Investment Funds 2020

Last Updated January 14, 2020

Poland

Law and Practice

Authors



Dubiński Jeleński Masiarz and Partners sp.k. combines legal jurisprudence with practical knowledge about business projects, with one of the largest investment funds teams among Polish law firms. DJM offers comprehensive legal services in all areas of business operations, and has extensive experience in creating investment funds and management companies of investment funds. It has managed proceedings before the Polish Financial Supervision Authority for authorisations to conduct activities by management companies of investment funds and authorisations to create investment funds (DJM has been involved in creating more than 500 funds and sub-funds operating on the Polish market). DJM’s lawyers have helped to create many pioneering structures and models of operation in the Polish market, including the first closed-end investment fund in the country organised in accordance with the Act on Investment Funds and Alternative Investment Funds Management, and the creation of the first hedge fund in Poland.

The investment funds market in Poland is still in a development phase. There have been events over the last two years that have both restricted that development (the implementation of additional regulations, and the withdrawal of three authorisations for the pursuit of operations) and positively affected that market (pension reform increasing the participation of investment funds in the pension system). At the beginning of 2020, there were 57 investment fund management companies operating in the territory of Poland. As of 30 September 2019, the total value of assets of investment funds managed by all investment fund management companies amounted to approx. PLN319 billion, which is a decrease from 30 September 2018, when the value of assets of investment funds managed by all management companies amounted in total to approx. PLN325 billion. The year-on-year decrease in the total value of assets gathered in investment funds in Poland was 1.81%. At the beginning of 2019, there were 878 investment funds operating on the Polish capital market (27 fewer than a year ago). The number of open-ended investment funds was 46 (two fewer than a year ago), and the number of specialised open-ended investment funds was 52 (compared to 55 a year ago). The number of closed-ended investment funds fell from 806 to 780. This data does not take the number sub-funds in umbrella investment funds into account.

In 2019, the investment funds market in Poland was marked by the implementation of employee capital plans (PPK), a new investment solution of a pension nature, the aim of which is the systematic gathering of savings by a participant, intended for payment after reaching 60 years of age. PPK are of a quasi-obligatory nature, which means that, in principle, an employed person who has not resigned from joining a PPK becomes its participant. The process of implementation of PPK was started at the end of 2019, and will last until the middle of 2022. The first implementation group included the largest employment entities (ie, those employing more than 250 persons), and the level of participation was approx. 40%. It is estimated that 11 million people are eligible for joining PPK, although this information is material due to the fact that a legal form adopted for employee capital plans is, in principle, a specialised open-ended investment fund (SFIO). Therefore, 16 new SFIO umbrella funds were set up during the last year (each with at least eight sub-funds). PPK will translate into an increase in the number of participants in SFIOs, and hence in an increased popularity of investment funds in Poland.

A detailed description of investment funds operating on the Polish capital market, with distinctions between alternative investment funds and retail investment funds, is the subject matter of this document.

In the Polish legal regime, an alternative investment fund (AIF) may operate in the form of a specialised open-ended investment fund (SFIO), a closed-ended investment fund (FIZ) or an alternative investment firm (ASI). The Polish supervisory authority over AIF is the Polish Financial Supervision Authority (PFSA).

The various types of AIF differ between the regulatory regime, the principles of investment policy, the type of managing entity or the possibility of being admitted for public offering.

SFIOs may apply the investment principles and restrictions specified for open-ended investment funds or FIZs, but the formula complying with the investment policy of a FIZ is admissible only for funds whose participants are legal persons and unincorporated organisational units, and natural persons only if their payments to the fund amount to no less than the PLN equivalent of EUR40,000. SFIOs sell participation units and redeem such units at the request of a fund participant. The units have the status of financial instruments.

A FIZ issues investment certificates, which have the status of securities. The certificates may be admitted to trading on a regulated market or introduced to an alternative trading system only if doing so is provided for in the fund’s articles of association, and if the fund has been set up as a public FIZ pursuant to authorisation from the PFSA, or has been made public with a relevant authorisation from the PFSA by way of amendment of the articles of association. For the public offering of a FIZ, an issue prospectus must also be prepared and approved by the PFSA. Investment certificates of a public FIZ may be offered to individual investors without restrictions, in accordance with the relevant provisions of Polish law governing public trading in financial instruments. In the case of a non-public FIZ, natural persons may be fund participants only if they make payment to the fund in the amount of no less than the PLN equivalent of EUR40,000. This restriction is not applicable to legal persons and unincorporated organisational units.

ASIs may operate in the form of a capital company (in Poland it is a limited liability company or a joint-stock company), including a European company, a limited partnership or a limited joint-stock partnership, in which the only general partner is a capital company, including a European company. Participation titles in ASIs depend on the legal form of setting up the company.

In addition, Polish legal regulations distinguish between certain special structures of investment funds. Investment funds that may be created include investment funds with various categories of participation units, umbrella funds or master and feeder funds.

Within statutory limits, an investment fund may develop an investment policy and an investment strategy corresponding to nearly all types of investment policies – including private equity, hedge, and fund of funds. In the case of ASIs, the law does not clarify investment limits or diversification rules. The investment policy and strategy of an ASI is determined by its constitutional documents.

