Capital markets and structured investments

The management of Investment Funds may only be exercised by fund management entities empowered by law and registered with the CMC.

Fund management entities must maintain their business organization equipped with the human, material and technical resources necessary to provide their services under appropriate conditions of quality, professionalism and efficiency, in order to avoid wrong procedures.

Real Estate Fund Management entities must also maintain a technical department qualified to provide real estate project analysis and monitoring services or to contract such services externally.

Australian-domiciled funds will usually fall within the definition of 'managed investment scheme' in the Corporations Act 2001 (Cth). The Responsible Entity of a managed investment scheme (which is the operator of the fund) is typically required to hold an AFSL (or be an authorized representative of an AFSL holder) which authorizes it to provide the various financial services necessary to operate the fund, including a specific authorization to act as the Responsible Entity of a managed investment scheme.

As noted above an entity wishing to act as the Responsible Entity of a managed investment scheme must also:

• be an Australian public company; and
• either have a majority of directors who are external directors or have a compliance committee (to oversee the retail fund's compliance requirements) with a majority of 'external members'.

An investment manager which is not able to act as a Responsible Entity may enter into an arrangement with an external or ‘professional’ Responsible Entity, which will operate the fund according to the investment strategy which the investment manager may set. In those situations, from a strictly legal perspective, it is the Responsible Entity of a retail fund that engages the investment manager and is responsible for the acts of the investment manager, and the Responsible Entity will bear any liability for the mismanagement of the fund. Such external Responsible Entities will therefore typically charge a significant fee for their service.

If a managed investment scheme is to be offered to retail investors, it must be registered with ASIC and will be subject to a further layer of regulatory requirements. For example, a registered managed investment scheme must have a 'constitution' which is compliant with the Corporations Act 2001 (Cth) and must also maintain a 'compliance plan' which sets out the measures which the Responsible Entity must take to ensure compliance with the constitution and the Corporations Act 2001 (Cth).

The offer of interests in a managed investment scheme to retail investors will also generally require certain disclosure documents, including a PDS, to be prepared in accordance with the content requirements mandated by the Corporations Act 2001 (Cth) and by ASIC.

As mentioned, managed investment schemes may also qualify for tax concessions if they qualify as a “managed investment trust” under Australian tax laws. For a wholesale unit trust fund to qualify as a “managed investment trust”, the trust must be operated or managed by an AFSL licensee or by an authorised representative of such licensee. For a managed investment trust that seeks the 15% concessionally withholding tax rate for its fund payments, a substantial proportion of its investment activities must also be carried out in Australia.

Alternative Investment Fund Managers (AIFM)/Undertakings for Collective Investment in Transferable Securities (UCITS) management companies are subject to prior authorization to be granted by the competent authorities of the management company’s home member state. Authorization granted to a management company shall be valid for all member states. A management company that does not benefit from an exemption pursuant to the AIFM/UCITS Law will need to obtain authorization from its home regulator (the Financial Services and Markets Authority (Autorité des services et marchés financier/Autoriteit voor Financiële Diensten en Markten) (FSMA) in Belgium) in order to manage AIFs/UCITS. As part of the application procedure, the management company will need to provide certain information to the regulator.

Before granting an authorization to a management company, the FSMA may be required to consult with other member state regulators (for example, if the management company in question is associated with an entity regulated in another member state, such as an investment firm, a credit institution or an insurance undertaking).

The management of a fund is defined as the group of services directly or indirectly related to the functioning and maintenance of the fund. Those services may all be rendered directly by the manager of the fund or by third parties hired by the manager on behalf of the fund.

The manager is a legal entity duly authorized by the Brazilian Securities Commission (CVM) to provide securities portfolio management services, in accordance with Article 23 of Law No. 6.385 and other related regulations.

The manager may hire, on behalf of the fund, third parties duly authorized to render the following services to the fund (among others):

• portfolio managers;
• investment advisors;
• treasury services to manage the accounting for and control of financial assets;
• distribution of quotas;
• custody of financial assets;
• rating agencies; and
• market makers.

The management of the portfolio may be done by individuals or legal entities duly registered with CVM as professional portfolio managers.

NI 31-103 provides for the registration of persons in connection with trading or advising in securities, investment fund management and other related matters.

The key requirement is registration as an investment fund manager (IFM), which is defined as a person or company that directs the business, operations or affairs of an investment fund. IFMs are subject to a statutory duty to act in the best interests of an investment fund. The regulators considered extending ‎this duty of care to other categories of registrants, however, subsequent to an extensive consultation period, the regulators ‎published a set of proposed amendments which impose new requirements, codify best practices in existing guidance, and ‎clarify the client-registrant relationship. These amendments are expected to come into force on December 31, 2019, subject to receiving required provincial approvals, with industry participants being required to comply over a two-year phased transition period.

An IFM that acts as a portfolio advisor or that distributes securities of its own funds must also register as a portfolio manager (PM) or as an exempt market dealer (EMD), respectively. All registrants, including EMDs, must:

• meet minimum capital and insurance requirements;
• adopt written compliance policies and procedures;
• file periodic reports with the principal securities regulator and maintain certain records; and
• identify, disclose and manage conflicts of interests.

Fund managers must disclose, on a quarterly basis, net asset value (NAV) adjustments. In addition, all registrants must file audited financial statements with the regulators. IFMs of funds that are reporting issuers must comply with the requirements of National Instrument 81-102 (NI 81-102), NI 81-106 and NI 81-107.

