Simplification of Activities of Investment Funds in Estonia

Simplification of activities of investment funds in EstoniaThe free movement of capital is one of the four fundamental freedoms of the single market of the European Union, and in order to safeguard these freedoms, it is necessary to simplify the rules and remove the restrictions that are an obstacle to the movement of capital between EU member states.

Access to capital ensures economic development, and the main sources of capital are banks. Excessive reliance of financial markets on banking activities does not benefit the financial system, therefore it is important to develop other functions of the financial market. The financial market must be diverse and develop in a balanced manner. Investment and pension funds are one of the largest non-bank financial intermediaries, and their development ensures a more efficient functioning of the financial market.

To this end, on 18 May 2022 the Estonian Parliament adopted the amendment to the Investment Funds Act and related acts, which for the most part entered into force on 3 June 2022.

The amended act simplifies the activities of investment funds in other EU countries.

The purpose of these amendments was to simplify the marketing of investment funds to investors from different EU member states. The main objective of the law is to improve the functioning of the single market for EU investment funds, which is useful for investors, as they will have easier access to investment funds of other EU member states.

According to statistics, 70% of the assets held by investment funds are offered in the fund’s countries of origin, that is, the funds are not interested in placing their funds in other EU countries than the country of origin. The main reason why funds do not want to offer their product outside the country of origin is excessive regulation.

The new law removes restrictions and simplifies activities in other countries. For example, under the amended law, alternative funds registered in the EU (i.e. venture capital funds intended for professional investors) that offer a product in another EU member state no longer need to have a representative, which is expensive, and before entering the market, the fund can assess its marketing potential in the market.

This means that it will be easier for foreign funds to gauge the interest of local professional investors in the investment idea or strategy of the fund manager before offering shares, stocks, or units in these markets.

Today’s stock market in Estonia is not yet diverse. The new law makes it easier for funds established in other EU countries to enter the Estonian market and offer Estonian investors diversified investment opportunities. Since the law is based on EU norms, Estonian funds are now able to offer their products more easily in other countries of the European Union.

LKS Consult OÜ will assist you in registering a small alternative fund in Estonia. In the field of financial investment structures, we support our clients at all stages of their activity. Each new cooperation begins with a consultation, where the basic principles are discussed and the mechanism of work of the future company is determined. The next step is to prepare a legal decision on the fund’s activity and draw up step-by-step instructions for registering a small alternative fund in Estonia. Contact us and get an offer today.