According to a general rule prevailing in Polish legal regulations, both FIZs and SFIOs may only be set up by an investment fund management company (TFI) – ie, a Polish joint-stock company holding PFSA authorisation for the pursuit of operations within the scope of the establishment and management of investment funds.

The following is required in order to set up an investment fund:

  • the articles of association conferred to the investment fund by the TFI;
  • an agreement for performing the function of depositary concluded by the TFI with a depositary;
  • payments to the investment fund of no less than PLN4 million for an SFIO and in the amount set forth in the articles of association for a FIZ;
  • an authorisation issued by the PFSA; and
  • the registration of the investment fund in the register of investment funds kept by a competent registry court.

PFSA authorisation is required in order to set up SFIOs and FIZs, whose certificates will be admitted to trading on a regulated market. PFSA authorisation is also necessary for setting up a new sub-fund within the already existing umbrella fund. In principle, administrative proceedings of the PFSA for issuing an authorisation to set up a fund or sub-fund usually take about six months. A fee for an authorisation issued by the PFSA to set up an investment fund amounts to EUR4,000; other costs connected with setting up an investment fund include notarial fees and court costs.

No PFSA authorisation is necessary in order to set up a FIZ that issues only investment certificates in a way other than a public offering or by way of a public offering in which no issue prospectus has to be prepared and where such certificates will be neither admitted to trading on a regulated market nor introduced to an alternative trading system (Non-Public FIZ). In the case of a Non-Public FIZ, the total minimum amount of payments and the manner of collecting such payments is specified by the fund's articles of association. The process of setting up a Non-Public FIZ should not take longer than one month, in principle.

The process of setting up an ASI is slightly different, and may also have a few variants depending on whether the firm will be established as a separate legal person managed by an external manager or as an internally managed ASI, and also on the total value of assets managed by the manager of a given ASI. A basic rule for setting up an ASI is that it must have a manager (internal or external). PFSA authorisation is required in order to establish said manager, except when the total value of assets that are managed or are going to be managed by the manager does not exceed the equivalent of EUR100 million, and if the manager manages only ASIs that do not apply financial leverage and in which the participation rights may be repurchased after at least five years from their purchase – the equivalent of EUR500 million. In such a case, only an entry in the register of ASI managers kept by the PFSA is required. The process of obtaining PFSA authorisation for the pursuit of operations by an ASI manager takes no less than six months. In addition, in order to set up ASI, the same activities as for setting up FIZs and SFIOs must be undertaken.

In accordance with Polish legal regulations on the operation of investment funds, participants of SFIO and FIZ funds are not liable for fund obligations, and hence their potential risk is limited to the amount of money paid in. The issue is slightly different in the case of ASIs. Because of the different structure of ASIs (ie, operation in the form of capital companies and partnerships in accordance with legal regulations applicable to Polish commercial companies), it is possible to assure different variants of liability for investors – up to the amount of money invested or another contractually agreed amount.

According to Polish legal regulations, all types of AIFs – SFIO, FIZ and ASI – are obligated to make the valuation of their assets and their financial statements (annual and semi-annual) available to investors on a regular basis. The requirements for the minimum frequency of asset valuation are as follows:

  • on each day of the sale and redemption of participation units for SFIOs;
  • once in every quarter for FIZs; and
  • once in a year for ASIs.

Another information obligation imposed on AIFs is the provision of information documents to investors. The form and contents of such documents depend on the type of fund. For SFIOs, it is an information prospectus, key investor information and information for AIF clients prepared in accordance with the Polish legal regulations. For FIZs, such documents will be the terms of issue of investment certificates (for FIZs issuing investment certificates in a way other than a public offering or by way of a public offering in which no issue prospectus has to be prepared, and where such certificates will be neither admitted to trading on a regulated market nor introduced to an alternative trading system) or an issue prospectus approved by the PFSA (for FIZs issuing investment certificates that will be admitted to trading on a regulated market or introduced to an alternative trading system) and information for AIF clients. ASIs must provide information for AIF clients and an issue prospectus (for ASIs admitted to trading).

AIFs are also obligated to make their constitutional documents (the articles of association) and key information documents (KIID) available.

In addition, public AIFs – namely FIZs issuing investment certificates or ASIs participant’s rights admitted to trading on a regulated market or introduced to an alternative trading system – are obligated to make periodical reports (quarter, semi-annual, annual) available, as well as information and current reports in cases specified by law.

In principle, the number of clients of investment funds in Poland has been constantly increasing over recent years, while the number of investment funds operating on the Polish market has been decreasing. Both individual and institutional clients are operating as participants of alternative investment funds. Up to the end of 2016, FIZ-type investment funds were very popular among investors, especially individuals, mainly due to the tax privileges that are characteristic for this type of investment fund. The advantages of a FIZ include a simplified registration procedure – in principle, no PFSA authorisation is required to set up such a fund, and there are preferential regulations on investment restrictions. A change in tax regulations has led to decreased interest among investors in this type of investment funds, for several years. In turn, ASIs are often used within the framework of using business development and enterprise innovation support programmes carried out by Polish state institutions. In such a case, an ASI is a tool used to finance projects with the support of public funds.

