Law on Investment Management Companies

Transcription

1 (Unofficial translation) Published in the newspaper Latvijas Vēstnesis1 No. 342/346 on 30 December 1997, taking effect on 1 July As amended by: Law of (L.V., 20 June, No. 230/232; Ziņotājs, 2000, No.13) Law of (L.V., 13 November, No.165; Ziņotājs, 2002, No. 23) Law of (L.V., 6 April, No. 54; Ziņotājs, 2004, No. 9) Law of (L.V., 27 March, No. 51; Ziņotājs 2007, No.9) Law of (L.V., 18 June, No. 94) Law of (L.V., 9 July, No. 104; Ziņotājs 2008, No.14) Law of (L.V., 7 November. No. 174; Ziņotājs 2008, No.15) Law of (L.V., 31 March, No. 51/52) Law of (L.V., 2 November, No. 173) Law of (L.V., 24 July, No. 142) Law of (L.V., 2 October, No. 192) The Saeima2 has adopted and the President has proclaimed the following Law: Law on Investment Management Companies (The title of the law in the wording of the law of 18 March 2004 taking effect on 1May 2004) Chapter I General Provisions Article 1 Terms Used in this Law The following terms are used in this Law: 1) fund investor a person who owns an investment certificate of an investment fund; 2) fund property assets, the aggregate of which forms an investment fund; 3) investment certificate a transferable security certifying participation of a fund investor in an investment fund or sub-fund and the rights arising from such participation; 4) investment fund (hereinafter also fund) aggregate of assets formed by investments made in return for investment certificates, as well as the assets acquired in transactions with fund property; 5) investment object transferable securities, money market instruments, deposits in banks and other financial instruments, which in accordance with the provisions of this Law an investment management company is entitled to acquire for the fund property; 6) company officials members of the board of directors of an investment company, investment fund managers, as well as other persons who are authorised to issue instructions in respect of the fund property or to act on behalf of this company; 7) interested parties of the company supervisory board members, officials, shareholders of an investment management company who own 10 and more percent of the voting shares of the company, as well as spouses, parents or children of all natural persons referred to in this Subparagraph; 8) risk reduction principle reduction of the financial losses risk by dividing the investment fund property into investment objects and observing transaction limits, as well as preserving the possibility to gain the largest expected income;

2 9) custodian bank a person who keeps the fund assets, performs registration thereof, transactions in fund assets and other duties prescribed by this Law and the custodian bank agreement; 10) interested parties of the custodian bank members of the supervisory board and board of directors, shareholders of a custodian bank who own 10 and more percent of the voting shares of the custodian bank, as well as spouses, parents or children of all natural persons referred to in this Subparagraph; 11) transferable securities equity securities (shares and other equity securities which certify participation in the issuer s capital), bonds and other debt securities, other negotiable securities whose alienation rights are not restricted and to which the rights to acquire the above mentioned transferable securities by means of subscription or exchange are attached; 12) money market instruments liquid debt obligations that may be accurately determined at any time and are normally dealt in on the money market; 13) financial instruments an agreement, which concurrently creates financial assets for one person, but financial liabilities or equity securities for another person; 14) financial derivative instruments financial instruments, the value of which changes depending on the fixed interest rate, price of securities, foreign exchange rate, price and rate index, credit rating or changes of similar variable value and under influence of which one or several financial risks, characteristic of the primary financial instrument underlying the financial derivative instrument, are transferred between the persons involved in the transaction. In order to acquire a financial derivative instrument, no initial investment is required or a small initial investment is required if compared with other agreements which in a similar manner depend on the changes of market conditions, moreover, settlements connected with the performance of the agreement take place in the future; 15) management services management of investment funds, managing the assets of statefunded pension schemes and of pension funds established by private pension funds; 16) home state of a management company the state of registration of an investment company (where the registered office of an investment company is located); 17) host state of a management company the state in the territory of which a management company has its branch or in the territory of which a management company provides management services; 18) control control of a person over a company if: a) this person exercises decisive influence based on a participation or group agreement pursuant to the regulatory enactments governing groups of companies; b) relationship analogous to that referred to in Subparagraph a) exists between a person and a company; 19) parent company company controlling another company; 20) subsidiary company controlled by another company; 21) close links situation in which two or more persons are linked: a) by participation a direct holding covering 20 percent and more of voting rights or voting capital or control over such amount of voting rights or voting capital, b) by control, c) with one and the same person by way of control. 22) sub-fund a segregated part of an investment fund property that is comprised of the investments made in return for investment certificates as well as items obtained in transactions with that property and on the basis of the rights to that property;