Dealers and advisors are subject to best execution requirements under NI 23-101 (Trading Rules) and rules regarding soft dollar arrangements under NI 23-102 (Use of Client Brokerage Commissions).

Restrictions depend on the type of fund to be managed, and refer in basic terms to the type of entity the Fund Manager is required to be, and the registration and reporting requirements imposed over such Fund Managers.

The incorporation of private equity funds (PEFs) is not subject to the authorization of the Superintendency of Finance. Nonetheless, the management company must deliver certain documents to the Superintendency of Finance at least 15 business days before the final closing date of the fund.

Additionally, the placement terms of the PEF may establish that the investment decisions of the fund may be delegated to a General Partner, which must credit at least five years of experience in the administration of private equity assets to the PEF be deemed as an eligible investment for local pension fund managers and insurance companies.

Pension funds are also allowed to invest in offshore PEFs managed by general partners that should credit five years of experience and additionally at least US$1 billion assets under management.

Any legal or natural person is prohibited from carrying on regulated activities, such as fund management, without authorization (which is granted by the Czech National Bank and includes financial, personnel and organizational conditions), unless any statutory exemptions apply.

The main administrator of a fund must own a base capital amount of at least €50,000 which must be maintained for the whole duration of the fund. The fund manager is obliged to act diligently in all matters and keep all evidence required by the Act on Investment Companies and Investment Funds.

Fund management is a regulated activity in Finland under the Mutual Funds Act. Managing a fund is subject to authorization granted by the Finnish Financial Supervisory Authority (FIN-FSA) that also supervises fund management companies. Under the Mutual Funds Act, each mutual fund must be managed by an authorized fund management company.

A fund management company must separate fund assets from its own assets by assigning the former to a custodian. Fund management companies may engage only in the fund activity and other essentially related business (as defined in the applicable legislation), if doing so does not materially conflict with the interests of holders of mutual fund shares. In addition, fund management companies may provide asset management services and investment advice as well as safekeeping and administration of shares in mutual funds and undertakings for collective investment in transferable securities (UCITS).

Fund management companies must have sufficient financial strength to operate effectively and must not be closely associated with companies or individuals that could prevent effective supervision of the management company. A management company shall carry out fund activity independently, in compliance with the applicable legislation, and with care and expertise and in the best interests of the common fund and its unitholders.

Alternative Investment Fund Managers (AIFMs) are also subject to regulation under the Act on Alternative Investment Fund. Under the Act, an AIF may only be managed by and AIFM authorized by the FIN-FSA. However, some AIFM can be exempted from full regulation on certain grounds, including managing assets under €500 million where assets are not leveraged and investors have no redemption rights for five years, and managing assets under €100 million including assets acquired through leverage. Exempted managers must still register with the FIN-FSA and are subject to limited reporting.

Managing a fund is a regulated activity. Any entity managing funds must be authorized by the AMF before commencing its activities.

Yes.

Alternative Investment Fund Managers (AIFMs) managers of Undertakings for Collective Investments in Transferable Securities (UCITS) are subject to regulation under the Capital Investment Code and must generally be authorized by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin).

The Securities Industry Act, 2016 (Act 929) together with the Unit Trust and Mutual Funds Regulations, 2001 (LI 1695) prescribe the rules for the management of funds, and in particular, unit trusts and mutual funds. 

Under Act 929 generally, a fund manager must: 

• be licensed by the Securities and Exchange Commission;
• maintain a register of securities in respect of which it has an interests and notify the Securities and Exchange Commission where that register is kept;
• in any written communication in which it recommends any securities, disclose any interest it may have in any of the securities recommended;
• not give unsecured credit to anyone to purchase securities or in the knowledge that the unsecured credit will be used to purchase securities;
• operate in a manner that would ensure compliance with the Anti-Money Laundering Act, 2008 (Act 749) and Anti-Terrorism Act; and
• comply with the rules on trading in securities, including insider dealing and fraudulent practices in the sale and purchase of securities. 

Additionally, for unit trusts and mutual funds, the manager must be a company incorporated in Ghana and have at least three directors. They must:  

• have the minimum issued and paid up capital mandated by the Securities and Exchange Commission;
• not participate in prohibited transactions involving the lending or borrowing of money on behalf of the fund under Act 929;
• comply with the prescribed investment regime provided in Act 929, including the limitation on investments in securities in which the officers of the fund have an interest;
• submit half yearly and yearly investors’ reports to holders of interests on the performance of their schemes; and
• obtain the prior approval of the Securities and Exchange Activities to engage in manager’s own account transactions or investments in other collective investment schemes not licensed under Act 929.

Fund management in Hungary is regulated under Act XVI of 2014 on Collective Investment Trusts and Their Managers, and on the Amendment of Financial Regulations. The National Bank of Hungary is responsible for regulating funds, fund managers and those marketing funds and any legal or natural person is prohibited from carrying on regulated activities, such as fund management, without authorization.

Alternative Investment Fund Managers (AIFMs) are also subject to regulation under the Alternative Investment Fund Managers Directive (as implemented in Hungary) and managers of Undertakings for Collective Investments in Transferable Securities (UCITS) are subject to certain requirements under the Undertakings for Collective Investment in Transferable Securities Directive. Full National Bank of Hungary registration involves a significant authorization process which among others must include information on senior personnel (must be suitable persons etc), organizational structure, policies and procedures and remuneration practices.

