if the
fund manager (i) does not otherwise market its
services or the units in a fund for which it acts as
an agent in Finland and (ii) it does not intend to
acquire customers resident in Finland.
In order to avoid registration obligations, the
websites and materials should not contain
instructions specifically aimed at Finnish
customers. Importantly, even the initiation of
marketing activities requires application for a
marketing permission.
In relation to the Prospectus Obligation, it should
be noted that the threshold of marketing is not
identical to the AIFMA or the MFA (UCITS). The
Prospectus Obligation marketing threshold is
triggered when the potential investor receives so
that it is capable of making an investment decision.
Various types of fund structures
and their registrations
UCITS
The UCITS fund management company must be a
Finnish limited company with a head office in
Finland, has an initial capital of at least 125,000
euros, has the fund rules of which have been
approved by the FSA and has its management and
its shareholders approved by the FSA.
The application should contain e.g. an operational
plan and a description of the organization of the
management company. The application handling
time is 6 months (maximum) from submission of
all documentation.
A foreign UCITS manager is required to notify the
FSA on marketing of fund shares in Finland.
However, the notification is made to the competent
authority of the fund manager’s home country. No
fee is charged for the notification process.
Marketing may commence on the date the foreign
fund manager receives confirmation from its home
country authority that the notification has been
disclosed to the FSA. A foreign UCITS may also set
up a Finnish UCITS fund utilizing a rather straightforward notification procedure.
DOMESTIC AIFM
A domestic AIFM must be a Finnish limited
company, have its head office in Finland, an initial
Attorneys-at-Law TRUST.
capital of at least 125,000 euros (if externally
managed) or 300,000 euros (if internally managed).
The AIFM must have its management and its
shareholders approved by the FSA. The application
shall be appended with e.g. a program of
operations, containing a summary description of
the organization of the management company and
information of the managed funds.
The application handling time is 6 months
(maximum) from submission of all documentation.
Post registration requirements depend on the type
of the fund. Finnish reporting obligations concern
domestic registered or licensed AIFMs and non-EU
AIFMs marketing their fund shares in Finland. If
the AIFMA licensing thresholds, which are 100
MEUR (leveraged funds) and 500 MEUR
(unleveraged funds), are not triggered the AIFM is
obligated to register with the FSA. Such registered
AIFMs are largely exempt from the AIFMA
requirements.
Offering to retail clients is only allowed to licensed
AIFMs or if the FSA grants an exemption from
certain statutory requirements. A licensed AIFM is
entitled to market fund shares in an AIF after
having notified the FSA.
Management and marketing in Finland are allowed
after a notification process whereby the notification
is made to the competent authority of the AIFM’s
home county. Management of a Finnish AIF may
commence on the date the foreign EEA AIFM
receives confirmation from its home country
authority that the notification has been issued to
the FSA. The actual marketing is allowed under
same conditions as for domestic AIFMs (see above).
Marketing of fund shares to retail clients is allowed
to only to licensed AIFMs or if the FSA grants an
exemption from certain statutory requirements –
based on special grounds). In relation to offers to
retail investors, all of the domestic Finnish
marketing legislation becomes applicable, e.g.
preparation of a Key Investor Information
Documents (unless the AIFM obtains an
exemption).
An EEA based non-Finnish AIFM may market fund
shares in a non-EEA AIFs, which the AIFM
manages, to Finnish professional investors. The
rules are the same as discussed in “Domestic
AIFM” two last paragraphs.
NON-EEA OFFERING
FINNISH AIFM OFFERING NON-EEA AIF
A Finnish licensed AIFM may manage a non-EEA
AIF provided that it follows the Finish rules in the
AIFMA (excluding the custody and obligation to
prepare an annual report). In addition, there needs
to exist a co-operation agreement for supervision
between Finland and AIF registration jurisdiction.
A licensed AIFM may market non EEA AIFs in
Finland to professional investors after having made
a notification to the FSA and after having received
the FSA confirmation. The notification must
contain inter alia the following information:
(i)
The AIFM complies with the Finnish
marketing rules for AIFs;
(ii) Finland and the AIF host country must
have in place co-operative agreement for
controlling systemic market risks;
(iii) The AIF host country may not be in the
FATF (Financial Action Task Force) High-risk
and
non-cooperative
jurisdictions list;
(iv) Finland and the AIF host country must
have
in
place
an
agreement
corresponding to OECD Model Tax
Treaty 26 article;
(v) The AIFM has disclosed to the FSA
information on providers of certain
management tasks for the AIFM.