3 23) (deleted by the law of 9 July 2013); 24) Group of Ten countries that have entered into the General Arrangement to Borrow (GAB) with the International Monetary Fund; 25) qualifying holding a holding that is directly or indirectly acquired by a person or persons acting in concert in accordance with an agreement that represents 10 percent or more of the share capital or of the voting rights in a commercial company or that makes it possible to exercise a significant influence over the financial and the operational policy decisions of that commercial company; 26) critical situation analysis analysis done by an investment management company to establish and assess the potential effect of various extraordinary but potentially adverse events or changes in market conditions on the investment plan portfolio of the assets of a state-funded pension scheme; 27) management of a fund on a cross-border basis management service provided by the management company to an investment fund whose home state is not the home state of the management company; 28) member state a member state of the European Union or a country of the European Economic Area; 29) home state of the fund a country where the fund has been registered; 30) host state of the fund a country other than the home state of the fund in which the fund s investment certificates may be issued into public circulation; 31) branch a territorially or otherwise separate structural unit of the investment management company that has no legal personality and that provides management services for which the investment management company has been authorised by the supervisory authority of a member state; 32) merger of funds a set of legal measures as a result of which: a) a merging fund that is one or more funds or a sub-fund is merged with the receiving fund that is another existing fund or sub-fund. The merging fund transfers all its assets and liabilities to the receiving fund and is dissolved without going into liquidation. Investors of the merging fund in exchange for their investment certificates receive investment certificates in the receiving fund and a cash payment that does not exceed 10 percent of the net asset value of these investment certificates, b) a merging fund that is two or more funds or a sub-fund, on being dissolved without going into liquidation, transfers all its assets and liabilities to the receiving fund that is a newly constituted fund or sub-fund. Investors of the merging fund in exchange for their investment certificates receive investment certificates in the receiving fund and a cash payment that does not exceed 10 percent of the net asset value of these investment certificates, c) a merging fund that is one or more funds or a sub-fund continues to exist until the liabilities will have been discharged and it transfers all its assets to the receiving fund that is a sub-fund of the same fund, a newly constituted fund or another existing fund or a sub-fund of such fund; 33) cross-border merger of funds a merger of funds: a) at least two of which are registered in different member states, b) that are registered in the same member state and that are merged into a newly constituted fund that is registered in another member state; 34) domestic merger of funds a merger of two or more investment funds registered in Latvia;

4 35) durable medium an instrument that enables an investor to store information addressed personally to that investor in a way to ensure that this information is accessible and may be used unchanged during the period of time necessary to provide that information; 36) dealing between master feeder structures dealing between master-feeder structures that is made between two investment funds and as a result of which the feeder fund invests at least 85 percent of its assets in the master fund; 37) feeder fund an investment fund or a sub-fund thereof that has received a permission to engage in dealing between master feeder structures and that, disregarding investment limits in investment funds set out in this Law, is allowed to invest at least 85 percent of its assets in another investment fund or a sub-fund; 38) master fund an investment fund or a sub-fund thereof in which another investment fund makes an investment of at least 85 percent of its assets; 39) relevant person an official and an employee of the company as well as another natural person who is engaged in the provision of management services by the company and whose activity is controlled by the company or a natural person that is directly involved in the provision of a delegated service to a company providing management services; 40) client an investment fund, an alternative investment fund, an investment plan for assets of a state-funded pension scheme, a pension plan established by private pension funds that receive management services from the investment management company or a person that receives the investment services provided by the investment management company that are referred to in Paragraphs 2 and 3 of Article 5 hereof. (Amended by laws of 1 June 2000, 24 October 2002, 18 March 2004, 8 March 2007, 19 June 2008, 11 March 2010, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 2 Purpose of this Law The purpose of this Law is to specify the legal status of investment management companies and investment funds, rights, obligations and responsibilities thereof, establishing procedures and operating principles, define requirements for investment fund management and making investments as well as supervision of compliance with regulatory requirements. (Amended by the laws of 18 March 2004 taking effect 1 May 2004 and of 9 July 2013) Article 3 Activities Regulated by this Law (1) This Law regulates the procedures for public attraction of monetary assets in Latvia and for performance of their joint investment on behalf of the attractor. (2) Investment of monetary assets acquired in accordance with the procedures provided for in Paragraph 1 of this Article shall only be permitted in the investment objects specified by this Law. (3) The activity referred to in Paragraph 1 of this Article may only be performed by: 1) a company registered in Latvia which in accordance with the procedures prescribed by this Law has obtained a licence for providing management services; 2) an investment management company licensed in a member state in accordance with the procedure prescribed by Article 77 of this Law. (As amended by laws of 1 June 2000, 18 March 2004 and 13 October 2011 taking effect on 16 November 2011) Chapter II