However, AIFMs based in Hungary can be exempted from full regulation on certain grounds, including managing assets under €500 million where assets are not leveraged and investors have no redemption rights for five years, and managing assets under €100 million including assets acquired through leverage. Exempted managers must still register with the regulator.

A UCITS or AIF can appoint an external manager or be managed through its Board of Directors (where the legal form of the vehicle permits) and, in this case, the fund is referred to as an internally managed or self-managed fund. In contrast, those structured as a unit trust or as a CCF must always appoint a management company.

Where a fund does not appoint a management company, it is referred to as a self-managed investment company (SMIC). Where a UCITS is a SMIC, it is required to submit a detailed corporate governance and oversight document (known as a business plan) to the Central Bank of Ireland for review and comment before the UCITS can be authorized. In light of the additional corporate governance, oversight and time commitment obligations involved, the externally managed UCITS is a more popular model in Ireland. This structure has the advantage that the UCITS can relinquish compliance with certain obligations so that they rest with a management company instead.

Management of a fund is a regulated service. Both UCITS management companies and AIFMs incorporated in Ireland are authorized by the Central Bank. Irish authorized UCITS Management Companies and AIFMs can manage funds in other EU Member States on a cross-border passporting basis, subject to necessary notification requirements.

A fund manager may wish to establish its own management company or use a management company platform in cases where a management company is a requirement and the fund manager will be a signatory to the trust deed constituting the fund. A fund management company can also act as the central coordinator of service providers for the fund – i.e. the fund would delegate all management activities to the management company, which can then appoint, for example, a sub-investment manager, a fund administrator and/or different service providers.

Various restrictions arise on manager structuring/compensation and profit-sharing arrangements as a result of EU and Irish regulations and any manager that is subject to the remuneration rules must apply those rules proportionate to its size, internal organization and the scope and complexity of its activities. The rules affect, among other things, reporting, equity remuneration, deferred compensation arrangements and clawback.

AIFMs are also subject to regulation under the AIFMD and managers of UCITS are subject to certain requirements under the UCITS Regulations. Registration with the Central Bank of Ireland involves a significant authorization process. It is normal practice for the Central Bank of Ireland to engage with new applicants before the beginning of the process. An effective authorization process depends on the timeliness and quality of responses received from the applicant to the Central Bank of Ireland’s comments. The completion of the application must be accompanied by (among other things) a detailed business plan, individual questionnaires, code of conduct and anti-money laundering protocols.

Funds established in Ireland as a UCITS or an AIF enjoy the benefit of the EU-wide passporting regime. A single management company (a so-called Super ManCo) can be authorized to manage both UCITS and AIFs and this can be used to obtain access to the passporting regimes for both UCITS and AIF products without the need to establish two separately regulated entities. The rules in relation to establishment of Super ManCos has been updated by the Central Bank of Ireland, making this a favorable option.

Fund management in Italy is regulated under the Consolidated Financial Act, various statutory instruments and the supervisory authorities' rules and regulations. The Bank of Italy is mainly responsible for regulating funds and fund managers, as well as the criteria for the obtainment of the relevant authorizations.

The various restrictions imposed by the aforesaid provisions (including, inter alia, structuring, management autonomy and independence, conflict of interest and remuneration issues) shall be proportionate to the managers' size, internal organization, scope and complexity of activities.

Alternative Investment Fund Managers (AIFMs) are also subject to regulation under the Alternative Investment Fund Managers Directive (as implemented in Italy) and managers of Undertakings for Collective Investments in Transferable Securities (UCITS) are subject to certain requirements under the Undertakings for Collective Investment in Transferable Securities Directive.

More precisely, the authorization procedure with the Bank of Italy to perform collective asset management activities, is granted upon positive evaluation of, inter alia, the business plan, activities plan and organizational structure of the manager, integrity, professionalism and independence of its directors and controllers’ integrity, and professional competence of its shareholders and their representatives.

The entity willing to exercise the collective portfolio management activity must submit to Bank of Italy certain documentation confirming the above prerequisites, and the Bank of Italy will have 90 days from the filing to grant or deny authorization (this term may be suspended in case the Bank of Italy requires clarifications or additional information).

In terms of incorporation costs, the Bank of Italy usually requires the Società di Gestione del Risparmio (SGR) to be provided with excess cash in order to cover incorporation costs without reducing the minimum corporate capital.

Special provisions are set forth for SGR managing assets below predefined thresholds (so called SGR sotto soglia), which are subject, inter alia, to simplified capital and authorization requirements, assets evaluation criteria, control functions, outsourcing, conflict of interest and portfolio and management regimes, as well as to simplified guidelines on remuneration.

Fund management in the WAMU is regulated under the General Regulations of the CREPMF and various implementing instruments.

The CREPMF regulate and authorize public offerings by delivering its approval. It monitors all private organizations on the market. For this purpose, it certifies all commercial stakeholders: brokerage firms, fund managers, and individual entities (intermediaries and soliciting dealers).

The collective management of transferable securities is carried through UCITS, divided into open-ended investment company (SICAV), in Mutual Funds (FCP) or any other form of Undertaking for Collective Investment in transferable securities (UCITS) approved by the Regional Council.

Undertakings for Collective Investment in Transferable Securities.

