Law no. 243/2019 on alternative investment funds, amending and supplementing certain normative acts (AIF Law) was published in the Romanian Official Gazette no. 1035 as of 24 December 2019, Part I, and will enter into force on 24 January 2020.
AIF Law establishes a new specific legal framework with respect to the alternative investment funds (AIFs), more detailed than the previous one, which introduces new requirements regarding their authorisation and functioning. As against the regime of the alternative investment funds managers (AIFMs), regulated by a common EU legal framework (through Directive 2011/61/EU on alternative investment fund managers), AIF Law is part of a national strategy for diversifying this type of collective investment undertakings that aims to address the requirements of the Romanian investors and the particularities of the Romanian market.
We summarized below a summary of the key aspects provided by the AIF Law.
The AIF Law regulates the set-up and functioning of the AIFs in Romania, as collective investment undertakings other than the collective investment undertakings in transferable securities (OCIU), and applies to:
– OCIU incorporated in Romania, which, before the entering into force of Law no. 74/2015 on alternative investment funds managers (AIFM Law), were required to apply for the registration with the Financial Supervisory Authority (FSA), according to Law no. 297/2004 on capital markets (Law no. 297/2004);
– OCIU incorporated in Romania, which, before the entering into force of AIFM Law, were not required to apply for the registration with the FSA, according to Law no. 297/2004;
– financial investment companies (FIC);
– Fondul Proprietatea S.A. (Property Fund).
The set-up and authorisation of the AIFs
AIFs are subject to the FSA’s authorisation and may be incorporated as follows:
– contractual AIFs (CAIFs), without legal personality (according to the provisions on simple companies of the Romanian Civil Code); or
– investment companies AIFs (ICAIFs), structured as joint stock companies (according to Law no. 31/1990 on companies).
CAIFs and ICAIFs may be structured by several compartments (sub-funds), each of them subject to the FSA’ authorisation requirements and whose assets are segregated and cannot be subject to any claim from the creditors of another sub-fund.
The functioning of CAIFs – key aspects
– CAIFs may be managed by: (i) a Romanian AIFM, (ii) an AIFM from another Member State (notified to the FSA), (iii) an AIFM from a third country (according to the provisions of the AIFM Law);
– CAIFs may issue several classes of units, which may be admitted to trading on a Romanian trading venue, in compliance with the applicable legal provisions;
– The fund unitholders gain rights and obligations within the value and the proportion of the CAIF’ assets held by them;
– an AIFM which manages the CAIF’ assets is its legal representative, and is liable severally or jointly with the CAIF’s depositary towards the fund unitholders or other third parties for any breach of the AIF Law, the FSA regulations or any other breach related to the CAIF’s management;
– AIFM may hold, on behalf of a CAIF, shares in the share capital of a limited liability company or a joint-stock company, as the case may be, and such shares shall not be included in the AIFM’ assets and shall not be subject to any claim from the AIFM’ creditors.
The functioning of ICAIF – key aspects
– ICAIF may be managed by: (i) a Romanian AIFM, (ii) an AIFM from another Member State (notified to the FSA), (iii) an AIFM from a third country (according to the provisions of the AIFM Law), (iv) a board of directors and directors/supervisory board and directorship, when the ICAIF is internally managed or self-managed;
– ICAIFs internally managed or self-managed will be authorised under the provisions of the AIFM Law;
– ICAIFs issue nominative shares, and their subscribed share capital is paid in full on their incorporation date;
– ICAIF set-up through public subscription or by raising capital from at least 150 retail investors are required to apply for the admission to trading on a trading venue, within 90 days from obtaining the authorisation from the FSA.
Key rules regarding the issue and repurchase of fund units or shares
Depending on the possibility to repurchase their fund units or shares, AIFs may be classified as follows:
– open-ended, the shares or fund units of which are, at the request of any of their shareholders or unitholders, repurchased or redeemed prior to the commencement of their liquidation or wind-down in accordance with the procedures set out in their rules or articles of incorporation, prospectus or offering documents; or
– closed-ended, the shares or units of which cannot be repurchased or redeemed in a similar way before their liquidation or wind-down.