5 Investment Management Company (Chapter in the wording of the law of 18March 2004 taking effect on 1 May 2004) Article 4 Launching an Investment Management Company (1) In Latvia an investment management company shall be established in the form of a joint stock company. An investment management company (hereinafter company) shall operate in accordance with this Law, the Commercial Law and other regulatory enactments and its articles of association. (11) A company shall be considered a participant of the financial and capital market in the meaning of the Law on the Financial and Capital Market Commission and shall be subject to the requirements of the Law on the Financial and Capital Market Commission. (2) A company shall have registered shares only. (3) A company may launch management services only after the Financial and Capital Market Commission (hereinafter the Commission) in accordance with the procedures prescribed by this Law has issued a licence for providing management services (hereinafter licence). (4) A licence shall include the management services the company is entitled to provide in compliance with Article 5 of this Law. (5) The Commission shall issue a licence of unlimited duration. (6) The Commission shall ensure that the regulatory enactments governing the activities of the company and of the investment fund are available on its website. (As amended by the law of 13 October 2011 taking effect on 16 November 2011) Article 5 Types of Activity of a Company (1) The core activity of a company is managing investment funds and managing the assets of state-funded pension schemes. The activities of the company in respect of managing the assets of state-funded pension schemes are governed also by the Law on State Funded Pensions. Management of investment funds includes the following services: 1) managing the fund investments; 2) ensuring administrative management of the fund, which involves the following activities: a) handling the legal matters and accounting of the fund, b) providing information at the request of the fund investors or other clients of the company, c) determining the fund value and the price of investment certificates, d) monitoring compliance with the regulatory requirements governing the operation of the fund, e) distributing the fund income, f) issuing and repurchasing investment certificates, g) ensuring settlement in respect of meeting contractual obligations, h) conducting accounting of transactions in the fund assets, i) maintaining the register of holders of the fund investment certificates; 3) marketing of the fund (advertising, marketing of investment certificates, market research and other similar services). The company's activities in respect of managing the assets of a state-funded pension scheme are also governed by the Law on State Funded Pensions. (2) In addition to managing investment funds, a company may provide individual management of the financial instrument portfolio in accordance with the mandate given by the investor if that portfolio is comprised of one or several financial instruments referred to in Paragraph 2 of Article 3 of the Law on the Financial Instruments Market.

6 (3) A company that has been granted a licence for the provision of the services referred to in Paragraph 2 of this Article may provide investment advice concerning the financial instruments referred to in Paragraph 2 of Article 3 of the Law on the Financial Instruments Market and engage in safekeeping and administration of the investment certificates of investment funds. (4) A company shall not provide solely the services referred to in Paragraph 2 of this Article as well as the non-core services referred to in Paragraph 3 of this Article where, in accordance with this Law, it is not entitled to provide the services referred to in Paragraph 2 of this Article. (5) In addition to the activities referred to in Paragraph 1 of this Article, a company shall be entitled to manage the assets of the pension plans established by private pension funds in accordance with the Law on Private Pension Funds and alternative investment funds in accordance with the Law on Alternative Investment Funds and Their Managers. (6) A company shall not be entitled to provide management services in a member state in accordance with the procedure set out in Article 76 of this Law if its core activity is solely the management of the assets of state-funded pension schemes. (7) A company shall not be entitled to provide services other than those set out in this Article. (In the wording of the law of 19 June 2008 as amended by laws of 11 March 2010, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 6 Location and Firm Name of a Company (1) The board of directors of a company (seat of a company) registered in Latvia shall be located in Latvia. (2) The firm name of a company shall contain a word combination "ieguldījumu pārvaldes sabiedrība" [investment management company] or its abbreviation "IPS". (3) Companies which do not perform the activity provided for in this Law, may not use in their firm name any additions that directly or indirectly refer to an investment management company. Article 7 Requirements for Shareholders of a Company (1) A shareholder of a company may be only a person: 1) whose identity may be verified; 2) who is of good repute; 3) whose financial standing is sound and it is possible to prove it with documents. (2) When assessing the repute and the financial standing of a person, the Commission shall verify the identity and the criminal record of the persons referred to in Paragraph 1 of this Article, and the documents regarding their financial standing that allow to ascertain whether the amount of free capital is sufficient regarding the amount of investments made in the company s capital as well as whether the invested funds have not been acquired as a result of unusual or suspicious transactions. (3) Natural persons to whom Subparagraphs 1, 2, 3 or 5 of Paragraph 3 of Article 9 of this Law may be applied and legal persons to whose shareholders (members/participants) and owners (actual beneficiaries) Subparagraphs 1, 2, 3 or 5 of Paragraph 3 of Article 9 of this Law may be applied, may not be shareholders of a company. (4) The Commission shall be entitled to verify the identity of a company's shareholders but, where the shareholders of a company are legal persons, information about their shareholders and owners (actual beneficiaries) until it obtains information about owners (actual beneficiaries) who are natural persons. The above mentioned persons shall have an obligation to provide that

