Finnish Act on Alternative Investment Fund Managers – remarks especially in respect of marketing requirements of foreign fund managers
The Alternative Investment Fund Managers Directive 2011/61/EU (the “AIFMD”) came into force in Finland on 15 March 2014 when the Finnish Act on Alternative Investment Fund Managers (in Finnish: laki vaihtoehtorahastojen hoitajista, the “AIFM Act” 162/2014, as amended) and underlying legislation entered into force. After the lapse of the transitional period on 22 July 2014, marketing of alternative investment funds (“AIFs”) to Finnish investors is subject to local authorisation or registration by or, as regards non-Finnish entities, notification to, the Finnish Financial Supervisory Authority (the “FIN-FSA”). The regulation is applicable to alternative investment fund managers (“AIFMs”) and not directly to AIFs, and covers various forms of investments including private equity, hedge fund, real estate and commodity investment structures.
Definition of marketing under Finnish law
Under the AIFM Act “marketing” is defined as a direct or indirect offering or placement of units or shares of an AIF to an investor. By virtue of the definition, marketing takes place where an AIFM markets an AIF when the AIFM makes a direct or indirect offering or placement of units or shares of an AIF managed by it to or with an investor, or when another person makes such an offering or placement at the initiative of or on behalf of the AIFM.
The terms “offering” and “placement” are not defined in the AIFM Act. However, activities that do not include offering units and activities that are not aimed at making binding investment commitments will not be considered marketing. AIFMs may thus carry out activities that do not fall under the definition of marketing in case such activities are of general nature; providing specific or very detailed information on a particular AIF could, under certain circumstances, be considered marketing. Therefore, activities which survey investors’ willingness to invest in certain investment products (‘soft circling’) do not fall within the ambit of marketing. In addition, the same may apply to certain investor events (road shows) organised at the initiative of the AIFM (or the distributor of the AIFs) if such events do not include the offering of units or shares in AIFs. On the other hand, there is a risk that marketing is triggered if the investors are provided with detailed material, including PPMs, LPAs and final terms and conditions.
Permissibility of unsolicited offering
Under Finnish law, marketing is not triggered (and notification is not required) when an AIFM responds to an unsolicited request by a Finnish investor who has contacted the AIFM on its own initiative (reverse solicitation/enquiry). According to Chapter 20 Section 5 of the AIFM Act, the marketing notification rules do not apply in a situation where a Finnish investor on own initiative contacts a non-EEA AIFM with the intention to investing in the non-EEA AIF. In such cases, the investor may be provided with subscription documents based on the request. According to the Government Bill, the AIFM Act does not prohibit investors from contacting AIFMs on their own initiative irrespective of the location of the AIFM. Finnish law is not clear on what activities by the AIFM may precede prior to the investor contacting AIFM. The conservative view is that in order to be able to rely on reverse enquiry the AIFM should not discuss the investment opportunity or the relevant AIF(s) with the investor before the investor contacts the AIFM.
The AIFM Act requires that certain disclosure requirements apply even for unsolicited requests. Investors need to be provided with essential and sufficient information before making an investment decision. The disclosure requirements under Finnish law are equivalent to the requirements set out in Article 23 of AIFMD. As a special rule regarding unsolicited requests for non-EEA funds, investors that are professional clients in accordance with the definition of the AIFM Act have the right to waive their right to receive information with a written request.
Notification requirement regarding cooperation agreements
EEA and non-EEA AIFMs wishing to market a non-EEA AIF in Finland will need to file a notification with the FIN-FSA in accordance with the requirements of Chapter 20 Section 2 of the AIFM Act (Article 36 notification) or Chapter 20 Section 3 of the AIFM Act (Article 42 notification). The requirements for marketing of non-EEA AIFs include that appropriate cooperation agreements are in place between the FIN-FSA and the supervisory authorities of the non-EEA AIFM and the non-EEA AIF. By virtue of the requirement, it is generally presumed that the AIF is regulated by and registered with its home state authority and information on the AIF is available in the register of the home state authority. If the AIF is unregulated i.e., not registered with and regulated/supervised by its home state authority, the notification must include additional information on how the FIN-FSA has means of receiving the required information in relation to the unregulated AIF (e.g. the regulator of the AIFM has access to the information and may disclose the information to the FIN-FSA). This information can be provided with a written confirmation signed by the AIFM.
Provision of annual report and financial statements for non-EEA AIFMs marketing non-EEA AIFs
The AIFM Act imposes reporting obligations on both to Finnish and non-EEA AIFMs. The AIFM Act does not explicitly determine how annual report and financial statements should be made available to the FIN-FSA in respect of non-EEA AIFMs marketing non-EEA AIFs in Finland. According to the AIFM Act, investors must be provided with a copy of the annual report and financial statements on request within six months after the end of the financial year. In the notification under Chapter 20 Section 3 of the AIFM Act the AIFM must confirm that it will comply with the provision regarding providing annual report and financial statements. It is sufficient provide a link to the website where annual reports and financial statements will be made available to investors in the notification letter. Alternatively copies of the documents may be filed together with the notification. Filing updates to annual report and financial statements later after the AIFM has been notified is not required.
Updating changed information filed in the notification or for reporting purposes
The AIFM Act requires that changes in the information filed with the notification needs to be updated at least one month before a planned change occurs or as soon as an unplanned change has occurred. Updates in fund documents, such as PPMs, need to be filed in case there are any changes in substance. In addition, changes in information reported earlier under AIFMD reporting obligations need to be updated without delay. For example, in a situation where a new fund is established, e.g. changes in AUM needs to be communicated to the FIN-FSA as changes in AUM may have impact on reporting frequency and used reporting codes.
Reporting of non-EEA master funds
Based on an informal view by the FIN-FSA, here appears not to be ‘look-through’ to the master fund or an underlying fund in a fund of funds structure not marketed in Finland for Annex IV reporting purposes.
Deregistering of an AIF and final report
The AIFM Act does not include provisions on AIFMs’ option to deregister AIFs that have been registered for marketing in Finland. On-going requirements, such as reporting, will continue for funds with Finnish investors although active marketing of the AIF have ceased. A notification of changes may be filed in respect of funds that are no longer intended to be marketed and of changes in the AIF, including merger and liquidation. In accordance with ESMA’s guidelines the last report of a liquidated or merged AIF needs to be provided immediately after the AIF has been liquidated or merged. In liquidation situations, the last AIF report should be submitted not later than one month after the end of the quarter in which the AIF has been liquidated or put into liquidation.