Private placement rules and law in Finland

The Alternative Investment Fund Managers Act (in Finnish: laki vaihtoehtorahastojen hoitajista, 162/2014, the “AFMA”), implementing the AIFMD in Finland, entered into force on 15 March 2014. Since the entry into force, the AFMA has been complemented by several national decrees and regulations as well as EU regulation concerning marketing of funds. 

As further explained below, the entry into force of the AFMA fundamentally changed the private placement regime in Finland. The Finnish private placement exemptions, which previously covered e. g. the offering of non-UCITS funds to professional clients, are no longer available, as the AFMA covers marketing of all types of funds (qualifying as AIFs) to all types of clients, including professional clients. 

There is no exact definition of a private placement in Finnish legislation, but the term is generally understood to mean an offering of securities or other financial instruments that is exempted from: 

1. in case of transferable securities, the requirement to publish a prospectus, and/or 
2. in case of funds, the requirement (i) to register the funds intended to be marketed in Finland with the FIN-FSA or, alternatively, (ii) to use the European passporting regime to market the funds (i.e. passporting under the UCITS Directive or the AIFMD). 

In case the fund interests would qualify as transferable securities, the obligation to prepare and publish a prospectus in accordance with the Prospectus Regulation (EU) 2017/1129 and the Finnish Securities Markets Act (in Finnish: arvopaperimarkkinalaki, 746/2012, the “FSMA”), could arise. However, based on the exemptions set out in the Prospectus Regulation and the FSMA there is no obligation to publish a prospectus (within the meaning of the Prospectus Regulation) if the fund interests are: 

1. offered solely to qualified investors as defined in the Prospectus Regulation; 
2. offered to fewer than 150 natural or legal persons other than qualified investors; are to be acquired for a consideration of at least EUR 100,000 per investor with regard to an offer or in portions of at least EUR 100,000 in nominal or counter value; 
3. offered so that the total consideration (i.e. the aggregate purchase price of the securities) in the European Economic Area is under EUR 8,000,000 calculated for a 12 month period. 

In situations referred to above, the private placement exemption does not apply if the distribution of the securities to the final investors does not meet the requirements of the exemption. 

The entry into force of the AFMA fundamentally changed the private placement regime previously available to foreign non-UCITS funds and to all funds established as closed-ended funds. Under the pre-AFMA regulatory framework, closed-ended funds with fund interests qualifying as transferable securities (within the meaning of the FSMA) were able to take advantage of the private placement exemptions provided in the FSMA (see above). However, due to the entry into force of the AFMA, the prospectus exemptions provided in the FSMA have partly lost their significance, as offerings relating to all types of non-UCITS funds, whether open-ended or closed-ended, are now subject to the extensive requirements of the AFMA. 

The AFMA makes authorisation (or registration) mandatory for all AIFMs managing or marketing AIFs in Finland. The main principle under the AFMA is that if a fund does not qualify as an UCITS, the fund constitutes an AIF (the Finnish definition of an AIF is based on the definition set out in the AIFMD) and, consequently, the manager of such a fund is required to comply with the requirements of the AFMA. Under the AFMA, AIFMs managing or marketing AIFs in Finland are subject to the authorisation/registration requirements irrespective of whether the fund interests are offered to professional or non-professional clients. Thus, under the AFMA, there are no private placement exemptions available based on investor classification. If an AIFM intends to market EEA AIFs under its management also to non-professional clients in Finland, it must meet certain further requirements set out in Chapter 13 of the AFMA (including the requirement to prepare and make available a key information document). 

EEA AIFMs can passport their licence into Finland in accordance with the AIFMD passporting regime to manage AIFs in Finland (Article 33 of the AIFMD). EEA AIFMs may also market EEA AIFs in Finland directly on a cross-border basis through the notification procedure set out in Article 32 of the AIFMD.

The way a Member State implements the provisions of the AIFMD governing the requirements for marketing of AIFs by Non EEA AIFMs (i.e. Article 42 of the AIFMD) could be construed as a national private placement regime of sorts. In this respect, the rules of the AFMA implementing Article 42 of the AIFMD do not go beyond the AIFMD (i.e. there is no “gold plating” in Finland regarding the implementation of Article 42). 