7 information to the Commission if it is not available on the public registers from which the Commission is entitled to receive that information. (In the wording of the law of 11 March 2010 taking effect on 14 April 2010) Article 7 1 Acquisition, Reduction and Termination of a Qualifying Holding in a Company (1) Only a person who complies with the requirements for shareholders of a company and ensures compliance with the criteria set out in Paragraph 7 of this Article may acquire a qualifying holding in a company. (2) A person who intends to acquire a qualifying holding in a company shall notify the Commission to this effect in writing in advance. The notification shall indicate the volume of the holding to be acquired as a percentage of the share capital or of the number of shares with voting rights of a company. The notification shall be accompanied by the information established in the regulatory enactments of the Commission that is necessary to assess the person's compliance with the criteria set out in Paragraph 7 of this Article. The list of the information to be appended to the notification shall be published on the Commission's website. (3) The Commission shall be entitled to request information about the persons who intend to acquire a qualifying holding (the persons having acquired a qualifying holding or suspected of acquiring a qualifying holding), including about the owners (actual beneficiaries) of legal (registered) persons who are natural persons to assess their compliance with the criteria set out in Paragraph 7 of this Article. (4) If a person intends to increase a qualifying holding so that it reaches or exceeds 20, 33 or 50 percent of the company s share capital or of the number of shares with voting rights or if a company becomes a subsidiary of that person, the respective person shall notify the Commission to this effect in writing in advance. The notification shall indicate the amount of the holding to be acquired as a percentage of the company s share capital or of the number of shares with voting rights. The notification shall be accompanied by the information set out in the regulatory enactments of the Commission that is necessary to assess the person's compliance with the criteria set out in Paragraph 7 of this Article. The list of the information to be appended to the notification shall be published on the Commission's website. (5) Within two business days after the day of receipt of the notification referred to in Paragraph 2 or 4 of this Article or within two business days after receiving the additional information requested by the Commission, the Commission shall notify the person in writing about receipt of the notification or of the additional information and about the end date of the assessment period. (6) During the assessment period referred to in Paragraph 7 of this Article but not later than on the 50th business day of the assessment period, the Commission shall be entitled to request additional information about the persons referred to in this Article to assess their compliance with the criteria set out in Paragraph seven of this Article. (7) Not later than within 60 business days of the day when information referred to in Paragraph five of this Article about receipt of the notification has been sent to the person, the Commission shall assess sufficiency of the person's free capital, soundness and financial motivation of the proposed holding to ensure sound and prudent management of the company where the holding is proposed and consider the likely influence of that person on the management and activities of the company, as well as the following criteria: 1) the good repute of the person and compliance with the requirements for shareholders of a company;