UCITS’ management is governed by the regulations in accordance with the General Regulations of the CREPMF and Instructions 44, 45, and 46.

Mutual funds that hold more than 5 billion FCFA assets are required to set up a system of controls and monitoring specified under article 7 of Instruction N° 46/2011 (Revised) Relating to the Classification and Allocation Rules Assets of Collective Investment Organizations on the Regional Financial Market of the WAMU such as a supervisory committee, an Internal Control reporting system, and a reporting system for the FCP Custodian. The maximum assets that a Mutual Fund can hold is set at twenty-five (25) billion FCFA.

Any FCP which comes to hold assets in excess of 25 billion FCFA must declare it without delay to the Regional Council.

No FCP can hold, during six consecutive months, an asset greater than 25 billion FCFA, in which case the FCP must, within a six (6) month period, be transformed into a SICAV or be subject to a demerger.

For an Investment Limited Partnership, general partners must ring-fence the invested amounts and any other assets invested in the fund from their own invested amounts and/or assets.

The Financial Instruments and Exchange Act requires a fund manager to prepare documents detailing the fund’s investment activity. The specific types of required documents vary depending on the structure of the fund and the license it holds.

An investment fund will either have to be managed by itself (not very common), by a management company or an Alternative Investment Fund Manager (AIFM) depending on the qualification of the investment fund itself.

The management functions of a management company are defined by the Luxembourg law which cannot be contravened, except if the management company holds the relevant license:

• portfolio management;
• administration, such as:
  • legal and fund management accounting services
  • customer inquiries
  • valuation of the portfolio and pricing of the units (including tax returns)
  • regulatory compliance monitoring
  • maintenance of unitholder register
  • distribution of income
  • unit issue and repurchase
  • contract settlements (including certificate dispatch)
  • record-keeping; and
• marketing.

Investment management functions which an AIFM must at least perform when managing an Alternative Investment Fund (AIF) are:

• portfolio management; and
• risk management.

The additional functions that an AIFM may perform in the course of the collective management of an AIF are restricted to the following:

• administration, such as:
  • legal and fund management accounting services;
  • customer inquiries;
  • valuation and pricing, including tax returns;
  • regulatory compliance monitoring;
  • maintenance of unit-/shareholder register;
  • distribution of income;
  • unit/shares issues and redemptions;
  • contract settlements, including certificate dispatch; and
  • record-keeping;
• marketing; and
• activities related to the assets of AIFs, namely services necessary to meet the fiduciary duties of the AIFM, facilities management, real estate administration activities, advice to undertakings on capital structure, industrial strategy and related matters, advice and services relating to mergers and the purchase of undertakings and other services connected to the management of the AIF and the companies and other assets in which it has invested.

In order to apply for a license to act as a management company, self-managed company or AIFM, the relevant entity will have to submit various documents to the Commission de Surveillance du Secteur Financier in order to verify that the relevant company has sufficient technical and human infrastructure, expertise and policies in place.

However, AIFMs based in Luxembourg may be exempt from a full AIFM license and will only have to be registered with the Commission de Surveillance du Secteur Financier, in case either of the following is applicable:

• The AIFM is established in Luxembourg and which either directly or indirectly, through a company with which the AIFM is linked by common management or control, or by a substantive direct or indirect holding, manages portfolios of AIFs whose assets under management, including any assets acquired through use of leverage, in total do not exceed a total threshold of €100 million.
• The AIFM is established in Luxembourg and which either directly or indirectly, through a company with which the AIFM is linked by common management or control, or by a substantive direct or indirect holding, manages portfolios of AIFs whose assets under management in total do not exceed a threshold of €500 million when the portfolios of AIFs consist of AIFs that are unleveraged and have no redemption rights exercisable during a period of five years following the date of initial investment in each AIF.

A Collective Investment Scheme Manager shall:

• maintain a minimum unimpaired capital of MUR 1 million (approximately USD27,300);
• observe some prohibitions;
• abide by general rules of conduct;
• have internal control rules;
• contract specific insurance policies;
• abide by standards for publicity and sales literature; and
• keep certain books and records.

Managers of investment funds must be authorized by the National Banking and Securities Commission (CNBV). The portfolio of assets must be deposited in institutions for deposits of securities, which institutions must be licensed.

An investment fund is managed by a management company, which is a commercial company that exclusively creates and manages investment products in compliance with regulatory and legal constraints and internally defined investment policies in order to obtain the best performance from it.

Yes.

Funds may only be managed after having obtained the relevant authorization.

The manager of a retail fund must be licensed by the Financial Markets Authority (FMA). The licensing process is comprehensive with significant ongoing monitoring by the licensed supervisor of the fund and the FMA. Capital adequacy requirements must be met and restrictions apply to related party transactions. Investment must be made in accordance with the fund's registered statement of investment policy and objectives.

The Securities Funds Act of 2011 and its related regulations set several requirements in relation to management of funds. The Norwegian Financial Supervisory Authority oversees and provides licensing for all securities fund management companies. To receive such authorization, certain statutory requirements must be met, and various restrictions arise on manager structuring, investment limits, organization of the activity, risk management etc. This Act also incorporates specific regulations regarding UCITS, incorporating the UCITS directive. Alternative Investment Fund Managers (AIFMs) are also subject to regulation under the Alternative Investment Fund Managers Directive (as implemented in Norway).