A non-EEA fund manager may offer EEA or nonEEA AIFs to professional investors in Finland after
having made a notification to the FSA and after
having received the FSA confirmation. The
notification must contain inter alia the following
information:
(i)
The non-EEA fund manager complies for
each AIF detailed regulatory obligations
(specific list is extensive);
(ii) Finland and the AIF host country must
have in place co-operative agreement for
controlling systemic market risks;
(iii) The AIF host country may not be in the
FATF (Financial Action Task Force) High-risk
and
non-cooperative
jurisdictions list;
(iv) Finland and the AIF host country must
have
in
place
an
agreement
corresponding to OECD Model Tax
Treaty 26 article;
(v) The FSA must be provided with
information on the fund manager and of
all AIFs marketed in Finland for the
purposes of fulfilling the statutory
reporting obligations.
EEA AIFM OFFERING
No local agent is required. The FSA may, for an
exceptionally weighty reason, grant a license to a
fund manager to offer non-EEA AIFs to retail
investors.
An EEA based non-Finnish AIFM may manage and
market Finnish AIFs under same conditions as
Finnish AIFMs.
Disclaimers and Legends for
Marketing
Attorneys-at-Law TRUST.
It is commonplace to state in the marketing
materials clearly e.g. that the fund shares are
offered solely to professional investors and should
not be distributed to any other party and any
offering is not directed to such a party.
This qualification applies to AIFs managed by the
AIFMs unless, the AIFM has an authorization from
the FSA to offer fund shares to retail investors.
UCITS, on the other hand, are by definition open to
public. One type of a UCITS fund i.e. a “Special
Fund” may be restricted to professional or other
limited categories of investors. This should also be
clearly stated in the marketing materials.
To the extent the fund management company
wants to use the private placement exemption in
relation to the Prospectus Obligation, the
marketing materials should state clearly that the
offer is directed solely to professional investors or
qualified investors.
E.g. the following type of a legend/disclaimer may
be used in relation to offering of AIFs within the
EEA:
The Fund is an alternative investment fund (“AIF”)
and the Manager is an alternative investment fund
manager (“AIFM”) for the purpose of the Alternative
Investment Fund Managers Directive 2011/61/EU
(“AIFMD”). The Fund may not be marketed (within the
meaning given to the terms “marketing” under the
AIFMD), and this Memorandum may not be sent, to
prospective investors domiciled or with a registered
office in any Member State of the EEA unless: (i) the
AIFM and/or the AIF benefits from the transitional
provisions of Article 61 of the AIFMD (as transposed
into domestic law) in the relevant EEA Member State in
relation to such marketing; (ii) the AIF may be
marketed under any other private placement regime or
other exemption in the relevant EEA Member State; (iii)
such marketing was initiated by the prospective
investor and not by the AIFM or any other
person/entity acting directly or indirectly on behalf of
the AIFM; [or (iv) to the extent the offering into a
Member State has been duly approved and notified to
the supervisory authorities of such EEA Member State].
In case of any conflict between this notice to EEA
investors and any notices in respect of individual EEA
Member States set out in this Memorandum, this notice
shall prevail. Further, this Memorandum has neither
been, nor will it be registered with or approved by the
Finnish Financial Supervisory Authority under the
Finnish Securities Markets Act. Accordingly, this
Memorandum may only be made available under any
exemption from the duty to prepare a prospectus set
out in the Finnish Securities Markets Act. Prospective
investors should not construe the contents of this
memorandum as legal or tax advice. This
memorandum has been prepared for marketing
purposes only and should not be conceived of as
investment advice.”
Different types of funds and different AIFMs may
require different forms of legends also taking into
consideration whether the AIFM is an EEA licensed
entity or a fund manager from outside the EEA. An
example legend in relation to an unlicensed nonEEA fund offering its fund shares in Finland:
"The fund is an alternative investment fund falling
under the Finnish Alternative Investment Fund
Managers Act (2014/162) (the “AIFM Act”). The
manager is neither registered nor licensed as an
alternative investment fund manager in Finland by
the Finnish Financial Supervisory Authority pursuant
to chapter 3, section 1 or any other provision of the
AIFM Act. Further, this memorandum has neither
been, nor will it be registered with or approved by
the Finnish Financial Supervisory Authority under
the Finnish Securities Markets Act (2012/746). This
memorandum may only be made available under any
exemption from the duty to prepare a prospectus the
Finnish Securities Markets Act. Furthermore, the
interests in the fund may only be marketed or offered
in Finland to professional investors following
authorisation by the Finnish Financial Supervisory
Authority under chapter 20, section 3 of the AIFM
Act. Prospective investors should not construe the
contents of this memorandum as legal or tax advice.
This memorandum has been prepared for marketing
purposes only and should not be conceived of as
investment advice.”
The views expressed in this market update are
of general nature and should not be considered
legal advice or relied upon in a specific
situation.
Any actual situations should be evaluated
legally on a case-by-case basis.