In the world of finance, the role of a fund manager is both significant and complex. These individuals or entities are entrusted with the responsibility of managing investment funds and securities portfolios, a task that requires a high degree of expertise and regulatory compliance. One pivotal step on this journey involves obtaining the necessary operating license.
The primary and enduring responsibility of a fund management firm lies in overseeing the assets of a fund established either as a corporate entity or under a contractual structure. Such a management company may be entrusted with the management of multiple funds.
In addition to fund administration, the management company may offer the following services:
- Managing a securities portfolio as defined by the Securities Markets Act.
- Providing investment advisory services.
- Safeguarding fund units or shares on behalf of clients.
- Offering fund management services in accordance with the Investment Funds Act for funds whose assets it does not directly oversee.
Operating as a fund manager necessitates obtaining a license, which is granted and can be revoked by Finantsinspektsioon.
The structure of operations of a fund manager
A fund management firm operates as a business primarily engaged in the management of investment funds and securities portfolios. Fund management encompasses tasks such as overseeing the issuance of a fund’s shares or units, determining the allocation of the fund’s assets, maintaining accurate records of these assets, and executing other activities directly linked to these functions. It’s worth noting that a management company may oversee multiple funds simultaneously.
The activities of fund managers are subject to regulation under the Investment Funds Act. According to this legislation, public investment funds, including pension funds, are obliged to secure an operational license as a fund manager, a credential issued by Finantsinspektsioon. Fund managers aiming to oversee euro funds and sizable alternative investment funds also require operating licenses.
For the management of a small fund, a fund manager must either seek an operational license as a small fund manager or register its operations with Finantsinspektsioon. Small fund managers are exclusively authorized to administer non-public investment funds, with their core clientele typically consisting of professional investors.
Should a management company overseeing an unlicensed small fund opt not to apply for an operational license as a small fund manager from Finantsinspektsioon, it must instead register its operations with the same authority. It’s important to note that Finantsinspektsioon’s supervision of registered unlicensed small fund managers extends solely to the registration process and subsequent collection of statistical reporting.
Cross-border fund management firms
Within the European Union, fund management companies established in one member state possess the privilege to offer investment funds in other member states. Regulated euro funds (UCITS) can be made available internationally to the general public, while alternative investment funds (AIF, EuVECA) can be offered to professional investors in a non-public manner. International investment funds operating in Estonia must adhere to European Union directives’ regulations and comply with the legislative framework of the Republic of Estonia, primarily the Investment Fund Act.
The direct oversight of investment funds offered internationally does not fall under the purview of Finantsinspektsioon; instead, this responsibility rests with the home country’s financial supervision authority of the respective investment fund.
Unlicensed small fund manager
A management company overseeing an unlicensed small fund that chooses not to seek an operational license as a small fund manager from Finantsinspektsioon must initiate the registration of its activities with the same authority.
To complete this registration process, the applicant must furnish Finantsinspektsioon with the requisite data and documents as stipulated by the Investment Funds Act, following the prescribed format. Additionally, the application must include a legal analysis that elucidates the circumstances surrounding the investment fund and its management, substantiating the necessity for registration.
Finantsinspektsioon’s oversight of registered unlicensed small fund managers is confined to overseeing the registration procedure and subsequently collecting statistical reports.
Specialized fund management
Management companies are permitted under the directly applicable regulations of the European Union to register their operations specifically for specialized fund management. Further guidance and information regarding registration and associated matters are comprehensively outlined within the regulations governing specialized fund management, including EuVECA, EuSEF, ELTIF, and MMF.
Applying for an operating license for a fund manager
The process of establishing a fund management company involves a crucial step: applying for an operating license. This pivotal stage is governed by a set of precise requirements and procedures outlined in the Investment Funds Act.
Below, we delve into the comprehensive list of documents and data that aspiring fund managers need to submit to Finantsinspektsioon when seeking an operating license:
- Articles of Association: If the fund management company is already operational, include a copy of its existing articles of association. In the event of any changes made by the general meeting to amend the statutes, provide documentation reflecting these changes.