The Superintendence of Securities Market (SMV) is responsible for regulating and supervising funds. Fund managers, individuals and legal entities are prohibited from carrying on regulated activities, such as fund management, without authorization.

The SMV authorizes the organization and operation of a fund management company as a corporation (sociedad anónima) and supervises it as long as its purpose is to manage investment funds, mutual funds and collective funds. The Superintendence of Banking, Insurance and Private Pension Fund Management Companies (SBS) authorizes the organization and operation of private pension funds.

All fund management companies need an authorization except for investment fund management companies whose funds only issue trust certificates not to be placed through public offerings, which are not supervised by the SMV, being obliged to inform such condition to their investors and clients.

The capital of management companies is prescribed by law and varies for:

• private pension fund management companies;
• investment fund management companies and mutual fund management companies; and
• collective fund management companies.

Additionally, the net equity of any management company must be at least than 0.75% of the sum of mutual fund and investment fund equities under its administration.

Management companies must obtain a business license either from the SMV or the SBS. The conditions applicable to the establishment of a management company remain throughout the company’s existence.

Management companies are required to grant certain guarantees on behalf of the SMV in order to guarantee the compliance of the obligations assumed before their investors.

Fund management in Poland is regulated under the Act on Investment Funds and Alternative Investment Fund Managers and is supervised by the Polish Financial Supervisory Authority (PFSA). The PFSA is responsible for supervising funds, fund managers and those marketing funds. It is prohibited for any legal or natural person to perform regulated activities, such as fund management, without authorization.

Under the regulations there are various restrictions on manager structure/compensation and profit-sharing arrangements and any manager that is subject to the remuneration rules must apply those rules proportionate to its size, internal organization and scope and complexity of activities.

Under EU law, Alternative Investment Fund Managers (AIFMs) are also subject to regulation under the Alternative Investment Fund Managers Directive and managers of Undertakings for Collective Investments in Transferable Securities (UCITS) are subject to certain requirements under the Undertakings for Collective Investment in Transferable Securities Directive.

The registration of such entities involves a significant authorization process. The application must include:

• for the manager – information on senior personnel (must be suitable persons etc), organizational structure, policies and procedures, remuneration practices; and
• for each fund – investment strategy, constitutional documents, depositary information and disclosure requirements.

However, AIFMs can be exempted from full regulation on certain grounds, including managing assets under €500 million where the assets are not leveraged and investors have no redemption rights for five years, and managing assets under €100 million including assets acquired through leverage. Exempted managers do not need a permit from the PFSA to operate but they still have to register in the Alternative Investment Company Register.

Investment fund managing companies are considered financial intermediaries under the Securities Act. They must be registered with the Portuguese Securities Market Commission and are subject to rules regarding financial intermediaries.

Apart from self-managed funds (which is a possible management structure for investment companies):

• open-ended funds must be managed by investment fund managing companies (sociedades gestoras de fundos de investimento); and
• closed-ended funds must be managed by investment fund managing companies or certain credit institutions.

Investment fund managing companies must have a minimum share capital of EUR1250,000 and comply with the legal requirements governing their own funds. Credit and financial institutions that want to manage a closed-ended investment fund must hold at least €7.5 million in own funds.

Foreign management companies authorized by another EU member state and which are subject to supervision by the regulator of another member state may, in principle, freely operate in Portugal under the principle of the freedom of movement of services.

Foreign management companies from non-EU member states that wish to manage investment funds in Portugal must apply for prior authorization from Portuguese Securities Market Commission.

Investment fund managing companies are prohibited from conducting certain types of activity such as granting loans and credit, including granting guarantees, on their own account.

All investment fund management companies must act exclusively in their investors' best interests and, observe the principle of risk sharing and act according to high standards of professional competence and special diligence.

Fund management in Puerto Rico is regulated under the Uniform Securities Act (PRUSA), the Investment Companies Act (Act No.6) and the Investment Companies Act of 2013. The Office of the Commissioner of Financial Institutions of Puerto Rico (OCFI) is responsible for regulating investment companies, investment company managers, investment advisors and those marketing funds (securities broker-dealers) and any legal or natural person is prohibited from carrying on regulated activities, such as fund management, without authorization. The same is true with the US Securities and Exchange Commission (SEC) for investment advisors with USD100 million or more in assets under management. In that case SEC regulations supersede the PRUSA and OCFI regulations.

Various restrictions arise on manager structuring/compensation and profit-sharing arrangements as a result of the regulations and any manager that is subject to the remuneration rules must apply those rules proportionate to its size, internal organization and scope and complexity of its activities. The rules impact on, among other things, reporting and compensation arrangements.

The management of Undertakings for Collective Investments In Transferable Securities (UCITS) and Alternative Investment Funds (AIFs) is a regulated activity subject to authorization by the Financial Supervisory Authority (FSA).

Authorization of both investment management companies and AIF managers (AIFMs) is subject to a significant authorization process which may take up to six months starting from the completion of the application. Authorization requirements mainly refer to initial capital minimum levels, shareholders' financial soundness, expertise and integrity of management bodies, senior personnel requirements (must be suitable persons with adequate expertise and reputation), business plan and organization structure, policies and procedures.

AIFMs which were previously authorized by the FSA as investment management companies, are not required to refile the documents already submitted upon authorization as an investment management company.

