Amendment to the Trading in Financial Instruments Act: What has changed for the corporate agent of an investment company?
New obligations to provide information to the financial regulator, mandatory internal control systems, and new administrative fines against agents and members of their authorities—the “vegetable patch” introduced quite a few changes.
A set of amendments to laws governing the financial market in Poland entered into force on 29 September 2023. The amendment made so many changes across so many different laws that it is colloquially known as the “vegetable patch.” The amending act was intended to organise and streamline Polish financial market institutions.
Among other laws, the amendment covered the Trading in Financial Instruments Act, including provisions relating to the corporate agent of an investment company. It introduced new obligations for reporting to the Polish Financial Supervisory Authority (KNF), enacted provisions governing persons employed by a corporate agent, and adopted new administrative fines for corporate agents and members of their corporate authorities.
New obligations for the agent of an investment company
Prior to the amendment, KNF could request information on business activities exclusively from the investment company. Thus, if KNF sought information on an investment company’s corporate agent, it had to request it from the investment company. In this respect KNF was often frustrated, as investment companies asserted trade secrets or other grounds for protecting this information.
Now, KNF’s authority to obtain information from a corporate agent has effectively been equated with its authority regarding an investment firm. KNF has the right to demand from an agent (at the agent’s expense) or its employees any information in the form of copies of documents or other media related to its activities, and to provide written or oral explanations within the scope of KNF’s supervision (Art. 79(11) of the Trading in Financial Instruments Act).
To enforce its demands, KNF may impose a fine on obligated entities in the form of custody, incarceration or a fine (Art. 184(1)).
Also, the amendment equalised the status of an employee of an investment company and an employee or contractor of agents who are legal entities or unincorporated units employed by an agent.
As a result of the new provisions, employees who are natural persons and perform duties and tasks related to recruiting clients and informing them of the investment company’s offer must have adequate knowledge and experience in this field. Therefore, the agent should verify that new employees are qualified before hiring them.
However, if the agent employs a person who is a licensed securities broker or investment adviser, this credential is deemed to meet these requirements (Art. 79(4a)).
The amendment requires investment companies to introduce and maintain a system of internal controls (including with regard to its agent) consisting of three elements:
- Control mechanism for carrying out the tasks referred to in Art. 21(1)(c) of Commission Delegated Regulation (EU) 2017/565
- Compliance function referred to in Art. 22(2) of Regulation 2017/565
- Internal audit (Art. 83b(2a) of the Trading in Financial Instruments Act).
Administrative fines
The amendment also introduced a number of new administrative fines targeting the agent and those in positions of authority.
These fines are imposed on the agent for violation of:
- Law
- Fair trading principles
- The interests of the principal of the investment company of which the entity is an agent
- The agent’s contract with the investment company.
The fines imposed on a corporate agent for these violations can run as high as PLN 1 million or result in an order to cease and desist. KNF can also ban an agent from carrying out activities for a specified period of up to 12 months. In that case, KNF will indicate the scope of activities subject to the ban. As a last resort, it may also strike the agent from the register (Art. 167aa).
Individuals responsible for the agent’s violations can be fined by KNF up to PLN 500,000, or ordered to cease and desist, and in the case of serious violations the agent can be ordered to remove the responsible person from its management board (Art. 169a(1aa)).
It should be noted that under Art. 169a(1bb) of the Trading in Financial Instruments Act, the Polish Financial Supervisory Authority can impose a fine on natural persons even after they have ceased to hold office in a corporate agent of an investment company.
Grzegorz Wojnar, Capital Markets & Financial Institutions practice, Wardyński & Partners