As of 30 June 2019, there were 758 FIZs operating on the Polish financial market, with the total number of investment funds equal to 870. The second place was taken by 66 SFIOs, and ASIs account for the smallest group. FIZs occupy also the top place in terms of collected assets. Please see 2.2.1 Types of Investors in Alternative Funds for more information about the popularity and benefits of FIZs.

The only legal restrictions relating to a group of investors in AIFs apply to FIZs and SFIOs that apply the investment principles and restrictions specified for FIZs and public AIFs. In the first case, the restriction applies to natural persons – they may become a participant of such AIF only after making a payment to the fund in an amount no less than the PLN equivalent of EUR40,000. In the case of public ASIs, the restriction applies to retail entities, which may become investors only if the participation rights of such firm are securities subject to a public offering, with the exception of a public offering in which no prospectus has to be prepared.

In the Polish legal regime, the fundamental instrument of law governing the principles of operation of AIFs is the Act on Investment Funds and the Management of Alternative Investment Funds of 27 May 2004 (“Act”), and the executive regulations issued pursuant thereto. Moreover, AIFs are directly subject to the applicable provisions of EU law.

An important issue regulated by the provisions of law is investment restrictions for AIFs. For each type of AIF, detailed investment limits are specified in the law, and the fund may be subject to additional restrictions provided for in the articles of association. The provisions of law specify in detail the catalogue of admissible asset classes that may be purchased by SFIOs and FIZs, as well as their maximum level of engagement in a given type of asset. For ASIs, the law does not regulate any investment limits or diversification rules. The investment policy and strategy of an ASI follow from its constitutional documents.

In principle, foreign entities may provide services to AIFs and are then obligated to observe the Polish legal regulations, which in many cases will be connected with a necessity to notify the PFSA. Such services include outsourcing the performance of activities connected with the operations pursued by a TFI to a foreign entrepreneur, and the outsourcing by an ASI manager to a foreign entrepreneur of the performance of activities connected with the operations pursued by such ASI manager.

Pursuant to Polish legal regulations, both EU managers and management companies are allowed to perform operations on Polish territory. In the case of an EU manager, this is possible if such entity has been authorised by a competent supervision authority of the manager’s home state to perform the operations entailing the management of alternative investment funds. The operations may be performed in the form of a branch and after providing the PFSA with the information required by legal regulations. For an EU manager operating on Polish territory in the form of a branch or in a form other than a branch, the regulations of its home state are applicable, provided that a branch of the EU manager is obligated to observe the provisions of Polish law with respect to acting in the best interest of SFIO or FIZ participants or ASI investors, acting in a reliable and professional manner, and managing conflicts of interest, and to observe the provisions of Polish law relating to SFIOs or FIZs, and, in the case of the management of ASIs, to observe the provisions of law relating to the operation of such firms. To that extent, an EU manager is subject to supervision by the PFSA.

The proceedings for obtaining PFSA authorisation to set up an investment fund may take about six months. In each case, the length of the proceedings before the PFSA depends to a large degree on their subject matter, and may take from one month to even one year.

Participation units of SFIOs may be sold with the intermediation of the TFI managing a given SFIO, an investment fund management company that is not a governing body of that fund, and an investment firm or a domestic bank, provided that said firm or bank is authorised to perform operations within the scope of the offering of financial instruments. It is also possible to sell participation units of an SFIO with the intermediation of another entity than those mentioned above (an authorisation of the PFSA is required in such case). Those entities have an obligation to act in a reliable and professional manner, in accordance with the principles of fair trade, and with special regard to the interests of clients and participants of those funds.

In the case of FIZs, investment certificates may be offered directly by the investment fund management company managing that FIZ or with the intermediation of an investment firm or a domestic bank performing operations within the scope of the offering of financial instruments. Please see 2.1.4 Disclosure Requirements for a detailed description of documents that must be provided to investors at the time of the acquisition of participation units of an SFIO, investment certificates of a FIZ or participation rights in an ASI.

The manner of the issue and sale of participation rights in an ASI depends on the legal form of the investment firm. The participation rights in an ASI are, respectively, a share in a limited liability company or a share of stock in a joint-stock company.

Participants of investment funds may be natural persons, legal persons or unincorporated organisational units. Apart from special cases, in Poland there are no restrictions on selling participation titles of retail investment funds that would cover specific groups of potential investors. However, marketing communication should take into account the target groups for which a given investment product is appropriate.

In principle, as presented in 2.1.3 Limited Liability, participants of SFIOs and FIZs are not liable for fund obligations. Due to the structure of ASIs, it is possible to apply contractual limitations on their liability. Restrictions on the admissibility of purchases of individual types of AIFs are connected with investor protection and apply to those AIFs that are characterised by an enhanced investment risk – it applies in particular to natural persons.

Polish regulations also impose various obligations on institutions connected with protecting participants and taking care of the interests of AIFs. The PFSA's supervision of the operations of both investment fund management companies and investment funds should definitely be included under this type of solution. The PFSA has at its disposal a number of instruments allowing its intervention in the case of identifying a violation of the interests of fund participants. In the case of SFIOs, FIZs and ASIs, there is an obligation to conclude an agreement with a depositary, whose responsibilities include the protection of assets of a given AIF. In addition, financial statements of AIFs must be audited by an auditing firm. Another investor protection mechanism consists of reporting obligations towards investors, which are described in detail in 2.1.4 Disclosure Requirements.