The FSA authorization of an AIFM or an investment management company is valid for all EU member states based on the European passport. They may perform the financial services for which they are authorized by the FSA in another member state either by establishment of a branch or directly, under the direct provision of services.

Following authorization, investment management companies and AIFMs are subject to various regulatory requirements, including in relation to own funds, conflicts of interest, risk management policies and remuneration policies.

Activities of joint-stock investment funds, and management of joint-stock investment funds or mutual funds, require a license issued by the Central Bank of the Russian Federation.

Since the activities of funds are heavily regulated in Russia, there are various restrictions on the management of funds. For example, a management company cannot acquire assets which are not listed in the law and the investment declaration of an investment fund. Compensation of the management company cannot exceed 10% average annual net asset value of the investment fund.

Fund management in the WAMU is mainly regulated under the General Regulations of the CREPMF and various implementing instruments.

The CREPMF regulate and authorize public offerings by granting approval. It monitors all private organizations acting on the market. For this purpose, it certifies all commercial stakeholders: brokerage firms, fund managers and individual entities (intermediaries and soliciting dealers).

The collective management of transferable securities is carried through UCITS, divided into open-ended investment companies (SICAV), Mutual Funds (FCP) or any other form of Undertaking for Collective Investment in transferable securities (UCITS) approved by the Regional Council.

Undertakings for Collective Investment in Transferable Securities.

UCITS’ management is governed in accordance with the General Regulations of the CREPMF and Instructions 44, 45, and 46.

Mutual funds that hold more than XOF5 billion in assets are required to set up a system of controls and monitoring, such as a supervisory committee, an Internal Control reporting system and a reporting system for the FCP Custodian. The maximum assets that a Mutual Fund can hold is set at XOF25 billion. (Article 7 of Instruction N° 46/2011 (Revised) Relating to the Classification and Allocation Rules Assets of Collective Investment Organizations on the Regional Financial Market of the WAMU).

Any FCP which comes to hold assets in excess of XOF25 billion must declare it without delay to the Regional Council.

No FCP can hold, during six consecutive months, an asset greater than XOF25 billion, in which case the FCP must, within a six-month period, transform into a SICAV or proceed with a demerger.

Fund management companies (FMC) must either be a licensed fund management company which has obtained a capital markets services license under the Securities and Futures Act or be a registered FMC.

Fund management in Slovakia is regulated under the Act on Collective Investment. Any legal or natural person is prohibited from carrying on regulated activities, such as fund management, without authorization, unless a statutory exemption applies.

Full registration with National Bank of Slovakia involves a significant authorization process – three-to-six months from completion of the application, which must include information on personnel and organizational prerequisites for operation, internal policies and procedures, etc.

Subject to the requirements provided under the Act on Collective Investment, a company who wishes to manage alternative investment funds may be exempted from the full licensing process. Such exemption applies for instance in case of a person, who directly or indirectly through a company to which the person is personally linked or in a controlling relationship, manages portfolios of alternative investment funds, the total value of which is:

• under EUR100 million including assets acquired through leverage; or
• under EUR500 million where assets are not leveraged and investors have no redemption rights for five years.

In such case, the manager of investment fund must still be registered with the National Bank of Slovakia.

No person may manage a fund which is open to the public for investment without being registered in terms of the Collective Investment Schemes Control Act (CISCA) or licensed in terms of the Financial Advisory and Intermediaries Services Act (FAIS).

For registration of Management Companies, see Establishing and investing in debt and hedge funds – establishment.

Under FAIS, four types of licenses are issued to asset managers:

• category I (issued to financial services providers providing non-discretionary intermediary services or advice);
• category II (issued to financial services providers who provide discretionary fund management);
• category IIA (issued to financial services providers who manage hedge funds on a discretionary basis); and
• category III (issued to administrative financial services providers who aggregate client funds or securities, often through providing one-stop investment platform services).

Such license holders (Authorized Financial Services Providers) are bound by principles and rules set out in the relevant codes of conduct created by the Financial Sector Conduct Authority (previously known as the Financial Services Board) (FSCA).

Individuals exercising oversight over the rendering of financial services by a license holder under the FAIS (Key Individuals) or who represent the license holder in rendering financial services to clients (Representatives) must successfully complete certain regulatory examinations prescribed by the FSB.

Hedge fund managers must comply with the Category IIA (Hedge Fund Financial Services Provider) license requirements under FAIS in order to manage investor funds. Hedge fund managers must also register as such with the Registrar of Collective Investment Schemes in terms of section 42 of Collective Investment Schemes Control Act (CISCA).

In addition to the above, hedge funds are regulated in terms of board notice 52 of 2015 (Financial Sector Conduct Authority (previously known as the Financial Services Board)): Determination on the Requirements for Hedge Funds) (Board Notice 52), in terms of which, inter alia:

• Both Qualified Investor Hedge Funds (QIHFs) and Retail Investor Hedge Funds (RIHFs) must appoint a separate depository for the safekeeping of assets.
• Managers of QIHFs and RIHFs must comply with leverage, liquidity and asset exposure restrictions imposed by the FSCA. Restrictions are also placed on a fund's ability to invest in derivatives. RIHFs are placed under more stringent restrictions in terms of exposure limits and permitted securities for investment.
• All fund managers must report to the Registrar of Collective Investment Schemes on a quarterly basis, which report must contain information on, inter alia:
  • the value assets in long/short positions as a percentage of total assets invested;
  • the exposure permitted under the fund mandate and the actual exposure applied at quarter end;
  • the method used to calculate exposure; and
  • a list of all portfolios administered by that manager.
• Hedge fund managers must provide the Registrar of Collective Investment Schemes with their audited annual financial statement and annual report within 90 days of their year end.

