Poland – FSA Fined Copernicus TFI SA

Poland – FSA Fined Copernicus TFI SA

On 21 November 2019, POL FSA issued penalties to Copernicus TFI SA.

  • POL FSA announced penalties imposed on Copernicus TFI SA on 19 November 2019.

Overview

  • Imposed fines on Copernicus refer to violation, inter alia, of provisions of act on investment funds and management of alternative investment funds.
  • Financial penalty of PLN 2 mn imposed for violation by investment funds managed by Copernicus, including art 145.3 re art 145.1, art 196.1 re assets investment.
  • Fine of PLN 1.5 mn imposed for violation by Copernicus of, inter alia, art 10 of said act.
  • Due to lack of action in fund participants’ interest by investing fund's assets in shares without thorough analysis of company's situation.

Key Aspects

  • Re first financial penalty, a compound violation was found re closed-end investment funds MJG, WELL, CC14 and Whitestone art fund (currently in liquidation).
  • I.e. violation of investment restriction indicated in art 145.3, art 145.1 i.e. investing assets of above funds in shares/stocks issued by entity at level exceeding 20% value.
  • The duration of the infringements lasted from 3 months to over 2 years.
  • As per Sowiniec FIZ investment fund and investment restriction indicated in art 196.1 the infringement lasted from Q2 2015 to Q1-end 2018 inclusive.
  • It did not have any deposit components of art 196.1 at 80% value of fund's assets.
  • I.e. non-public asset fund invests at least 80% of assets value in assets other than securities subject to public offer or securities admitted to trading on regulated market.
  • Investment restrictions ensure adequate diversification of investment fund portfolios, which improves security of investment of funds entrusted by fund participants.
  • Participants entrusting funds to funds expect those will be managed in professional, compliant manner, investment restrictions set by legislator to be respected.
  • Commission’s position re investment restrictions applicable to investment funds was communicated to supervised entities via communication of 29 November 2017.
  • Re second financial penalty is for violation of art 10 found re acquisition by Whitestone FIZ AN of shares without reliable assessment of company’s financial position.
  • Including company’s possibility to obtain its receivables from third party, moreover, shares in company were acquired in excess of 20% investment limit.
  • This resulted in need to make write-off of 100% value of company's receivables from third party, followed by write-off of company's shares (as per last available valuation).
  • Meant significant decrease in fund’s assets value, valuation of investment certificates.
  • Art 10 states all activities undertaken by company must take into account interests of fund participants, also specified in fund's documentation through investment objective, selected investment policy and risk mitigation principles.
  • Investment decisions should be preceded by thorough analysis of assets to be subject of transaction, overarching goal is to act in benefit of fund participants.
  • Company did not make thorough analysis of investment situation before acquisition of Whitestone FIZ AN; penalty amount reflects that actions were taken voluntarily.