Generally, the approach of the PFSA in every aspect of its operation can be described as conservative and directed primarily at the protection of investors' interests. This approach is evident in licensing proceedings, in its interpretations of prevailing legal regulations, in its control of supervised entities and in the official positions issued by the authority.

The Polish regulator strives to standardise solutions applied on the market. However, if an applicant is able to objectively justify that proposed solutions are admissible, and can show that they will have no adverse impact on the interests of fund participants, the PFSA may be a partner for discussion and may be able to implement solutions that have not been used previously on the market. The PFSA publishes positions on regulatory matters. Therefore, in situations that are doubtful from a regulatory perspective, supervised entities apply to the PFSA for the issuance of an individual ruling in relation to specific facts.

Proceedings are conducted by way of correspondence, and meetings, if any, although admissible, are always an exceptional situation and may not be deemed a commonly used practice.

Both SFIOs and FIZs must observe the investment limits set forth by legal regulations. SFIOs applying the investment principles and limits set forth for FIZs are obligated to invest their assets and to observe the limits in the same way as FIZs. Therefore, those funds are entitled to invest their assets in transferrable securities, receivables, shares in limited liability companies (including companies established abroad), currencies, derivatives (including non-standardised derivatives), specific property rights, and money market instruments. The basic investment limit is an engagement limit of no more than 20% of assets in securities or money market instruments issued by one entity, and claims against and shares in that entity. FIZs and SFIOs (applying the investment principles and limits specified for FIZs) may also invest their assets in deposits in domestic banks, foreign banks or credit institutions, provided that the deposits in one domestic bank, foreign bank or credit institution do not account for more than 20% of the fund’s assets, excluding deposits kept by the depositary. In certain circumstances, those funds may also invest up to 100% of their assets in participation units or investment certificates of one investment fund, or in participation titles issued by one undertaking for collective investments established abroad. The fund may be involved in short selling.

The above regulations do not apply to ASIs, as such entities can freely shape their investment policy.

AIFs are also obligated to have a depositary, who performs the function pursuant to an agreement for performing the function of a depositary. Its responsibilities include keeping the assets, keeping the register of assets, and assuring that the value of the assets is determined in accordance with the law and the articles of association of a given fund.

Legal regulations impose obligations on investment fund management companies to have in place and apply internal procedures with respect to the prevention of conflicts of interest, including the prevention of using confidential information. AIFs are also obligated to apply the provisions on the prevention of money laundering and terrorist financing.

FIZs and SFIOs applying the investment principles and restrictions specified for FIZs may take loans and credit facilities in a total amount not exceeding 75% of the fund's net asset value. Loans and credit facilities may be taken only in domestic banks, credit institutions or foreign banks. A FIZ may also finance its operations by an issue of bonds in an amount not exceeding 15% of the net asset value. However, in an issue of bonds by a FIZ, the total value of loans, credit facilities and bond issues may not be more than 75% of the fund's net asset value.

FIZs and SFIOs applying the investment principles and restrictions specified for FIZs may also, with due regard to the fund investment objective, advance loans in cash up to the amount of no more than 50% of the fund's asset value, provided that the amount of a loan advanced to one entity is not in excess of 20% of the fund's asset value.

The prevailing legal regulations do not specify any restrictions regarding the principles of an ASI's investment policy.

According to Polish tax regulations, AIFs (FIZs and SFIOs applying the investment principles and restrictions specified for FIZs) may enjoy an exemption from corporate income tax on a subject matter basis, covering the income (revenue) of FIZs and SFIOs applying the investment principles and restrictions specified for FIZs, with the exception of the following:

  • income (revenue) from a share in unincorporated companies or unincorporated organisational units that have their registered office or management in the territory of Poland or in another state, if according to the Act on Corporate Income Tax or the tax law of the state in which they have their registered office or management those entities are not treated as legal persons and are not liable in that state to tax on their entire income regardless of where such income is earned;
  • income (revenue) from interest on loans (credit facilities) advanced to those entities;
  • interest on other liabilities of those entities towards the fund, except for interest on receivables from loans (credit facilities) acquired by the fund from entities whose operations are supervised by a state authority of supervision over the financial market, and which are entitled to advance loans (credit facilities) pursuant to separate laws governing the principles of their functioning, if such loans (credit facilities) were advanced by those entities; and
  • income (revenue) from interest on an equity participation, donations or other gratuitous or partly gratuitous performance made by those entities, income (revenue) from interest (discount) on securities issued by them, income (revenue) from the disposal of securities issued by those entities or shares in those entities; and
  • income from immovable property, including income from immovable property derived by the above entities.

The income (revenue) of ASIs derived in a tax year from the transfer of shares is also free of income tax, provided that, before the date of transfer, the transferring ASI held no less than 10% of shares in the capital of a company whose shares are transferred, without interruption over a period of two years.

In the case of an ASI, the principles of levying (respectively personal or corporate) income tax on profits distributed to investors depend not only on the type of investor and the legal form of the ASI operation, but also on the investment policy followed and the way of earning and distributing income. The form of this study does not allow detailed discussion of this topic. Consultation with a tax adviser is necessary on a case-by-case basis.