Fund management in Spain is regulated under the Collective Investment Scheme (CIS) Law and Close-ended Collective Investment Law, their developing regulation and the Comisión Nacional del Mercado de Valores (Spanish Securities and Exchange Commission, CNMV) Rules. The CNMV is responsible for regulating funds, fund managers and those marketing funds and any legal or natural person is prohibited from carrying on regulated activities, such as fund management, without authorization.

Various restrictions arise on manager structuring/compensation and profit-sharing arrangements as a result of the regulations and any manager that is subject to the remuneration rules must apply those rules proportionate to its size, internal organization and scope and complexity of its activities. The rules impact on, among other things, reporting, equity remuneration, deferred compensation arrangements and clawback.

Alternative Investment Fund Managers (AIFMs) are also subject to regulation under the Alternative Investment Fund Managers Directive (as implemented in Spain by the Close-ended Collective Investment Law) and managers of Undertakings for Collective Investments in Transferable Securities (UCITS) are subject to certain requirements under the Undertakings for Collective Investment in Transferable Securities Directive (as implemented in Spain by the CIS Law). Full CNMV registration involves a significant authorization process – three-to-six months from completion of the application which must include:

• for the manager, information on senior personnel (must be suitable persons etc), organizational structure, policies and procedures, remuneration practices; and
• for each fund, investment strategy, constitutional documents, depositary information and disclosure requirements.

However, AIFMs based in Spain may be exempted from full regulation on certain grounds, including managing assets under €500 million where assets are not leveraged and investors have no redemption rights for five years, and managing assets under €100 million including assets acquired through leverage. Exempted managers must still register with the regulator, are subject to limited reporting and it should be noted that they do not benefit from the general passporting for marketing purposes.

Fund management in Sweden is regulated under various statutory instruments and by the Swedish Financial Supervisory Authority's (Finansinspektionens or SFSA) regulations. The SFSA is responsible for regulating funds, fund managers and those marketing funds and any legal or natural person is prohibited from carrying on regulated activities, such as fund management, without authorization.

Various restrictions arise on manager structuring/compensation and profit-sharing arrangements as a result of the regulations and any manager that is subject to the remuneration rules must apply those rules proportionate to its size, internal organization and scope and complexity of its activities. The rules impact on, among other things, reporting, equity remuneration, deferred compensation arrangements and clawback.

Alternative Investment Fund Managers (AIFMs) are also subject to regulation under the Alternative Investment Fund Managers Directive (implemented in Swedish law through the Alternative Investment Fund Managers Act 2013 (Lag (2013:561) om förvaltare av alternativa investeringsfonder) and managers of Undertakings for Collective Investments in Transferable Securities (UCITS) are subject to certain requirements under the Undertakings for Collective Investment in Transferable Securities Directive. Registration with the SFSA involves a significant authorization process – it generally takes three to six months from completion of the application and must include:

• for the manager, information on senior personnel (must be suitable persons etc), organizational structure, policies and procedures, remuneration practices; and
• for each fund, investment strategy, constitutional documents, depositary information and disclosure requirements.

However, AIFMs based in Sweden can be exempted from full regulation on certain grounds, including managing assets under €500 million where assets are not leveraged and investors have no redemption rights for five years, and managing assets under €100 million including assets acquired through leverage. Exempted managers must still register with the regulator, are subject to limited reporting and it should be noted that they do not benefit from the general passporting for marketing purposes.

The asset management company must have a reliable operational system that supports segregation of duties, compliance, risk management, recruitment and monitoring of business operations. The systems should also strengthen efficiency of internal control and recordkeeping for audit trails, and enforce information barriers to safeguard non-public information that could cause conflicts of interest

The asset management company must conduct due diligence and implement an efficient policy and procedure to prevent conflicts of interest covering at least the following areas:

• affiliated transaction;
• proprietary trading;
• front running;
• staff dealing; and
• soft dollar / rebate.

Personnel in the asset management company must be qualified under Securities and Exchange Commission regulations.

An asset management company can operate other business only if such other business will not cause risk to clients' assets or create a conflict of interest with its securities business and provided that it will support its fund management activities.

Fund management is a regulated activity carried on by an asset management company on the basis of a management agreement. An asset management company has to obtain a license from the National Securities and Stock Market Commission.

Various restrictions apply to fund managers and their operations in the course of managing funds:

• independent custodian (a non-related party to the fund's participants);
• independent valuator of assets (a non-related party to the fund's participants); and
• independent auditor (a non-related party to the fund's participants).

Fund management in the UK is regulated under the Financial Services and Markets Act 2000, various statutory instruments and the Financial Conduct Authority Rules. The Financial Conduct Authority is responsible for regulating funds, fund managers and those marketing funds and any legal or natural person is prohibited from carrying on regulated activities, such as fund management, without authorization.

Various restrictions arise on manager structuring/compensation and profit-sharing arrangements as a result of the regulations and any manager that is subject to the remuneration rules must apply those rules proportionate to its size, internal organization and scope and complexity of its activities. The rules impact on, among other things, reporting, equity remuneration, deferred compensation arrangements and clawback.

