This year, the Riigikogu (Parliament) has adopted amendments to two laws whose objectives are overlapping to some extent:
- the Act Amending the Investment Funds Act and Related Acts entered into force on 3 April 2011, and
- the Act Amending the Funded Pensions Act and Related Acts enters into force on 1 August 2011.
Both amendments are triggered by difficulties prevailing in the financial market since 2008. Below we give an overview of the most significant changes related to both amendments.
One of the objectives of amending the Investment Funds Act, which entered into force in the spring, is to regulate the principles concerning remuneration, including performance fees of managers and managerial staff of banks, insurers, management companies of pension funds and other public funds, as well as listed companies, and supervision over implementation of those principles. Therefore, the Investment Funds Act contains, e.g., a new provision according to which the principles concerning remuneration of management board members and staff of management companies of pension funds and other public funds must:
- be clear, transparent, conform with the principles of reliable and efficient risk management and the investment policy of funds managed by the management company;
- be based on the business strategy and values of the management company, taking into account the economic results of the management company and funds managed by it as well as the legitimate interests of fund unit holders or shareholders and other clients;
- be based on the long-term objectives of the management company and take into account its ability to cope with changes in the external environment.
Members and staff of pension funds who have competence to decide on investing with mandatory pension funds may not be paid performance fees if these are based on the return of the fund during a period shorter than the last three years.
On 1 August this year, the Act Amending the Funded Pensions Act and Related Acts also enters into force. This:
- supplements investment restrictions of conservative pension funds;
- supplements requirements for management companies;
- amends the reporting and disclosure procedure related to pension funds;
- amends the rules on change of mandatory pension funds and directing of contributions.
Novelties include more detailed conditions for risk management rules of management companies and restrictions on investment of mandatory pension fund assets in other funds managed by a management company.
Difficulties prevailing in the financial markets have led to a situation where legislative drafting attempts to apply principles that would restrict assumption of unreasonable risks by financial institutions. At the same time, a threat exists of over-regulating business in a difficult economic environment. A stable economy and judicial area is a matter for countries with a long history, so that clearly similar changes may also be expected in Estonia in the future.
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Amendments to Investment Fund Regulations
This year, the Riigikogu (Parliament) has adopted amendments to two laws whose objectives are overlapping to some extent:
Both amendments are triggered by difficulties prevailing in the financial market since 2008. Below we give an overview of the most significant changes related to both amendments.
One of the objectives of amending the Investment Funds Act, which entered into force in the spring, is to regulate the principles concerning remuneration, including performance fees of managers and managerial staff of banks, insurers, management companies of pension funds and other public funds, as well as listed companies, and supervision over implementation of those principles. Therefore, the Investment Funds Act contains, e.g., a new provision according to which the principles concerning remuneration of management board members and staff of management companies of pension funds and other public funds must:
Members and staff of pension funds who have competence to decide on investing with mandatory pension funds may not be paid performance fees if these are based on the return of the fund during a period shorter than the last three years.
On 1 August this year, the Act Amending the Funded Pensions Act and Related Acts also enters into force. This:
Novelties include more detailed conditions for risk management rules of management companies and restrictions on investment of mandatory pension fund assets in other funds managed by a management company.
Difficulties prevailing in the financial markets have led to a situation where legislative drafting attempts to apply principles that would restrict assumption of unreasonable risks by financial institutions. At the same time, a threat exists of over-regulating business in a difficult economic environment. A stable economy and judicial area is a matter for countries with a long history, so that clearly similar changes may also be expected in Estonia in the future.