In the case of investment funds, income tax is charged only upon the cancellation of participation units or investment certificates, or upon the transfer of certificates to a third party.

The above taxation principles of fund participants apply also to the taxation of fund participants who are foreign investors, with a reservation that they may not be applicable if fund participants are individuals to whom agreements on the avoidance of double taxation concluded by the government of Poland apply.

Retail funds set up in Poland may have the form of an open-ended investment fund (FIO) or a specialised open-ended investment fund (SFIO). Classification as a retail fund is also possible for a closed-ended investment fund (FIZ) issuing investment certificates which are the subject of a public offering or are admitted to trading on a regulated market or introduced to an alternative trading system (Public FIZ).

Both FIOs and SFIOs sell participation units in exchange for payments made to purchase such units. In principle, retail funds operating in Poland do not envisage the possibility to cover payments towards participation units in a form other than cash payments. Participation units sold by FIOs and SFIOs have the nature of financial instruments, whereas investment certificates sold by FIZs enjoy the status of securities.

All types of investment funds named above have legal personality, and may all set up as umbrella funds with individual sub-funds, in which case the legal personality is vested only in the umbrella fund, as opposed to its sub-funds, which do not have the attribute of a legal person. So the umbrella fund acts as a representative of its sub-fund.

FIOs are recognised under EU law as UCITS investment funds, which means that they are funds whose principles of operation – and especially investment restrictions applied by them – generally comply with EU legislation relating to undertakings for collective investments in transferable securities (UCITS). In principle, FIOs are dedicated to non-professional investors, so the minimisation of investment risk and the provision of information to investors and potential FIO investors is an important obligation of FIOs, which is materialised in the investment policy followed by those funds, the performance of information obligations by those funds or the application of principles covering the sale and redemption of participation units. Due to this quite restrictive approach, FIOs can be described as the safest type of investment funds operating in the Polish capital market.

SFIOs are not included in the group of UCITS funds, so according to EU law they are included in the group of alternative investment funds. However, the classification of SFIOs as retail funds is possible on the basis of the investment policy applied by a given fund and the envisaged restrictions of the possibility to join a given fund as a participant. The Act on Funds envisages the possibility to set up a SFIO as a fund that makes investments applying the investment principles and restrictions specified for FIOs (with due regard to certain differences), or FIZs.

SFIOs are set up in the vast majority as funds applying the investment principles and restrictions envisaged for FIOs. The adoption of the investment principles envisaged for FIZs must be provided for in the articles of association of the SFIO, in which case there will also be restrictions on the potential investors of the SFIO.

It is worth emphasising that the specific legal regime of SFIOs regarding the possibility to shape the investment limits enables the creation of the so-called Fund of Funds (FoF), which is a relatively popular solution on the Polish capital market, being especially common among management companies connected with international capital groups.

FIZ funds whose investment certificates are subject to a public offering or admitted to trading on a regulated market or in an alternative trading system may be sold to investors under a public offering. Investment certificates of each series issued by such public FIZ must be covered by an application for admission to trading on a regulated market or introduction to an alternative trading system. In the case of a public offering, the minimum threshold, if any, of subscription for investment certificates may be provided for in the offering documents. A transaction carried out on a regulated market or in an alternative trading system is subject to general trading rules.

In Poland, the most popular legal forms envisaged for retail funds are FIOs and SFIOs applying the investment principles and restrictions envisaged for FIOs. The advantages of those funds include primarily their transparency connected with publishing obligations, and an obligation to keep a high diversification of investments, and hence high liquidity, which in turn has an impact on the possibility of easy purchase and sale of participation units by participants.

As a formality, foreign funds notified in Poland should also be mentioned, which may operate based on the UCITS Directive. The legal form of foreign funds will depend in each case on the legal form of a given fund in its home Member State.

An investment fund in Poland may be set up only by an investment fund management company (TFI), which can only take the legal form of a joint-stock company and must have a registered office in the territory of Poland. The scope of operations of TFIs covers exclusively the setting up and management of investment funds (including intermediation in the sale and redemption of participation units), the representation of funds towards third parties, and the management of a collective portfolio of securities. It is possible to extend the operations of a TFI, but only onto areas envisaged in the Act on Funds. Similar to investment funds, TFIs are supervised by the Polish Financial Supervision Authority (PFSA), which means that a TFI itself is subject to information obligations towards the supervision authority.

FIOs, SFIOs and FIZs (Public FIZs) are the basic types of retail investment funds operating on the Polish capital market. For each of these legal forms, the following is required in order to set up a fund:

  • articles of association conferred to the fund, which may be done by a TFI, provided that a form of notarial deed is observed;
  • an agreement for performing the function of a depositary of the investment fund concluded by a TFI;
  • an authorisation issued by the PFSA;
  • payments to the fund, collected in the amount specified in its articles of association, provided that the minimum value of payments to FIOs, SFIOs and FIZs is PLN4 million; and
  • registration of the fund in the register of investment funds kept by the Regional Court in Warsaw.

An investment fund acquires legal personality upon its entry in the register of investment funds, at which point a TFI becomes a governing body of an investment fund.