8 2) the good repute and the experience of the person who, as a result of acquiring the proposed holding, will direct the business of the company; 3) the financial soundness of the person, in particular in relation to the type of the business pursued or intended in the company in which the holding is proposed; 4) whether the company will be able to comply and will in future comply with the regulatory requirements set out in this Law and in other regulatory enactments and whether the group of commercial companies, which the company will join, has a structure in place that does not restrict the Commission s possibilities to exercise the supervision functions vested to it by law, to ensure an efficient exchange of information among supervisory authorities and to determine the allocation of supervisory responsibilities among the supervisory authorities; 5) whether there are reasonable grounds to suspect that, in connection with the proposed holding, money laundering or terrorist financing has been committed or attempted or that the proposed holding could increase the risk of such activity. (8) When requiring the additional information referred to in Paragraph 6 of this Article, the Commission shall be entitled to interrupt the assessment period once until the day when it receives that information but not for more than 20 business days. The Commission shall be entitled to extend the interruption of the assessment period for up to 30 business days where the person who wishes to acquire, has acquired, wishes to increase or has increased its qualifying holding in a company is not subject to the supervision of the activities of insurance companies, reinsurance undertakings, credit institutions, investment management companies, managers of alternative investment funds or investment brokerage firms or where the home (registration) place of that person is not in a member state. If the Commission has interrupted the 60 business day assessment period, the period of interruption shall not be included in the assessment period. (9) In the time period referred to in Paragraph 7 of this Article, the Commission shall take a decision on prohibiting the person from acquiring or increasing a qualifying holding in a company where that person: 1) fails to comply with the criteria set out in Paragraph 7 of this Article; 2) fails or refuses to submit to the Commission the information set out in this Law or the additional information required by the Commission; 3) due to conditions beyond its control, cannot provide the information set out in this Law or the additional information required by the Commission. (10) Within two business days of taking the decision referred to in Paragraph 9 of this Article but not exceeding the assessment period referred to in Paragraph 7 of this Article, the Commission shall send that decision to the person who has been prohibited from acquiring or increasing a qualifying holding in a company. (11) Where in the time period referred to in Paragraph 7 of this Article the Commission does not send to the person a motivated decision to the effect that the person has been prohibited from acquiring or increasing a qualifying holding in a company, the Commission shall be deemed to have agreed that the person acquires or increases a qualifying holding in a company. (12) The provisions of Subparagraph 3 of Paragraph 7 of this Article shall not apply to a legal person if its shares are admitted to trading on the regulated market in Latvia or in another member state or on the regulated market of a market organizer that is a full-fledged member of the International Federation of Bourses, and that legal person submits to the Commission information on its shareholders that have a qualifying holding in it. (13) Where the Commission has agreed that a person acquires or increases a qualifying holding in a company, that person shall acquire or increase the qualifying holding in the company not

9 later than within six months after the day of sending the information about receipt of the notification in writing or of the additional information referred to in Paragraph 5 of this Article. Where by the end of that period the person fails to acquire or increase a qualifying holding in a company, the Commission s consent for acquiring or increasing a qualifying holding in the company is no longer effective. Upon receipt of a motivated written request from the person, the Commission may take a decision on extending that deadline. (14) When assessing the notifications referred to in Paragraph 2 and 4 of this Article, the Commission shall consult the supervisory authorities of the respective member state where a qualifying holding is acquired by an insurance company of a member state, a reinsurance undertaking of a member state, a credit institution, an investment management company, a manager of alternative investment funds, an investment brokerage firm registered in a member state, or a parent company of an insurance company of a member state, of a reinsurance undertaking of a member state, of a credit institution, a manager of alternative investment funds, an investment management company or an investment brokerage firm registered in a member state or a person who exercises control over an insurance company of a member state, a reinsurance undertaking of a member state, a credit institution, a manager of alternative investment funds, an investment management company or an investment brokerage firm registered in a member state and where, as a result of acquiring or increasing the qualifying holding by that person, the company becomes a subsidiary of that person or comes under the control of that person. (16) If a person who acquires a qualifying holding has an influence over a company that jeopardizes or is likely to jeopardize its management in a financially sound, prudent and regulation-compliant manner, the Commission shall be entitled to request that the influence be terminated without delay, that the composition of the members of the board of directors or the officials of the respective company be changed or shall prohibit the respective person from exercising all or part of his/her voting rights. (17) A person who intends to terminate the control (decisive influence) of the parent company over a company licensed by the Commission, to reduce the amount of a qualifying holding in the company to less than 20, 33 or 50 percent or to terminate a qualifying holding in the company, shall notify the Commission in writing prior to disposal of shares. The notification shall indicate the amount of the holding the person will have in the company after the reduction of the holding. (In the wording of the law of 11 March 2010 as amended by the law of 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 7 2 Indirectly Acquired Holding When establishing the amount of a holding that a person has indirectly acquired in a company, the voting rights acquired by that person (hereinafter the particular person) in a company shall be taken into account: 1) the voting rights that may be exercised by a third person with whom the particular person has signed an agreement whereby the third person has an obligation to agree the policy for exercising the voting rights and for acting in the long term in relation to the company's management; 2) the voting rights that may be exercised by a third person in accordance with an agreement signed with the particular person that establishes a temporary transfer of the respective voting rights; 3) the voting rights attached to the shares that the particular person received as collateral provided he/she may exercise the voting rights and has announced the intention to this effect;

