Mutual funds and collective investment schemes

Supervision

Supervision of fund managers is risk-based and focuses especially on managers' compliance with rules promoting consumer protection. Emphasis is placed on ensuring that mutual funds are retained as a regulated savings product with a high degree of investor protection. In its supervision of AIFMs, Finanstilsynet gives precedence to matters of significance to retail investors.

Supervision of fund managers and mutual funds focuses on the following topics: good information and transparency, management in accordance with mandates, cost management, good corporate governance, risk and liquidity management in the funds, valuation and outsourcing. Anti-money laundering efforts and the follow-up of new disclosure obligations relating to sustainability were other important topics. 

AIFs with real estate investments

Due to the need for refinancing, several real estate funds have had to raise new capital from unit holders. When processing an application from an AIFM concerning marketing to retail investors, further examinations revealed that the manager's procedures for valuation and determination of net asset value were deficient. Calculations from third parties were used, in which current market factors and the ability to execute transactions were not reflected. Finanstilsynet ordered the manager to carry out a correct valuation and ensure that the failure to meet the requirements had no negative consequences for the investors. Finanstilsynet declined the manager's application for marketing of the fund to retail investors.

Due to the conditions in the commercial real estate market, Finanstilsynet initiated a survey of 15 AIFMs in the second half of 2023. The investigation focused on risk management, asset valuation and leverage in real estate funds, and aimed to examine how managers calculate and monitor fund valuations and leverage. Work on the survey will be completed in 2024. Identical letters on leverage in underlying companies was sent to selected AIFMs in the summer of 2023.

Topics at other finalised inspections

At an inspection at an AIFM, shortcomings were revealed in the manager’s risk management and follow-up of customer due diligence measures performed by third parties pursuant to the Anti-Money Laundering Act. After an inspection, one management company was censured for inadequate liquidity management and for aspects of the calculation of costs for subscriptions and redemptions.

Money laundering

In 2023, Finanstilsynet carried out inspections addressing eleven registered AIFMs’ compliance with the Anti-Money Laundering Act. The selection of companies was based on a previous survey encompassing 231 fund managers which indicated that registered AIFMs were the least compliant. The inspection revealed serious deficiencies in the companies' procedures and systems, including inadequate business-specific risk assessments, inadequate policies and procedures, poor ongoing monitoring of customer relationships and lack of employee training. Three registered AIFMs were charged administrative fines. One of the decisions has been appealed.

Sustainability

The Act on disclosure of sustainability information etc. and a framework for sustainable investments for the financial sector entered into force in January 2023. Supplementary rules did not enter into force until December 2023, but Finanstilsynet had advised the companies to comply with the upcoming rules also before this. Finanstilsynet will oversee the managers’ compliance with the new rules. Inspections will be based on a review of information provided in the prospectuses and in marketing material from management companies and AIFMs. 

Consumer protection

Owing to the tightening of the rules on inducements, new pricing models for mutual funds have been developed, resulting in a more complex pricing structure. In order to increase price transparency in the consumer market, Finanstilsynet has conducted a survey of mutual fund prices. The survey includes a sample of 67 mutual funds and 17 distributors. The results will be published in early 2024.

Finanstilsynet reviewed the transparency of prices on the companies’ websites, both open and logged-in pages, as well as their periodic reporting. The findings showed that several management companies and others distributing mutual funds, including banks, investment firms and tied agents, need to improve the price information provided to customers when marketing and selling funds. In 2023, Finanstilsynet started to work on a guidance with further details on how information about the prices of mutual funds should be presented and what Finanstilsynet will focus on in its supervisory activity. The guidance will be finalised in early 2024. 

In 2023, Finanstilsynet followed up previous inspections showing that historical returns for mutual funds were compared with a non-relevant benchmark index, whereby the historical results appeared to be better than was actually the case. The companies will be followed up further in 2024.

ICT inspections at fund managers

In 2023, Finanstilsynet conducted two ICT inspections at fund managers. The inspection reports will be finalised in 2024.

Licensing

In 2023, Finanstilsynet granted licences for the management of AIFs to four new AIFMs. One AIFM was granted a licence to establish a long-term investment fund (ELTIF) under new rules that came into force in January 2023. The fund will provide loans to real estate companies in the Nordic region. Finanstilsynet granted one defined contribution pension undertaking a licence to engage in mutual fund management. At year-end 2023, three applications for licences were under consideration. Of these, there was one application for a licence to operate as both an AIFM and a fund management company, one application for the extension of a licence to manage AIFs and one application for the expansion of the business of an existing AIFM.

Every year, Finanstilsynet receives a number of notifications about changes in the composition of the boards of directors and executive management of management companies and AIFMs and checks whether the fitness and propriety requirements have been met.

In 2023, Finanstilsynet granted licences for the establishment of 13 new mutual funds, one of which is a national mutual fund, while the remainder are UCITS funds. Finanstilsynet granted permission for the liquidation or merger of 13 funds. Mutual funds are normally liquidated on the grounds of a low volume of assets under management in the respective funds, which makes cost-effective management difficult, or the redemption of mutual fund units by unit holders. Mergers are often a result of the management company seeing a need for concentrating management in one fund rather than in two or more.

Finanstilsynet approved changes to the fund rules or instruments of incorporation of a number of mutual funds during the year. Many of the changes were made to reflect the establishment of new unit classes or changes within existing unit classes. In several of the cases, management companies terminated revenue-sharing agreements with clients as a result of changes in management practices. In connection with a major restructuring of activities between management companies, Finanstilsynet has approved the transfer of mutual fund management and approved changes to fund rules or instruments of incorporation.

Regulatory development

Finanstilsynet adopted supplementary rules on money market funds in regulations to the Securities Funds Act. The amendments build on pan-European regulations and implement supplementary rules to the Money Market Funds Regulation. The regulations came into force in February 2023, at the same time as new provisions on money market funds in the Securities Funds Act.