Together with the TFI’s application addressed to the PFSA for an authorisation to set up an investment fund, it is necessary to present appropriate documentation relating both to the fund that is set up and to the TFI. The application is analysed by the PFSA regarding its substance and its compliance with formal requirements. Key documentation includes the following:

  • the articles of association of the established fund;
  • the agreement with a depositary;
  • the information prospectus;
  • key investor information; and
  • information about individuals employed in the TFI who have a significant influence on the operations of the fund.

The licensing proceedings before the PFSA for issuing an authorisation to set up an investment fund take about six months, and are relatively cheap. The only administrative cost connected with the issuance of an authorisation by the PFSA is EUR4,000 for an authorisation to set up an investment fund (FIO, SFIO or FIZ), or EUR4,500 for an authorisation to set up an umbrella investment fund.

Regardless of the type of fund, participants in investment funds in Poland do not bear direct liability for the obligations of an investment fund. The liability of participants is, in fact, limited to the value of money engaged in participation units or investment certificates of a given fund.

FIOs and SFIOs are obligated to make an information prospectus and key investor information available, free of charge. At the request of a fund participant, a TFI must provide additional information about the fund investment limits, the manner of management of the fund investment risk, and the current changes and value increase of the fund's main investments.

Retail investment funds are obligated to publish semi-annual and annual financial statements. On a periodic basis, the financial statements must be subject to review and audit by an independent statutory auditor. Financial statements, together with supplementing documentation, are published on the Management Company’s website and are provided to the PFSA.

The publishing obligation also covers information about the net asset value per participation unit of FIOs and SFIOs, or the net asset value per investment certificate of FIZs, and about the price of sale and redemption of participation units of FIOs and SFIOs, promptly after they have been determined.

Public AIFs – ie, FIZs issuing investment certificates or ASIs issuing participation rights, respectively, admitted to trading on a regulated market or introduced to an alternative trading system – are also obligated to publish periodic reports (quarterly, semi-annual, annual), as well as current information and reports in cases stipulated by legal regulations.

A statistical investor investing his money in participation units of retail investment funds is conservative and chooses predominantly funds of a securing nature – ie, funds with a debt profile and saving funds. The second group covers mixed funds, and the funds chosen the least are often equity funds. So it could be said that Polish retail investors are averse to investment risks and prefer a potentially lower profit, with assurance of as high as possible a level of safety for invested money.

The value of capital accumulated in participation units of investment funds with a debt and saving nature accounts for approx. two thirds of money collected in retail investment funds in Poland.

Because of their structural similarities, FIOs and SFIOs applying the investment principles and restrictions specified for FIOs enjoy similar popularity.

As of January 2020, 48 FIOs and 66 SFIOs operated on the Polish capital market. This data also includes SFIOs applying the investment principles and restrictions envisaged for FIZs.

In the case of retail funds, there are no restrictions on which entities are eligible to invest in participation units issued by FIOs and SFIOs applying the investment principles and restrictions specified for FIOs.

In the case of SFIOs applying the investment principles and restrictions envisaged for FIZs, there are restrictions for the purchase of participation units of such fund by natural persons. Participants of such SFIOs may only be legal persons, unincorporated organisational units or natural persons who make a one-off payment to the fund in an amount equivalent to at least EUR40,000.

The establishment of retail funds and, in some cases, amendments to their articles of association require PFSA authorisation (especially with respect to remuneration of a TFI). Changes relating to an investment policy, including changes covering investment limits to a more detailed extent, narrower than in the Act on Funds, may be implemented without the PFSA’s authorisation, and enter into force three months after their announcement. All amendments to the articles of association must be made in the form of a notarial deed and announced as required by the articles of association.

In the past year (2019), the PFSA made its approach to the observance of investment limits by investment funds much stricter. The PFSA perceives investment limits as one of the fundamental prudency norms, the observance of which should assure an appropriate level of safety and stability of operations pursued by investment funds.

Please see 3.4 Operational Requirements for a description of investment limits.

In principle, non-local service providers are not excluded from the provision of services for retail investment funds, but they are obligated to comply with specified registration requirements.

An entity that is eligible to operate in Polish territory in the form of a branch or cross-border operation is a management company that is an entity or company established in a Member State and that has been authorised by a competent authority in the Member State to pursue operations within the scope of management of investment funds operating in accordance with the EU law governing the principles of collective investments in securities.

The legal regulations prevailing in its home state apply to a management company operating in Polish territory in the form of a branch or in a form other than a branch, provided that a branch of the management company is obligated to observe the provisions of Polish law, including acting in the best interest of participants of an investment fund.

A management company operating in Polish territory in the form of a branch or in a form other than a branch is obligated to ensure a possibility to file claims in the Polish territory in Polish, and to provide information at the request of participants or the PFSA. The company must assure that the PFSA receives all necessary information directly from the management company.

The proceedings for obtaining PFSA authorisation to set up an investment fund can last about six months. It should be remembered that in each case the length of the proceedings before the PFSA depends to a large degree on their subject matter, and may take from one month to even one year.