Alternative Investment Fund Managers (AIFMs) are also subject to regulation under the Alternative Investment Fund Managers Directive (as implemented in the UK) and managers of Undertakings for Collective Investments in Transferable Securities (UCITS) are subject to certain requirements under the Undertakings for Collective Investment in Transferable Securities Directive. Full Financial Conduct Authority registration involves a significant authorization process – three-to-six months from completion of the application which must include:

• for the manager, information on senior personnel (must be suitable persons etc.), organizational structure, policies and procedures, remuneration practices; and
• for each fund, investment strategy, constitutional documents, depositary information and disclosure requirements.

However, AIFMs based in the UK can be exempted from full regulation on certain grounds, including managing assets under €500 million where assets are not leveraged and investors have no redemption rights for five years, and managing assets under €100 million including assets acquired through leverage. Exempted managers must still register with the regulator, are subject to limited reporting and it should be noted that they do not benefit from the general passporting for marketing purposes.

Fund management in the UK is regulated under the Financial Services and Markets Act 2000, various statutory instruments and the Financial Conduct Authority Rules. The Financial Conduct Authority is responsible for regulating funds, fund managers and those marketing funds and any legal or natural person is prohibited from carrying on regulated activities, such as fund management, without authorization.

Various restrictions arise on manager structuring/compensation and profit-sharing arrangements as a result of the regulations and any manager that is subject to the remuneration rules must apply those rules proportionate to its size, internal organization and scope and complexity of its activities. The rules impact on, among other things, reporting, equity remuneration, deferred compensation arrangements and clawback.

Alternative Investment Fund Managers (AIFMs) are also subject to regulation under the Alternative Investment Fund Managers Directive (as implemented in the UK) and managers of Undertakings for Collective Investments in Transferable Securities (UCITS) are subject to certain requirements under the Undertakings for Collective Investment in Transferable Securities Directive. Full Financial Conduct Authority registration involves a significant authorization process – three-to-six months from completion of the application which must include:

• for the manager, information on senior personnel (must be suitable persons etc), organizational structure, policies and procedures, remuneration practices; and
• for each fund, investment strategy, constitutional documents, depositary information and disclosure requirements.

However, AIFMs based in the UK can be exempted from full regulation on certain grounds, including managing assets under €500 million where assets are not leveraged and investors have no redemption rights for five years, and managing assets under €100 million including assets acquired through leverage. Exempted managers must still register with the regulator, are subject to limited reporting and it should be noted that they do not benefit from the general passporting for marketing purposes.

Onshore UAE

All entities that practice the activities of establishing and running onshore funds must be licenced with the UAE Securities and Commission Authority (SCA). In order to obtain a licence then the management entity must meet the criteria specified in the SCA Chairman Decision No. 9 of 2016 Concerning the Regulations as to Investment Funds (Investment Fund Regulations), which includes:

• being a company operating in the area of securities / fund management, or being a local or foreign bank specified in the Investment Fund Regulations;
• meeting certain minimum capital requirements;
• having its Memorandum of Association authenticated;
• paying the prescribed licencing fees;
• appointing personnel with the necessary technical and administrative expertise; and
• meeting certain other operational requirements.

DIFC

Hedge funds in the Dubai International Financial Centre (DIFC) are regulated by the Collective Investment Rules module of the Dubai Financial Services Authority (DFSA) Rulebook, similar to other investment funds. The DFSA has implemented the Hedge Fund Code of Practice (Code), which sets out the principal risks associated with hedge funds and similar structures and sets out best practice standards. Hedge fund managers are permitted a degree of flexibility to adapt the standards to suit their particular businesses in light of market conditions and emerging issues. These standards, inter alia, address back-office systems, valuation procedures, and the skills and resources of the manager.

The Code, which sets out best practice standards for Fund Managers of Hedge Funds in the DIFC (ie Fund Managers of Public Funds, Exempt Funds or qualified investment funds (QIFs) which are classified as Hedge Funds), addresses risks inherent in the operation of Hedge Funds and are set out under the following nine principles:

• principle 1 – appropriate skills and resources to conduct the operations of the fund;
• principle 2 – robust and flexible investment process in line with the risk profile of the fund;
• principle 3 – systems and controls to mitigate trading related risks;
• principle 4 – adequate back-office systems and controls;
• principle 5 – appropriate measures to identify and manage portfolio risks;
• principle 6 – adequate valuation policies and procedures;
• principle 7 – no arrangements where material benefits are given only to some investors;
• principle 8 – adequate systems and controls to deal with market sensitive information; and
• principle 9 – no investment in underlying hedge funds without appropriate due diligence.

A fund registered under the Investment Company Act of 1940 (ICA) must comply with the rules set forth therein, including restrictions on the manner and timing of payments to its manager. Funds using an exemption from registration under the ICA must comply with the terms of that exemption at all times.

If the fund’s manager is registered with the Securities and Exchange Commission (SEC) it must meet the duties and obligations imposed by the Investment Advisers Act of 1940 (IAA). Managers exempt from registration must nevertheless obey anti-fraud and other rules in the IAA. All managers whether exempt from registration or not owe fiduciary duties to the fund as a matter of both federal and state law. For example, managers must ordinarily obtain the consent of the investors or a committee of them before causing the fund to enter into a transaction that is subject to a conflict of interest.