10 4) the voting rights that the particular person is entitled to exercise within an unlimited time period; 5) the voting rights that may be exercised by a commercial company controlled by the particular person or that may be exercised by that commercial company in accordance with Subparagraphs 1, 2, 3 and 4 of this Article; 6) the voting rights that are attached to the shares transferred to the particular person for holding and that may be exercised by the particular person at his/her discretion unless that person has received specific instructions; 7) the voting rights attached to the shares that are held on behalf of a third person and for the benefit of the particular person; 8) the voting rights that the particular person may exercise in the capacity of a proxy holder when he/she is entitled to exercise the voting rights at his/her discretion unless that person has received specific instructions; 9) the voting rights attached to the shares that the particular person has acquired in any other indirect way. (In the wording of the Law of 13 October 2011 taking effect on 16 November 2011) Article 7 3 Consequences of a Failure to Make a Notification (1) Where a person that is suspected of having acquired a qualifying holding in a company does not make or refuses to make a notification referred to in Paragraph 3 of Article 7.1 of this Law and his/her holding amounts to 10 percent and more of the company s share capital or number of voting shares, it shall not exercise the voting rights attached to all shares he/she owns. The Commission shall immediately notify the respective shareholders and the company to this effect. (2) Where a person disregards the Commission s prohibition and acquires or increases a qualifying holding, it shall not be entitled to exercise voting rights attached to all shares he/she owns, and the decisions of the shareholders meeting that have been taken by using the voting rights of those shares shall be invalid as of their taking and making of entries in the commercial register or in other registers shall not be requested by reference to those decisions. (In the wording of the Law of 13 October 2011 taking effect on 16 November 2011) Article 8 Capital of a Company (1) The minimum initial capital of a company shall be EUR (2) Initial capital shall be established by the Regulation (EU) No 575/2013 of the European Parliament and the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (hereinafter Regulation 575/2013). (3) If the amount of the assets managed by a company exceeds EUR , the company shall ensure additional amount of own funds that is equal to 0.02 percent of the amount by which the value of the managed assets exceeds EUR Requirements referred to in Paragraph hereof shall not apply to a company whose own funds are equal EUR or more. (4) (Deleted by the law of 9 July 2013). (5) When determining the compliance of a company s own funds with the requirements of this Law, the following shall be regarded as assets under management: 1) assets of investment funds and alternative investment funds managed by the company including assets it has transferred for managing to another company but excluding assets it has

11 received for managing from another company provided that above funds are not established as legal persons; 2) assets of investment funds and alternative investment funds managed by the company provided that these investment funds are established as legal persons; 3) assets of the pension plans established by private pension fund and of investment plans of state-funded pension schemes managed by the company. (6) The own funds of a company shall at no time fall below one of the following amounts, whichever is larger: 1) the total of the minimum initial capital and the additional amount of own funds calculated in accordance with the requirements of Paragraph 3 of this Article; 2) 25 percent of total fixed costs of the previous full reporting year (costs that remain relatively unchanged irrespective of the volume of the company s commercial activity). (7) Upon receipt of the Commission s approval, the company may ensure up to 50 percent of the additional amount of own funds referred to in Paragraph 3 of this Article with a guarantee of the same amount issued by: 1) a credit institution that has obtained a licence for the activities of a credit institution in a member state or in a member country of the Organisation for Economic Co-operation and Development that is also the country of the Group of Ten; 2) an insurance company registered in a member state or a branch of an insurer of a non-member state that has obtained a licence for the provision of insurance. (8) If a company provides the services referred to in Paragraphs 2 and 3 of Article 5 of this Law, it shall follow and comply with the capital requirements and the consolidated supervision requirements established for investment brokerage firms. These requirements do not apply to managing the assets of state-funded pension schemes in accordance with the Law on State Funded Pensions and to managing assets of the pension plans established by private pension funds in accordance with the Law on Private Pension Funds. (9) Regulation (EU) No 575/2013 shall establish own funds and procedures for calculation thereto. (10) (deleted by the law of 19 September 2013). (As amended by laws of 8 March 2007, 19 June 2008, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013; and of 19 September 2013) Article 9 Requirements for Supervisory Board Members and Officials of a Company (1) A person who complies with the following requirements may be an official of a company: 1) he/she has sufficient competence in the field for which the said person will be responsible; 2) he/she has higher education and appropriate professional experience of at least three years in the respective field; 3) he/she has an impeccable reputation; 4) he/she has not been deprived of the right to engage in business. (2) A person who is competent in financial management matters and complies with the requirements set out in Subparagraphs 3 and 4 of Paragraph 1 of this Article may hold the office of supervisory board member of a company. (3) The following person may not hold the office of supervisory board member and be an official of a company: 1) who is sentenced for an intentional criminal offence;

