Requirements for obtaining an asset management license in different jurisdictions

Assets management activities may vary widely in nature; they may be the management of individual investment accounts or funds, the management of individual assets, or the management of collective investments. If you decide to professionally manage the assets of third parties, then, in most cases, you will need to obtain the appropriate license. Below we will look at the regulatory framework for obtaining this type of permit in various jurisdictions, and the features of the implementation procedure.

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Introduction to Asset Management Licensing: Asset Management Regulations Comparison in different jurisdictions

Companies with asset management license Europe are allowed to provide services to clients in any other EU-states. The license certification procedure is very simple and takes approximately one month. Regulators from other EU member states are limited in implementing any additional rules or barriers.

In the United States, there are several types of investment firms, among which management companies are the most common. These companies are joint stock companies. Shareholders of management companies have the right to vote on issues related to the selection of the board of directors, approval of investment policy directions and approval of the agreement with the manager. Direct management of investment fund Europe is entrusted to the manager – a legal or natural person who receives a remuneration for performing his services, the amount of which usually depends on the net asset value of the fund. Usually the manager is the founder of the fund.

So, let’s try to look at some of the most popular countries for obtaining such permission.

Great Britain

Two government bodies are responsible for regulating this type of activity in the UK: the PRA and the FCA. They are responsible for issuing permits and supervising establishments. If you need to obtain such permission in a given country, you should note that the FCA has conduct oversight of all types of firms. Undertakings supervised by the PRA for prudential supervision purposes are also supervised by the FCA. These organizations are called “dual regulated firms.”

FSMA is the main framework law for the banking, finance and insurance industries and regulates the conduct of certain activities that are in the nature of financial services. According to current legislation, obtaining a permit is necessary only if the regulated activity is carried out on the territory of the country. In some cases, activities may be considered to be carried out in the UK because the client is located in that jurisdiction, even if the service provider is located outside the UK. Whether an activity is to be treated as being carried on in the United Kingdom will depend in each case on the extent of the connection with the UK and may vary depending on the particular activity. Asset management license requirements there are next-mentioned.

1. Real presence in the country and location of offices. Companies registered in the UK must have their head office in the UK.
2. Effective supervision. Applicants for financial licenses in Britain must be subject to effective supervision by supervisory authorities.
3. Related resources. Applicants must demonstrate to the regulator that they have sufficient resources to carry out their chosen activities.
4. Suitability. Applicants must be in good standing to be granted permission, all things considered.
5. Having a business-plan. The regulator will review the applicant’s business model.

Lithuania

Companies with asset management license in Lithuania are allowed to be direct participants in stock exchanges, depositories and clearinghouses registered in any other EU jurisdiction without any restrictions. 

1. Fast licensing process. License issuance within 3-6 months or even faster.
2. There are no requirements for the company’s management to reside in Lithuania.
3. Documents can be submitted in English and changed on the fly, which eliminates official two-way correspondence.
4. No penalties for the first year. During the first year of operation, the Bank of Lithuania aims to support start-ups without penalizing them for minor violations.
5. Startup visa. Special visas for non-EU citizens who own innovative enterprises operating in Lithuania.
6. Possibility to be direct participants in stock exchanges, depositories and audit chambers in any other EU jurisdiction.

Luxembourg

Depending on the activities of financial institutions and the risks they may face, the intensity of the rules that apply to them will vary. However, as a rule, the following conditions must be met.

1. The applicant must be able to be effectively controlled. The regulator will also consider the transparency of the firm’s structure, i.e. whether there are any barriers to oversight of the applicant, including the group structure and any relevant laws restricting access to information.
2. Providing a description of the proposed activity. The permit requested by the organization must be consistent with the intended activity, and the organization must actually carry out the activity covered by the license.
3.  The registered office and management must be located in Luxembourg.

Hong Kong

Hong Kong is one of global financial centers with territorial based taxation. 

1. Hong Kong places no restrictions on foreign investment and has no exchange controls.

1. Ease of business creation and licensing.
2. Favorable tax regime.
3. Favorable regulatory environment with strict anti-money laundering legislation.
4. Company meetings do not have to be held in Hong Kong.

General specifics of the USA and the EU

The specifics of the activities of management firms in Europe are determined by the characteristics of countries that have embarked on the path of integration. Since each state has its own legislation, a common Council Directive with a number of amendments is also in force in the European Union. This is a certain form of management activity, close in concept to the United States. This document, in particular, makes the following requirements to the AMC:

• investment resources are raised publicly;
• the principle of risk diversification is observed;
• at the request of investors, the fund’s securities are repurchased;
• The legal form can be either contractual, trust, or corporate.

Directive plays a significant role in the integration of the European asset management industry by establishing common “rules of the game” for them. It is intended to promote the spread of collective investment schemes in EU countries, subject to their compliance with established minimum requirements, which should form an essential part of the legislation and regulation of Member States, each of which has the right to establish more detailed rules and regulations.

In any case, it should be noted that in order to obtain a license for asset management, the management company must have its own funds in an amount not lower than the level established by the equity adequacy standards.

Obtaining Asset Management License: Application Procedure and Compliance Challenges

Getting permission for an asset management company in several stages. So, in order to obtain the official opportunity to conduct the activities of an AMC, first of all it is necessary to enter information about the legal entity. person to the register and receive the appropriate code.

Then you can move on to the most important thing – preparing the company itself, premises, and personnel for work. Each of these points (staff, office, etc..) has special requirements. Only after completing them can you first obtain a license for asset management, and subsequently obtain the official status of a financial organization.

Basic normative parameters are next-mentioned.

1. Initial capital in cash in the amount established by the selected jurisdiction.
2. Hardware and software: computers, uninterruptible power supply.
3. Minimum of three certified asset management professionals. The manager must have at least 2 years of experience in the stock market.
4. Personnel undergo mandatory two-week training in asset management, followed by the presentation of certificates confirming their qualifications.
5. It is necessary to formulate constituent documents in accordance with the legislation in force at the time of creation of the company.

Before obtaining a permit, you need to pay a state fee.

So, we have looked at some of the best and most profitable market spaces for obtaining this type of permit. If you are interested in one of them or would like to find out more detailed information about other jurisdictions, please contact our lawyers. We are always here for your success.

Article’s author is Denys Chernyshov – founder and CEO of the globally-famous organization Eternity Law International.