Investment market regulation underwent extensive legislative changes at the beginning of the summer holidays. The amendment to the Investment Companies and Investment Funds Act, which came into force on 1 July this year, brought changes in the area of investor protection, as well as the much-needed harmonisation of regulatory requirements. The amendment responds to the dynamic development of financial markets, European regulation and the experience from the current application practice. What specific changes does the law in its current form entail? What new developments have occurred for investors and can the new legislation significantly change the nature of the Czech investment market? Below is an overview of the main points of the amendment and their expected impact on the market.

Administration and management of an investment fund

The amendment stipulates that an investment company may, on the basis of a mandate, perform certain activities related to the management or administration of an investment fund, including for a fund managed or administered by another person. From the perspective of the law, although such an authorised person is not the manager or administrator of the fund, in practice he/she will be entitled to carry out individual activities within management or administration. He/she will be able to carry out these activities without having to obtain a special permit to provide investment services. This rule also applies to newly established investment funds, for example, when preparing documentation for the application for a licence.

However, it should be stressed that the above applies only to the case where the entity performs these activities for an investment fund. If a company wanted to provide management and administration services to, for example, a bank, it would already have to obtain an investment services licence.[1] This change will bring a mitigation of the previous legal requirements, which were stricter than the requirements of the European legislation, and will thus support harmonisation of the regulation of investment markets in the Czech Republic with other EU countries.

Sub-threshold investment company as trustee of a trust fund

Another significant novelty is the possibility for an investment company to become a trustee of a trust fund. At the same time, the investment company will now be authorised to carry out valuations of the assets held in the trust and to keep accounts for them. This authorisation will be given to an investment company that is not entitled to exceed the decisive limit, a so-called sub-threshold investment company. Currently, these investment companies cannot be trustees of a trust that is not an investment fund. As a result of this adjustment, regulatory requirements within the investment market will be further aligned.

New rules for unlicensed administrators

The new obligation to specifically designate persons who manage assets consisting of pooled funds or things valued in money from investors for the purpose of investing them jointly, i.e. unlicensed trustees, is intended to enhance legal certainty. These persons will now have to add the designation “venture capital person” to their name and will not be allowed to use the word “fund” or its translations or derivatives. If they do not currently meet this condition, they will have to adapt their name to the new requirements within two years of the law coming into force.

At the same time, an information obligation of unlicensed administrators towards investors is introduced. It will now be obligatory to inform investors about the riskiness of the investment, the planned subject of the investment and the investment horizon, as well as about fees and guarantees from the unlicensed entity.

Change of deadlines for the issuance of share certificates

The amendment also extends the time limit for the issuance of share certificates for the nominal value or amount specified in the statute. For above-threshold qualified investor funds and special funds investing in real estate, the deadline is extended to one year, while for sub-threshold qualified investor funds the deadline is extended to two years.

As a result of the amendment, there are also other changes worthy of attention – for example a new obligations related to the liquidation of a mutual fund, new rules for sub-funds, specification of initial capital requirements for the performance of depository activities and others. We will inform you about these changes in a continuation of this article.

Recapitulation

In conclusion, the amendment has a real potential to make the functioning of the capital market more efficient in terms of simplifying and streamlining certain governance and administration processes. At the same time, it strengthens the information obligations of entities that do not need a licence from the Czech National Bank for their activities, thereby increasing investor protection and levelling the playing field between licensed and unlicensed entities. The overall impact of the amendment can be perceived as positive, it is an important step towards the modernisation and harmonisation of the Czech legal framework in relation to the European market. By strengthening transparency, investor protection and support for intuitive processes, the Czech market will move closer to European standards and increase the competitiveness of Czech companies.

[1] Parliament of the Czech Republic. Chamber of Deputies. 2024. IX. Election period. Parliamentary Document 570 – Government Bill amending Act No.240/2013 Coll., on Investment Companies and Investment Funds, as amended, and other related acts. Explanatory memorandum. p. 31