12 2) who has been sentenced for an intentional criminal offence (also, where the person has been released due to prescription or amnesty); 3) who has been held criminally liable for committing an intentional criminal offence (also, where the criminal matter against the person has been terminated but the person has not been rehabilitated); 4) who has provided false information regarding himself/herself by submitting documents to the Commission to obtain a licence for company operations or another activity in the financial and capital market; 5) who has performed duties of a member of the board of directors or supervisory board at a company or another financial institution that has been declared insolvent at the time the relevant person was performing said duties, or who has performed duties of a member of the board of directors or the supervisory board at another company and, due to his/her negligence or deliberately, has led the company to insolvency or bankruptcy subject to criminal liability. (4) When assessing the reputation of a company s officials and supervisory board members, the Commission shall consider the information provided by these persons, references received from previous employers and other information regarding the previous professional experience of said persons. Article 10 Documents and Information to Be Submitted for Obtaining a Licence (1) In order to obtain a licence, a company shall submit to the Commission an application for receipt of a licence. The application shall be accompanied by documents on the registration of the company, shareholders, supervisory board members and officials, procedures and policies formulated for ensuring the functioning of the company s internal control system, as well as other documents referred to in this Article. (2) The following documents shall be submitted to the Commission regarding the company and its shareholders: 1) a document certifying the initial capital payment; 2) a list of the shareholders of the company and information on the shareholders as follows: a) regarding natural persons a copy of the passport or another identity document, indicating personal identification data [name, surname, year and date of birth, identity number (if any)], b) regarding legal persons the firm name, registered office, registration number and place. Legal persons registered abroad shall submit also copies of registration documents, c) documents certifying the existence and origin of financial resources of the company s shareholders (who have a qualifying holding in the company) in order that they may make investments in the company s capital; d) information regarding owners of the company s shareholders (who have a qualifying holding in the company) (ultimate beneficial owners on whom information shall be provided in compliance with item a) of this Paragraph). (3) The following documents and information shall be submitted to the Commission regarding the company s supervisory board members and officials: 1) notification, which shall be filled in by each supervisory board member and each official. The notification shall include the following information: a) the firm name of the company and the office the person stands for as a candidate, b) name, surname, year and date of birth, identity number (if any) and national citizenship, c) education (academic degree), d) improvement of professional skills;

13 e) whether he/she has ever been convicted; f) whether he/she has ever been deprived of the right to engage in business, g) previous workplaces over the last 10 years and short job descriptions; 2) a copy of the passport or another identity document, indicating personal identification data [name, surname, year and date of birth, identity number (if any)],and 3) copies of documents certifying his/her education. (4) The person of whom the notification has been prepared and the chairperson of the company s board of director shall certify the veracity of the information provided in Subparagraph 1 of Paragraph 3 of this Article by signature. (5) A list of interested parties shall be submitted to the Commission. The list shall include the name and surname of each person, identity number, education, offices held over the last five years and the provisions of a contract concluded between the company and the relevant person applicable to the job description. A legal person shall indicate the firm name, registration number and members of the management bodies, as well as submit the annual report for the last year to the Commission. (6) The following documents and information shall be submitted to the Commission regarding the company s internal control system: 1) a description of the organisational structure, indicating clearly the duties and authorities of supervisory board members and officials, as well as determining specifically and distributing tasks of the company s units and responsibilities of heads of the units. If the company is planning to establish a branch, the Commission shall submit a description of the organisational structure of branches and the duties of heads of the branches; 2) a description of the management information system; 3) accounting policies and basic accounting principles; 4) a description of the policy and the procedure for managing material operational risks; 5) regulations for the information system protection, as well as regulations for the protection of a register for investment fund certificates and a database for accounting of financial instruments managed by another company; 6) a description of the internal audit system, also, the regulations for examination of transactions effected by the company and its staff for their own account and their compliance with the requirements for avoidance of conflicts of interest; 7) a description of identification procedures for unusual and suspicious transactions; 8) a description of the procedure whereby applications and complaints (disputes) filed by fund investors about the provision of services of the management company are handled; 9) the policy for preventing conflicts of interest; 10) the policy for executing transactions. (7) A scheme of operations formulated for the operations planned by the company for at least the next three years and approved by a shareholders meeting shall be submitted to the Commission, which shall in detail reflect the company s operational strategy (including also collateral services which the company intends to provide), financial forecasts including draft report that discloses the financial standing as at the end of the year for at least three next years of operation, draft financial performance report for at least three next years of operation, draft capital adequacy calculation and the projected amount of annual fixed costs, a description of market research and any other information that gives a clear and fair presentation of the operations planned by the company.