- Foundation contract: If the business is newly established, furnish a notarized copy of the foundation contract. Alongside this, present proof that the required share capital has been paid in.
- Business plan: Prepare a comprehensive business plan that aligns with the stipulated requirements of the Investment Funds Act.
- Financial records: Include the initial balance sheet of the applicant. Provide a review of income and expenses or a balance and profit report as of the end of the month preceding the application for the operating license. If the business has been in operation for the past three years, submit annual reports for this duration.
- Internal rules: Submit internal rules or proposals for them.
- Management and supervisory board information: Offer detailed information about the members of the management board and supervisory board. Include their full names, personal ID codes (or date of birth if not available), residential addresses, educational backgrounds, a comprehensive list of past job positions and roles held, and, for members of the management board, a list of their areas of responsibility. Additionally, provide any documentation you believe is relevant to demonstrate their trustworthiness and compliance with the specified requirements.
- Auditor and internal auditor details: Present information about the auditor and internal auditor of the applicant, including their names, places of residence or operational locations, personal ID codes (or date of birth or registry code if no ID code exists).
- Managing director information: Provide the first and family names of the managing director of the fund. Include their personal ID code (or date of birth if not available), place of residence, educational background, a list of jobs and positions held in the past three years, and a copy of the contract with the managing director, wherein they agree to take on the role of managing director once the license is granted.
- Shareholder details: Prepare a list of shareholders of the applicant. Include the name of each shareholder or member, their registry code or ID code, date of birth (if none exists), and specific details concerning each shareholder’s share or equity holdings and the corresponding voting weight they possess.
- Data on significant shareholders: Offer data on individuals or entities that directly or indirectly control more than 10% of the voting shares of the applicant.
- Information on affiliated businesses: Disclose information about any businesses that the applicant, its management or supervisory board members, or managing director hold more than 20% of. This should include details such as the size of their share or equity capital, a list of their areas of activity, and the extent of the holding held by the applicant and each manager.
- Net own funds certification: If the business is already operational, provide documentation certifying the value of net own funds. Include the auditor’s report along with this.
- Bookkeeping rules: Include internal rules or proposed rules for bookkeeping.
- Investor Protection Sectoral Fund payment: If the applicant seeks an operating license in conjunction with the right to offer services listed in § 9 (1) 2 or 3 of the Investment Funds Act, submit documents verifying the one-off payment made to the Investor Protection Sectoral Fund.
In cases where the submitted documents and information leave uncertainties about the applicant’s capability to effectively manage a fund or meet the required standards, or if additional details need verification, Finantsinspektsioon reserves the right to request further information and documents. This meticulous process ensures the integrity and trustworthiness of fund managers within the financial landscape.
Procedures’ time limit
Finantsinspektsioon will make a determination regarding the issuance or denial of an operating license within two months of receiving all required documentation and data. This decision will not be delayed beyond six months from the date the operating license application was initially received.
The application fee for a fund manager’s operating license amounts to 1000 euros.
License for a fund manager in Estonia paves the way for aspiring fund managers
Within the financial sector, the role of a fund manager is undeniably significant, entrusted with the responsibility of managing assets and investments effectively. In Estonia, this path is notably facilitated by the favorable regulatory environment, where obtaining the essential operating license is a pivotal milestone.
In this journey, we’ve explored Estonia’s investor-friendly landscape, characterized by comprehensive regulations and clear compliance procedures. Adhering to these guidelines not only ensures legal and ethical operations but also showcases the dedication to professionalism that defines successful fund managers.
Estonia’s supportive framework sets the stage for aspiring fund managers to confidently pursue their licensing objectives. Armed with the right knowledge and commitment to regulatory standards, individuals in this field can look forward to a promising and prosperous career in the dynamic world of finance.
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