On january 29, 2014, the Danish minister for business and growth presented proposals to amend the Danish Alternative Investment Fund Managers Act (AIFMA).The new proposals were slated to take effect on April 1, 2014, and will have implications for domestic and, in particular, foreign investors and fund managers.
The act allows fund managers from outside the EU to manage Danish funds. Under the current section one, subsection three of the Danish AIFMA only fund managers from Denmark and other EU countries can obtain permission from the Danish Financial Services Authority (FSA) to manage Danish alternative investment funds. When the rules on cross-border marketing passports and management come into force (expected 2015) this will be changed across all member states, but until then the directive allows for each member state to implement national rules permitting fund managers from outside the EU to manage alternative investment funds in the member state.
One of the central new proposals to the Danish AIFMA is to exercise the option given by the directive by giving the Danish FSA the necessary legal foundation to set out rules allowing fund managers from outside the EU to manage Danish alternative investment funds. This is expected to be in place before July 22, 2014.
Under the current section five, subsection four in the Danish AIFMA only fund managers with authorisation can seek the Danish FSA’s permission to market alternative investment funds to retail investors but registered fund managers cannot market funds to retail investors. The new proposals will enable registered fund managers to market funds to retail investors providing two conditions are fulfilled: the minimum investment is €100,000; the retail investor signs a separate document clearly stating that they are aware of the risks involved with the investment. It is clearly stated in the proposals that the reason for allowing registered fund managers to market funds to retail investors is that – because of the size of the investment and the risk declaration – they are presumed to be able to understand the complexity and risks involved with the investment.
Under the current section 46 in the Danish AIFMA depositaries can be (i) credit institutions, (ii) investment firms, (iii) other institutions subject to prudential regulation and ongoing supervision and (iv) other entities provided the fund is based on other assets (that is, not financial instruments that can be held in custody).
In the new proposal it is clear which requirements depositaries must meet to gain authorisation from the Danish FSA. The overall requirements are that the depositary must be registered with the Danish FSA, must have a liability insurance of a minimum of €730,000, and the board of directors and the manager of the depositary must be deemed fit and proper by the Danish FSA.
The proposal also makes it clear that depositaries are subject to full oversight by the Danish FSA.
The new proposals have been applauded by practitioners in Denmark, and will undoubtedly contribute positively to the ongoing process of Danish funds and fund managers becoming more familiar with the AIFMA. The general opinion is that opening the fund asset market to fund managers from outside the EU, and enabling registered fund managers to market funds to “semi-professional” investors, will strengthen competition and the market for fund management.
Henrik Puggaard Partner, LETT Law Firm, Denmark and Martin Kruhl Lawyer, LETT Law Firm, Denmark
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