Main principles of the draft law implementing Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 and its legal ramifications
As a result of the European Parliament and the Council adopting Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (the “Directive”) on June 8th 2011, EU Member States were required to transpose the Directive to the local legal regimes and adapt the currently binding local regulations to the new rules set out by it.
The Directive was a response to the risks related to the activity of entities managing alternative investment funds and creates legal framework for internal and external supervision over alternative investment fund managers (“AIFMs”) as well as regulates their activity. The function of the Directive will be realized once it is implemented to the Polish legal system as then it will be able to determine which entities established and conducting business according to Polish laws should be qualified as AIFMs and which investment vehicles should be recognized as alternative investment funds (“AIFs”). The Directive defines AIFs as collective investment undertakings, including investment compartments thereof, 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; and do not require authorisation pursuant to Article 5 of Directive 2009/65/EC (UCITS Directive), i.e. the authorization to create and manage open-ended investment funds.
Poland had until July 22nd 2013 to implement the Directive, however duet to extended interministerial and social consultations, the Council of Ministers has only on March 25th 2014 adopted the draft principles to the law on alternative investment fund managers (“Draft Law”). The Draft Law includes regulations allowing the identification of existing AIFMs by establishing common requirements for licensing and supervising such entities. It should be added that it is not intended to create new legal entities with AIFM status but instead regulating existing entities, whose business qualifies them as AIFMs.
According to the Draft Law, the following entities shall be recognized as AIFs:
- specialised open-ended investment funds (SFIO),
- closed-ended investment funds (FIZ),
and the following as AIFMs:
- investment fund management companies managing SFIO or FIZ,
- capital companies (limited liability and joint-stock companies) qualified as AIFs (according to the definition above) as well as
- limited partnerships and partnerships limited by shares, not having legal personality, qualified as AIFs, in which the only general partner is a legal person responsible for the management of the fund’s portfolio and risk management – in this specific case, the general partner of such partnership shall be recognized as AIFM, while the partnership itself – as AIF.
The Draft Law also introduces a requirement to obtain a license to conduct business as an AIFM, however it will be possible to conduct activity only at the entry to the AIFMs register (without the need to obtain a license), once conditions set out by the Directive are met – in particular the low level of assets of funds under management (under 100 mio EUR according to the Directive).
The requirement to obtain a management company’s license remains unchanged and the Draft Law indicates that currently active ManCos shall not be required to obtain a separate license to create and manage AIFs (in SFIO or FIZ legal form), provided they adapt their activity to requirements contained in the new law.
If a given entity is recognized as an AIFM, they will be required not only to obtain a license (or be entered into the register, in cases in which according to the Directive license is not required), but only to adapt their activity to a number of requirements, including in particular:
- having a depositary bank;
- implementing remuneration policies;
- implementing conflicts of interest management and risk management policies;
- technical and organizational requirements, including the requirement to have separate compliance and internal audit units.
The above mentioned solutions on one hand surely allow for more order on the Polish investment funds’ market by setting out uniform rules for the activity of collecting capital from investors for the purposes of collective investment according to a specific policy for the benefit of those investors.
On the other hand it is worth mentioning that however existing management companies will not be burdened with too many additional requirements by the Polish law on AIFMs, the situation of companies and partnerships, who can and will be qualified as AIFs/AIFMs, in particular private equity and venture capital funds existing on the Polish market, will be change dramatically. In particular these entities shall come under the supervision of the Polish Financial Supervision Authority, as well as will have to meet new requirements, including having a depositary bank, conflict of interest and risk management systems and adapting their internal structure.
As of the date of this publication, the draft Polish law on AIFMs is not available, therefore the fundamental issue of the manner in which the principles contained in the Draft Law shall be implemented remains open. The Directive uses many general clauses, refraining from specific definitions of collecting capital from many investors or what does constitute an investment policy. As a result, the full effect of the Directive on the market of Polish investment funds and private equity funds will be possible only once the text of the draft law on AIFMs is published.