If a Non EEA AIFM intends to market AIFs in Finland, a marketing notification must be submitted to the FIN-FSA in order for the FIN-FSA to assess whether the Non EEA AIFM fulfils the requirements to market in Finland. Marketing may only be commenced once the Non EEA AIFM has received an acknowledgement thereof from the FIN-FSA. In Finland, Non EEA AIFs managed by a Non EEA AIFM may only be marketed to professional clients. 

Offering of UCITS funds is not subject to any private placement exemptions since the FIN-FSA considers that UCITS funds are always available to the public, and, therefore, any promotion of UCITS funds in Finland requires the completion of the UCITS passporting process (such process being based on the UCITS Directive). 

The rules on pre-marketing set out in Directive (EU) 2019/1160 (“CBDF Directive”) have been implemented in Finland by adding new pre-marketing rules into the AFMA, meaning that the AFMA now includes separate rules for (i) so called “pre-marketing” activities (requiring the submission of a separate pre-marketing notification to the relevant authority), and (ii) actual “marketing” of funds. The definition of “pre-marketing” set out in the AFMA is largely in line with the definition set out in the CBDF Directive. 

The Finnish pre-marketing rules have been extended to also apply to pre-marketing activities conducted by Non-EEA AIFMs. 

There are no private placement exemptions available for an offering of fund interests in Finland because, from a Finnish law perspective, all funds offered in Finland will be classified as either UCITS funds or AIFs, and thus fall under either the UCITS regime or the AIFMD regime. 

For EEA AIFMs there is a passporting regime available to market AIFs to professional investors in Finland as provided for in Article 32 of the AIFMD. If an EEA AIFM intends to market AIFs under its management also to non-professional clients in Finland, it must meet certain further requirements (in addition to the passporting procedure) set out in the AFMA. 

Non EEA AIFMs intending to market fund interests in Finland must obtain prior approval from the FIN FSA. Non EEA AIFMs may market Non EEA AIFs in Finland by complying with the AFMA’s requirements applicable to Non EEA AIFMs (such requirements being based on Article 42 of the AIFMD). Non EEA AIFs managed by a Non EEA AIFM may only be marketed to professional clients. 

Pursuant to the implementation of the CBDF Directive, any activity carried out in Finland in order to test investors interests in a particular fund may be captured by the new pre-marketing rules and may require separate “pre-marketing” notifications to the relevant authorities.

The AFMA does not cover and therefore exempts reverse solicitation (i.e. when investors themselves contact an AIFM and the AIFM presents various investment opportunities to the investor) under certain circumstances. The AFMA includes a specific provision explaining that it does not seek to affect the right of investors to invest in Non-EEA funds of their choosing.

However, the new pre-marketing rules must be taken into account when intending to rely on the concept of reverse solicitation. According to the new rules, if an investor within 18 months of “pre-marketing” having begun in Finland subscribes for units or shares of an AIF referred to in the information provided in the context of pre-marketing, the subscription shall be considered to be a result of “marketing”, and the relevant notification/authorisation procedure must be completed. 

The AFMA imposes on AIFMs a liability for damages resulting from wilful or negligent breaches of the obligations provided in the AFMA and related regulations. An AIFM and a professional client may, however, contractually deviate from the liability regime provided in the AFMA. 

Pursuant to the AFMA, a person engaged in unauthorised marketing and offering of fund interest may become subjected to administrative and criminal sanctions. 

The FIN-FSA may impose administrative fines and/ or penalty payments for failures to comply with certain requirements of the AFMA, such as various disclosure requirements  (for example, a penalty payment may be imposed for breaches of the prohibitions against provision of untrue or misleading information and for breaches of pre-investment and periodic disclosure obligations). A person that manages or markets AIFs without authorisation may face criminal liability and sanctions. 

AFMA’s exemptions relating to non fund investments are based on the exemptions set out in the AIFMD. These include, inter alia, investments in or by: 

1. companies belonging to the same group; 
2. business that does not qualify as collective investment undertaking; 
3. joint ventures; 
4. holding companies; 
5. employee pension insurance schemes and companies; 
6. public sector entities such as the ECB, IMF, central banks, governments etc. 
7. employee participation schemes; and 
8. special purpose vehicles. 

These non fund investments are normally subject to specific regulations, such as legislation governing pension insurance schemes and employee participation. If the investment takes the form of a transferable security or another financial instrument, it will be covered by the FSMA and regulations on investment services. However, certain types of non fund investments may to some extent take advantage of the available private placement provisions, for example by taking advantage of the FSMA’s exemptions relating to the obligation to publish a prospectus.