Illegal financial activities – how fund companies and investors are affected

A new (criminal) legal reality for financial actors

The new offence of unlawful financial activity means that anyone who intentionally or through gross negligence conducts financial activities without the necessary authorisation or registration from the Swedish Financial Supervisory Authority may be sentenced to a fine or imprisonment for up to two years. In the case of serious and intentional violations, the penalty is imprisonment for a minimum of six months and up to six years.

It is therefore not only the company that can be subject to heavy fines and other sanctions – now, individuals in company management can also face personal criminal liability. The new law puts compliance high on the agenda for anyone operating in the fund market or conducting investment activities, regardless of scope.

Investment companies need to continuously evaluate their licensing requirements

One type of business affected by the new law is companies that conduct collective investment activities. Such a company may be considered an alternative investment fund under the Alternative Investment Fund Managers Act (2013:561), which requires a licence or registration depending on the size of the fund and other circumstances. The requirements for classification as an alternative investment fund are relatively low, and it is a common misconception that investment companies fall outside the scope of the Act. According to the LAIF, an alternative investment fund is a company formed for collective investment that receives capital from a number of investors in order to invest it in accordance with an established investment policy for the benefit of those investors. Networks of investors who jointly invest capital risk being classified as an alternative investment fund without being aware of it. It is therefore crucial to continuously assess the nature of your own business – not only at the start of the business, but continuously as it develops.

If the business is considered to constitute an alternative investment fund, a licence from, or registration with, the Financial Supervisory Authority is required. The process is often complicated and entails other requirements and significant costs for the company. With the new law on penalties for illegal financial activities, members of company management may risk personal criminal liability if they fail to make a correct assessment and, if necessary, apply for authorisation or make the necessary registrations with the Swedish Financial Supervisory Authority.

Fund unit holders should make a careful assessment

For fund unit holders and investors, it is important to understand that an alternative investment fund is not a specific type of company – the fund's structure is governed by agreements between the fund unit holders. This means that when you, as an investor, review a company or fund in the due diligence process, it is not enough to check the type of company. You need to review the underlying agreement and ensure that the manager actually holds the necessary permits or registrations and bears legal responsibility for the business. Investors and fund unit holders should also consider how an alternative investment fund requiring authorisation is affected by the lack of authorisation or registration – it is not uncommon for the fund's investment activities to come to a standstill and, in addition, the fund may be liable for relevant costs associated with the legal proceedings surrounding the lack of authorisation or necessary registrations.

How Lindahl can assist

With the new law on penalties for illegal financial activities and the risks of personal criminal liability that it entails, there is a greater incentive for compliance and accurate assessments. Many investment companies find themselves in a grey area or are unaware that they risk being classified as an alternative investment fund. At Lindahl, we regularly meet clients who seek guidance on these issues. These may be companies that need help assessing whether their activities require a licence, or investors who need help reviewing the structure, licences and terms of the fund they intend to invest in.

What you need to do now

Whether you are a fund management company, manager or investor, there are concrete steps you can take:

• Analyse your business on an ongoing basis. Continuously assess whether your investment activities can be considered to constitute activities requiring authorisation under the LAIF. This applies in particular to investors who invest collectively – the threshold for constituting an alternative investment fund may be closer than you think.

• Ensure that the correct licences or registrations are in place. As a fund company, you need to ensure that you hold the licences required for your business and understand how any shortcomings could affect existing funds.

• Tighten up your due diligence process. Due diligence processes now impose higher requirements and require greater knowledge of the assessment criteria for alternative investment funds. As a fund unit holder or investor, you should actively check that the company or fund you are investing in has made a correct assessment of its operations – and that the fund manager holds the necessary licences or registrations and applies appropriate rules of responsibility.

• Take action if you see a deficiency. If you have already invested in a company that could be classified as an alternative investment fund without holding the necessary permits or registrations, you should raise the issue and ensure that the company management takes corrective action or has made a well-founded assessment.

The fund market inquiry – A look ahead

Broader legislative work is under way in the fund market area through the so-called Fund Market Inquiry. An interim report (SOU 2025:117) proposes a new form of association – the fund unit company – which could clarify what actually constitutes a fund management company in the legal sense, potentially facilitating future assessments. No bill has yet been presented, but if the proposal is implemented, the legislative changes are planned to come into force in the summer of 2027. The interim report of the Fund Market Inquiry (SOU 2025:60) also examines the possibility of introducing a new transparent fund structure for institutional investors, new opportunities to trade in units in investment funds (so-called exchange-traded funds) and more flexible rules for the redemption of units in investment funds. Furthermore, harmonised rules are proposed for lending funds with regard to risk management requirements, diversification of lending and a ban on lending to certain individuals and companies. The inquiry also proposes that fund management companies and certain AIF managers should be able to provide a wider range of services to third parties. Lindahl is monitoring the legislative work on an ongoing basis.

Concluding comment

A key question is how the new rules will affect the flexibility and incentives to invest collectively – a form of investment that is of central importance to start-ups and other businesses in the development phase. Where is the line between collective investments becoming an alternative investment fund requiring a licence? How should companies deal with the other requirements and costs that come with a possible licence requirement? It is a balancing act that requires ongoing legal analysis – and many players in the market need to adjust to meet the toughening requirements.

Do you have questions about how the new rules will affect your business? Feel free to contact our experts – we will help you make the right assessment.