FIOs and SFIOs sell participation units and redeem such units at the request of a fund participant. Upon redemption, participation units are cancelled by virtue of law. FIOs and SFIOs sell and redeem participation units as frequently as specified in their articles of association, but no less frequently than once every seven days. Usually, such transactions are carried out on each business day. In exceptional circumstances, funds may suspend the sale of participation units, but for no longer than two weeks, and for no longer than two months in especially justified circumstances, with the consent of the PFSA.

Participation units of FIOs and SFIOs may be sold directly by the fund or with the intermediation of:

  • a TFI that is a governing body of that fund, or the management company or EU manager managing that fund and its affairs;
  • a management company that is not a governing body of that fund, providing a service within the scope of receiving and transferring orders to buy or sell financial instruments;
  • an investment firm or a domestic bank performing operations that consist of receiving and transferring orders to buy or sell financial instruments; and
  • an entity other than those named above that is established or residing in the Polish territory, with PFSA authorisation.

The articles of association of FIOs and SFIOs should specify the categories of participation units sold directly by the fund and sold by the fund with the intermediation of the entities named above.

The provisions implemented to the Polish legal regime in connection with the implementation of MIFID II Directive are applicable in connection with the provision of services within the scope of intermediation in the sale and redemption of participation units of investment funds, to the entities named above, enjoying the status of an investment firm and an entity other than investment firms authorised to distribute participation units of FIOs and SFIOs.

The same principles as for securities apply to the public offering of investment certificates issued by FIZs. A public FIZ offers investment certificates issued on the terms and conditions envisaged in an issue prospectus approved by the PFSA, by way of a public offering, and submits an application for admission of those certificates to trading on a regulated market or for their introduction to an alternative trading system. The issue of investment certificates may be carried out only by entities authorised to offer financial instruments.

Foreign funds satisfying the requirements envisaged by the UCITS Directive are authorised to sell participation titles in the Polish territory, if the PFSA has been notified by a competent authority in the foreign fund’s home state about an intention to do so. The sale of participation titles by a foreign fund is possible based on the rules (articles of association) of the foreign fund, the issue prospectus prepared in accordance with legal regulations binding the fund in its home state, key investor information and the so-called additional information, including information about the principles of the distribution of participation titles of the foreign fund in the Polish territory.

Participants in investment funds may be natural persons, legal persons or unincorporated organisational units. Apart from special cases, in Poland there are no restrictions on selling participation titles of retail investment funds that would cover specific groups of potential investors. However, marketing communication should take into account the target groups for which a given investment product is appropriate.

The basic factors serving the purpose of protecting participants of retail investment funds include permanent supervision by the PFSA over funds and investment fund management companies, supervision of ongoing investment operations of a fund by an independent entity holding the function of a depositary, an obligation to have the fund's financial statements reviewed and audited on a periodic basis by an independent statutory auditor, information obligations of funds towards the PFSA, and legal regulations specifying in detail the requirements for the organisation of investment fund management companies.

Notwithstanding the above, before accepting an order to buy participation units of FIOs or SFIOs, a TFI is required to obtain information from a client about the level of that client’s knowledge and experience to the extent necessary for assessing whether financial services are appropriate for the client, and assessing the client’s financial situation, including the ability to incur losses, and investment objectives.

TFIs are required to develop and implement procedures ensuring that participation units of managed FIOs and SFIOs correspond with the needs, features and objectives of a specific target group, and that an intended distribution strategy is appropriate for a specific target group.

Apart from the above duties, TFIs must comply with obligations connected with the publishing of information documents of investment funds managed by them, and with information obligations towards the PFSA. Those obligations include periodic information (eg, quarterly reports on the structure of a fund portfolio) and information of a current nature (eg, exceeding an investment limit).

Generally, the approach of the PFSA in every aspect of its operation can be described as conservative and directed primarily at the protection of investors' interests. This approach is evident in licensing proceedings, in its interpretations of prevailing legal regulations, in its control of supervised entities and in the official positions issued by the authority.

The Polish regulator strives to standardise solutions applied on the market. However, if an applicant is able to objectively justify that proposed solutions are admissible, and show that they will have no adverse impact on the interests of fund participants, the PFSA may be a partner for discussion and may be able to implement solutions that have not been used previously on the market. The PFSA publishes positions on regulatory matters. Therefore, in situations that are doubtful from a regulatory perspective, supervised entities apply to the PFSA for the issuance of an individual ruling in relation to specific facts.

Proceedings are conducted by way of correspondence, and meetings, if any, although admissible, are always an exceptional situation and may not be deemed a commonly used practice.

FIOs comply with the EU UCITS regulations, so their investment policy corresponds to those regulations, in principle. FIOs may invest the collected assets in securities, deposits, money market instruments, derivatives, participation units of open-ended investment funds, and participation titles issued by foreign funds or undertakings for collective investments established abroad. The basic principle of diversification covers limits prohibiting the investment of more than 5% of their assets in securities or money market instruments issued by one entity. If envisaged by the articles of association, this limit may be increased to 10% of the value of assets, if the total value of investments made by an FIO in excess of 5% of its assets does not exceed 40% of the value of the FIO’s assets. Deposits and investments in participation units and participation titles may not exceed 20% of the value of the FIO’s assets.

