The Swedish FSA sanctions Swedish fund hotel provider

The decision concerns so-called "fund hotels" (Sw. fondhotell) – arrangements where a licensed alternative investment fund manager ("AIFM") establishes and operates funds on behalf of a third party (the "initiator"), while delegating portfolio management back to that initiator. The Swedish FSA does not question the fund hotel model as such, but the decision illustrates the particular risks it sees in this type of delegation, and the standard of oversight expected of fund hotels that use it.

The Swedish FSA highlighted two features that distinguish fund hotel delegation from a conventional outsourcing arrangement:

• The delegate is rarely selected through a competitive process; instead, it is the initiator that approaches the fund hotel with a fund concept and is expected to become the delegated portfolio manager. This may lead to a less rigorous suitability assessment.
• Funds are commonly marketed under the initiator's name rather than the fund hotel's, so that investors tend to associate poor performance with the initiator rather than the fund hotel (the AIFM). This can weaken the fund hotel's commercial incentive to ensure that the initiator performs its mandate properly.

Together, these features risk deprioritising investors' interests. The Swedish FSA was clear, however, that these risks can be managed, provided that the fund hotel exercises appropriate care when entering into delegation arrangements and maintains effective ongoing oversight.

The Swedish FSA found that AIFM had not met this standard. The AIFM had not followed its own internal procedures for entering into delegation agreements and had not carried out sufficiently thorough evaluations of proposed mandates and delegates before appointing them.

On entering into the delegation agreements, the decision turned on a recurring pattern: in both cases examined, the delegation agreement was signed by the CEO of the AIFM before the board had taken a decision to enter into it and without the board first receiving the documentation required under the internal instructions of the AIFM (a business rationale, an impact assessment and a risk assessment). In one case, the Swedish FSA rejected the argument that a an earlier board resolution constituted a decision to enter into the agreement, instead characterising it as a policy resolution; no draft agreement was ever put to the board, and the agreement was signed seven months later without any further board decision.

In the other case, the CEO signed the agreement on the morning of 12 May 2022. A board resolution passed later that same day, to take over the relevant funds from another manager, was found not to amount to a decision to enter into the delegation agreement itself. The board only formally resolved to enter into it on 8 June 2022, by which point the agreement had already been signed. Even then the board received only the already-executed agreement together with an incomplete due diligence questionnaire containing no assessment by the AIFM of the risks or impact involved.

On this basis, the Swedish FSA concluded that the AIFM had acted in breach of its own internal rules on both occasions. The Swedish FSA also found shortcomings in the ongoing monitoring of the AIFM. In particular, that the AIFM had not assessed, in a sufficient manner, whether investors had received adequate returns relative to the funds' predetermined risk profiles. In the Swedish FSA's view, oversight of a delegate cannot be limited to formal or operational compliance checks, it must also extend to assessing investment performance against the fund's stated risk profile.

The cases relate to the period 2021–2023 and were assessed under the rules then in force. The decision does not apply the new AIFMD II requirements. However, the concerns raised closely mirror those that the EU legislator has since addressed directly.

The revised AIFMD and the corresponding UCITS amendments introduce rules specific to fund hotels. Defined as a manager that manages a fund at a third party's initiative – including where the fund uses the initiator's name or delegates functions to the initiator. Under the rules, the manager must provide its competent authority with "detailed" evidence of compliance with conflict-of-interest requirements. This includes the steps taken to prevent, or otherwise identify, manage, monitor and disclose, conflicts arising from its relationship with the initiator.

In addition, the AIFMD II introduced more strict reporting requirements with respect to delegation of portfolio management (and risk management), which fund hotels rely on.

In Sweden, the expanded conflict-of-interest requirements have been incorporated into the Swedish FSA's regulations (FFFS 2013:9) with effect from 1 July 2026. Before it begins managing a fund at a third party's initiative, a fund hotel must now submit a detailed account to the Swedish FSA of how it will prevent conflicts of interest arising from its relationship with the initiator and, to the extent such conflicts cannot be prevented, how it will identify, manage, monitor and, where relevant, disclose them, together with supporting documentation. Fund hotels already operating such arrangements when the new rules took effect are required to submit equivalent information by 30 December 2026.

Norway has not yet implemented AIFMD II or the corresponding amendments to the UCITS directive. In its consultation paper, the Norwegian FSA proposed to implement the provisions on a copy out basis. As is the case in Sweden, the Norwegian FSA already pays particular attention to the requirements under the conflicts of interest rules.

Denmark has implemented the AIFMD II fund hotel provisions into national law. As under the revised AIFMD framework, Danish fund hotels will be required to demonstrate to the Danish FSA how conflicts of interest arising from relationships with fund initiators are prevented or, where unavoidable, identified, managed, monitored and disclosed.

The Danish FSA has already shown a particular focus on the risks inherent in fund hotel structures. In April 2025, the Danish FSA issued orders to two Danish fund hotel providers following thematic inspections concerning the marketing of investment funds. The Danish FSA found that both firms had delegated significant marketing activities to third-party initiators and portfolio managers without having sufficiently robust procedures for overseeing and controlling those activities. The cases underline the Danish FSA's expectation that, notwithstanding extensive delegation, the AIFM remains fully responsible for ensuring compliance and must maintain effective oversight of delegated functions, including activities carried out by fund initiators on behalf of the funds.

Although the Danish cases concerned marketing rather than portfolio management, they reflect the same underlying regulatory concern as the recent Swedish cases: that fund hotel providers must exercise substantive and ongoing supervision of delegated activities and cannot rely solely on contractual arrangements or formal controls.

The decision does not suggest that fund hotel arrangements are unacceptable; both the Swedish FSA and the AIFMD II preparatory works recognise potential benefits of such models. 

The key message is that the fund hotel (AIFM) remains responsible for the fund despite delegating portfolio management, and must therefore be able to demonstrate that its oversight of the initiator is substantive, not merely formal. 

The new rule is the first to introduce a requirement to provide "detailed explanations", rather than just explanations.

In practice, this requires a written robust assessment made before entering into a delegation arrangement, based on documented decision-making, sufficient resources and expertise to challenge and oversee the delegate. In addition, the AIFM must implement meaningful ongoing monitoring of how the mandate is performed, which will require sufficient qualifications, authority and capacity at the level of the management. This will also provide regulators with substantial discretionary authority to challenge the sufficiency of internal conflicts of interest assessments. If you want to know more about the Swedish FSA's decision, the new requirements under AIFMD II, or would otherwise like to discuss any of this in more detail, please do not hesitate to contact us at Schjødt.