An open-ended CAIF must repurchase its units at least annually. The offering document and the rules of the FIAC may provide the possibility to distribute to the investors, on certain dates or during a calendaristic period, the earning cumulated during a pre-settled period.
With the purpose to decrease its share capital, an ICAIF may perform, only once during a financial year, share capital returns pro rata with the shares held by the investors, subject to the approval by the Extraordinary General Meeting of Shareholders (EGMS). By way of exception, such share capital returns may take place at any time, if the following conditions are cumulatively met:
– the approval of the EGMS is issued;
– the return is made exclusively from the own sources of the ICAIF;
– the ICAIF has recorded profit in the last three financial years, according to its annual audited financial statements.
An ICAIF may also repurchase its own shares with the purpose to decrease its share capital if:
– the approval of the EGMS is issued;
– the repurchase is made exclusively from the own sources of the ICAIF.
For ensuring the investors’ protection, the issue and/or repurchase of the fund units may be temporarily suspended upon the FSA’s decision or upon the AIFM or self-managed ICAIF’s initiative, if the exceptional cases presented in the AIF’ rules or articles of incorporation occur, or in other exceptional cases which were not reasonably anticipated on the AIF’s incorporation date. The suspension may be prolonged as long as the conditions that determined the suspension are still met.
Types of AIFs specifically regulated by the AIF Law
Besides the two types of AIFs resulted from their form of incorporation (i.e., CAIF and ICAIF), the AIF Law expressly defines two other major categories, AIFs addressed to the retail investors and/or professional (RAIFs) and AIFs addressed exclusively to the professional investors (PAIFs). The fund units or shares of a PAIF may be distributed exclusively to professional investors, except for the private capital PAIFs (subject to specific conditions under the AIF Law).
In addition, depending on their investment policy, RAIFs and PAIFs are classified in more sub-categories expressly regulated by the AIF Law (e.g., diversified AIFs, AIFs specialized in real-estate investments, monetary AIFs).
For each of these sub-categories, the AIF Law imposes specific obligations regarding the permitted investments, the calculation of the asset value, transparency obligations, as well as informing and reporting requirements. In order to ensure an extensive protection for the retail investors, the transparency, informing and reporting obligations, as well as the rules regarding the investment policy and the investment limits imposed to RAIFs are stricter as opposed to those imposed to PAIFs.
Significant transitional measures
Within 3 months from the date of the entering into force of the AIF Law, the FSA shall issue secondary regulations for the application of the AIF Law.
Within 6 months from the date of the entering into force of the AIF Law, subject to the withdrawal of their authorisation, OCIUs incorporated under the previous legislation are required to:
– amend their incorporation and functioning documentation and their activity according to the AIF Law;
– apply for the authorisation of the amendments of the said documents and submit the relevant documentation in this regard.
The authorisation applications of the OCIUs still in progress at the date of the entering into force of the AIF Law will be withdrawn and supplemented according to the AIF Law.
The AIF Law brings also important changes for FICs and the Property Fund. Thus, these entities are now qualified as RAIFs under the AIF Law and their withdrawal from trading from the regulated market operated by the BSE is conditional upon the withdrawal of their authorisation by the FSA. Moreover, within 6 months from the date of the entering into force of the AIF Law, several legal provisions regulating these entities will be repealed, such as:
– Law no. 133/1996 regarding the transformation of the Private Property Funds (Fondurile Proprietăţii Private) in FICs, published in the Romanian Official Gazette, Part I, no. 237 as of November 1, 1996, as further amended;
– Article 2861 of Law no. 297/2004, which provides the interdiction of a person to hold alone, or by acting in concert, more than 5% in the share capital of a FIC.
Sanctions and administrative measures
According to the AIF Law, conducting activities or operations that are specific to an AIF, without holding the necessary authorisation is considered criminal offence and is sanctioned with imprisonment from 3 months to 1 year or with a fine.
In addition, breaching the AIF Law provisions may lead to severe sanctions for the AIFMs, ICAIF self-managed and/or the members of their governing bodies. In case of individuals, the fines may range up to LEI 50,000, and in case of legal entities, the fines may range up to 5% of the turnover registered during the previous financial year. Depending on the breach, the FSA may decide also to withdraw the AIF’s authorisation.