SFIOs applying the investment principles and restrictions envisaged for FIOs follow an investment policy similar to that described above, with due regard to variables with respect to certain categories of investments. One of the most important differences is a possibility to invest up to 50% (maximum 100% under specific conditions) of an SFIO’s assets in participation units of one FIO or participation titles of a foreign fund or an undertaking for collective investments established abroad, if such possibility is envisaged by the articles of association of the SFIO and a respective fund or an undertaking for collective investments is indicated therein.

An SFIO applying the investment principles and restrictions envisaged for a FIZ is perceived as an alternative investment fund. The investment policy, including the investment limits, of a Public FIZ does not distinguish it from a regular FIZ. For that reason, both types of funds are described in a section relating to AIFs.

Retail investment funds are obligated to have a depositary, who will act independently of the TFI and in the interest of fund participants. The function of a depositary may be held by a domestic bank whose own funds amount to at least PLN100 million, or by a branch of a credit institution with a registered office in the territory of Poland if the funds at the disposal of that branch amount to at least PLN100 million, or by Krajowy Depozyt Papierów Wartościowych S.A. (the Central Securities Depository of Poland). An agreement for performing a depositary function for a FIZ may also be concluded with an investment firm that is authorised to keep or register financial instruments, if its founding capital amounts to at least the PLN equivalent of EUR730,000.

TFIs are obligated to implement many internal regulations within their organisation – eg, with respect to the prevention of conflicts of interest, including the prevention of using confidential information. TFIs and retail funds managed by them are also obligated to apply the provisions on the prevention of money laundering and terrorist financing. Retail investment funds (FIOs and SFIOs) are not authorised to engage in short selling.

Under the observance of special requirements envisaged in the Act on Funds, an FIO (also an SFIO applying the investment principles and restrictions envisaged for an FIO) may advance to other entities loans covering dematerialised securities. The total value of the securities lent may not exceed 30% of the fund's net asset value.

Transactions of securities lending between retail investment funds are not a market standard and are relatively rarely used in investment practice.

FIOs (and SFIOs applying the investment principles and restrictions envisaged for FIOs) may take loans and credit facilities repayable within up to one year, from domestic banks or credit institutions only, for a total amount not exceeding 10% of the fund's net asset value at the time of the conclusion of a loan or credit facility agreement.

Open-ended investment funds and specialised open-ended investment funds set up on the basis of the Act on Investment Funds, excluding specialised open-ended investment funds applying the investment principles and restrictions specified for closed-ended investment funds, are directly exempt from corporate income tax on an entity basis. Foreign funds operating in the Polish territory are taxed in accordance with the law of their home state.

In relation to closed-ended investment funds that issue investment certificates subject to a public offering or admitted to trading on a regulated market or introduced to an alternative trading system (“Public FIZ”), or specialised open-ended investment funds applying the investment principles and restrictions specified for closed-ended investment funds (“SFIO-FIZ”), an exemption principle on a subject matter basis is adopted.

Pursuant to special laws in connection with specific investment activities, an investment fund may be obligated to pay tax. An example is the acquisition of financial instruments by a fund outside a stock exchange or taking a loan by a fund, in which case the fund will be obligated to pay tax on civil law transactions, the maximum amount of which is 2%.

Tax liability connected with participation in investment funds, regardless of whether a participant is a legal or natural person, is in fact the same, and amounts to 19% of the profit earned by the capital invested in a fund.

The principles described above apply to all types of retail funds. The only exclusion from the obligation to pay tax is when an order is placed by a participant of one sub-fund to exchange participation units held into participation units of another sub-fund in the same umbrella fund (FIO or SFIO).

In each case, tax is withheld when participation units are redeemed by a fund, and fund participants are not required to pay tax on their own to tax authorities.

2020 will be marked by the transformation of the pension fund management companies (PTEs) established at the end of the 1990s into investment fund management companies (TFIs). Pension funds that have been operating on the Polish market for more than 20 years will be transformed into SFIOs.

As a result of this transformation, the number of participants in SFIOs will increase, and the market of investment funds will see the entry of entities that have previously been focused only on pensions plans. In connection with a new legal form, newly established TFIs will be fully authorised to set up investment funds.

Therefore, increased competition on the investment funds market can be expected. Then, it is possible that space will become available for carrying out concentration processes within capital groups, in which case two TFI entities will emerge following the transformation, and an increase in acquisitions may occur in connection with the increased competition.

Dubiński Jeleński Masiarz and Partners sp.k.

ul. Marszałkowska 142
Warszawa 00-061
Poland

+48 22 436 06 01

+48 22 436 06 02

biuro@djm.pl www.dfj-law.pl
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Law and Practice

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Dubiński Jeleński Masiarz and Partners sp.k. combines legal jurisprudence with practical knowledge about business projects, with one of the largest investment funds teams among Polish law firms. DJM offers comprehensive legal services in all areas of business operations, and has extensive experience in creating investment funds and management companies of investment funds. It has managed proceedings before the Polish Financial Supervision Authority for authorisations to conduct activities by management companies of investment funds and authorisations to create investment funds (DJM has been involved in creating more than 500 funds and sub-funds operating on the Polish market). DJM’s lawyers have helped to create many pioneering structures and models of operation in the Polish market, including the first closed-end investment fund in the country organised in accordance with the Act on Investment Funds and Alternative Investment Funds Management, and the creation of the first hedge fund in Poland.

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