Sweden's regulation frustration

While many EU countries can draw on experience from legislation in place before the AIFMD came into effect, some countries have had to build regulatory regimes from nothing. The Nordic countries in particular have had to bake their AIFMD cakes from scratch, and the process has caused some pouting in the private equity patisserie.

In the largest Nordic private equity market – Sweden – gripes are surfacing about the development and implementation of the new AIFMD legislation, and how it is being administered by the Swedish regulatory authority, Finansinspektionen (FI).

Because private equity and venture capital was a completely unregulated space before the AIFMD, some consider the new regulation to be putting reporting requirements for the industry at the same level as listed companies.

"It is regarded as a very strange thing, and it is also regarded as disproportionate to ask these private equity funds to produce all this information, which they see as a very costly and burdensome regime," says Fredrik Henriksson, a London-based partner at McGuireWoods.

The worry is that the AIFMD requirements will affect smaller and medium-sized funds and venture capital firms more than larger vehicles.

While not many large funds are registered in Sweden, the ones that are will likely be better able to cope with the added burden of the AIFMD, as they have more resources and bigger teams to deal with compliance.

"It is, as always, the smaller segment that is hit by unnecessary administration and cost, and I think that's unfortunate at a time when Europe is really in need of innovation," says Anne Holm Rannaleet, a former partner and current senior adviser to IK Investment Partners, and the mid-market and Nordic representative on the European Private Equity & Venture Capital Association (EVCA) Public Affairs Executive.

Lacking experience
Frustrations are amplified by the feeling that FI is not well enough prepared to deal with the new regulatory scheme, because the Swedish regulator has no experience in dealing with the concepts and structures of the industry.

Henriksson says there is also frustration regarding the time it takes to get feedback and the results of their disclosures from FI. However, he emphasises that there is also a large degree of understanding in the private equity industry, that this is completely new legislation in a complicated field.

Fredrik Lundberg, head of division for AIFM law at FI says he thinks part of the frustration is due to the fact that the industry sees going from an unregulated to a regulated world as a solely negative change.

"We have had a good experience when it comes to implementing new regulatory framework, and writing regulatory code," says Lundberg. "However, the private equity industry had not been regulated, so we hadn't had those types of businesses under our regulation up until now. In that sense, we don't have any previous experience in regulating the sector."

Addressing whether FI is equipped to deal with implementing and administrating the AIFMD, Lundberg says: "Absolutely, of course."

"It's challenging when firms have had a one-year transitional period, but most if not all applications dropped in right at the end, but we are getting it done even though we've had a lot of applications to handle at the same time," says Lundberg, adding that FI is aiming to adhere to the three-to-six-month timeframe it has stated.

Cookie cutting
Looking at the wider impact of the new rules, frustration is increasing due to the lack of specific industry adaptation. Says Henriksson: "In Sweden, both from the Swedish Venture Capital Association (SVCA) and from my contacts in the Swedish private equity industry, the main problem with this regulation is that it is 'one size fits all'."

This view is shared by Rannaleet, who has been involved with the AIFMD development process from the beginning with both the EVCA and the SVCA, and believes the regulation should be adapted better to the industry. Her view is aligned with a broader European sentiment that the Directive does not differentiate enough between fund types: "It has thrown together hedge funds, real estate, private equity, venture capital, social funds, you name it. But it is still very much modelled on funds that are traded in on a regular basis and which themselves trade in the financial markets on a regular basis."

The industry's irritation extends beyond the lumping together of fund types. There seems to be a broad consensus that though the disclosure requirements to FI are extremely broad, there has been a lack of clear guidance on what specific information the regulator needs, and what level of detail is appropriate.

The perceived deficiency in disclosure guidelines may leave it up to the managers to take the lead in reporting the ins and outs of their firms, and the relevance of different information.

"Managers will very much have to take the wheel initially, and over time a set procedure will develop, as the regulatory authority becomes more insightful," Rannaleet says.

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