The EU directive concerning alternative investment fund managers known as the AIFM Directive came into effect in the EU and Finland on 22 July 2013. Based on the Directive, the only type of fund management not covered is, in practice, the type that involves UCITS funds. These are already regulated in the UCITS Directive. The AIFM Directive's broad field of application will mean increased costs for a large number of funds offering a variety of different investment opportunities.

The AIFM Directive introduces harmonized rules for managers of alternative investment funds ("AIFM") which manage and/or market alternative investment funds ("AIF") in the EU. The wide scope of the AIFM Directive is not limited by any legal structure of the AIFM or legal form of the AIF, and the Directive also applies to both open and closed-end AIFs and their managers.

The Directive, the preparation of which was given a push by the latest global financial crisis, is aimed at providing investor protection and transparency by fulfilling a regulatory gap. Previously, managers of AIFs such as hedge funds, private equity funds, real estate funds and commodity funds have not been subject to the same rules as, for example, UCITS funds and their managers.

New regulations were given, as managers of alternative investment funds are responsible for the management of a significant amount of invested assets and account for a significant amount of the trading in the market for financial instruments in the EU. Harmonization was deemed necessary because uncoordinated national responses have made the efficient management of risks caused by AIFMs difficult.

Contrary to the UCITS Directive, the new regulations laid down in the AIFM Directive are directed more at the managers of investment funds than the funds itself. The AIFM Directive concerns legal persons whose regular business is managing one or more AIFs.

AIFMs coming within the scope of the Directive face many major organizational and transparency requirements they must fulfill.

It is clear that these requirements introduced to the AIFMs, such as the requirement for seeking an authorization or a registration for the AIFM, arranging the risk and liquidity management of the AIFM and as well as the duties and responsibilities of depositories, will also mean significant costs for the funds. In the last resort, these costs will be carried by the investors who invest in these funds, as is noted in the draft proposal for the new law implementing the Directive in Finland.

The Directive does not apply to the following entities: holding companies, institutions for occupational retirement covered by the Directive 2003/41/EC, supranational institutions (such as the European Central Bank and the European Investment Bank), national central banks, national, regional and local governments and bodies or other institutions which manage funds supporting social security and pension systems, employee participation schemes, employee savings schemes, securitisation special purpose entities, insurance contracts and joint ventures.

Furthermore, the Directive does not apply to AIFMs that manage one or more AIFs whose only investors are the AIFM or the parent undertaking or the subsidiaries of the AIFM or other subsidiaries of those parent undertakings, provided that none of the investors is itself an AIF. Nor does the Directive apply to investment undertakings, such as family office vehicles, which invest the private wealth of investors without raising external capital.

In addition, it must be noted that whilst UCITS funds are authorized for sale to retail investors, AIFs are, in principle, aimed at professional investors. Based on the AIFM Directive, national regulations can be given concerning AIFs offered to retail investors and their managers.

In Finland, the national implementation of the Directive has been delayed. The proposal for the new law was given to the Finnish Parliament on 5 September 2013, and the new law is expected to enter into force on 1 January 2014. Due to the incompleteness of the enforcement and the lack of any legal praxis related to the applicability of the AIFM regulations, the field of application and the actual effects of the Directive on the market remain unclear.

Time will tell if varied financing models, such as crowdfunding, will also fall within the broad field of application of the AIFM regulations.

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