14 (8) The Commission is entitled to request the company to update the submitted documents and information. (9) If, by the time a decision is taken regarding the issue of a licence, any changes occur in information or documents submitted to the Commission, the company is obliged to, without delay, submit to the Commission the new information or the full text of relevant documents including amendments thereto. (10) The Commission shall consult with supervisory authorities of member states prior to issuing a licence to a company if the company is: 1) a subsidiary of a company, an investment brokerage firm, a credit institution or an insurance company licensed in a member state; 2) a subsidiary of a company whose subsidiary is a company, an investment brokerage firm, a credit institution or an insurance company licensed in a member state; 3) a company controlled by a person that simultaneously controls another company, investment brokerage firm, credit institution or insurance company licensed in a member state. (As amended by laws of 11 March 2010 and of 13 October 2011 taking effect on 16 November 2011) Article 11 Provisions for Issuing a Licence (1) The Commission shall take a decision to issue a licence within a three-month period after the receipt of all the documents specified by this Law for taking the decision, prepared and formulated in compliance with the requirements prescribed by regulatory enactments. (2) The Commission shall issue a licence within a 10-day period as of the day the decision to issue a licence has been taken. (3) The Commission shall not issue a licence in cases where: 1) when establishing the company, this Law and other regulatory enactments have not been complied with; 2) supervisory board members and officials of the company do not comply with the requirements as prescribed by this Law; 3) the company s capital does not comply with the requirements as prescribed by this Law; 4) close ties of the company with third persons endanger or may endanger its financial stability or restrict the right of the Commission to perform supervisory functions specified in this Law; 5) foreign laws and other regulatory enactments pertaining to persons who have close ties with the company restrict the Commission s right to perform the supervisory functions specified in this Law; 6) it is impossible to ascertain the identity, reputation and stability of the financial standing of the persons who have a qualifying holding in the company; 7) the Commission determines that the financial resources invested in the company s capital have been acquired as a result of unusual and suspicious transactions or the legal origin of these financial resources has not been proved. (4) If the Commission takes a decision on a refusal to issue a licence, an application for a licence may be submitted repeatedly upon elimination of the deficiencies indicated in the refusal. (5) The Commission shall notify the European Securities and Markets Authority of an issued licence. (As amended by laws of 11 March 2010 and 13 October 2011 taking effect on 16 November 2011) Article 12

15 Change of Management Services Specified in a Licence (1) If a company intends to supplement the management services specified in a licence issued thereto with new ones or intends to refuse from any of the management services specified in the licence, it shall submit to the Commission a relevant application. (2) If the company intends to launch new management services, it shall, together with the application, submit to the Commission: 1) supplements to the scheme of operations; 2) amendments to descriptions of the internal control system that are required to ensure the compliance of the provision of services with the requirements of this Law. (3) A decision on the change of the management services specified in the company s licence shall be taken by the Commission within a 15-day period of the receipt of all the documents specified by this Law and prepared and formatted in compliance with the requirements of regulatory enactments. (4) A State duty on the change of the management services specified in the licence shall not be paid. Article 13 General Rules of Conduct (1) Throughout the duration of the licence issued to it, the company shall comply with and fulfil the following requirements: 1) ensure that it operates in compliance with the requirements set out in this Law and the regulations issued by the Commission; 2) ensure establishment and functioning of a comprehensive and efficient internal control system that is adequate to the nature, volume and complexity of its management services by including the following key elements in the system: a) an organisational structure that is commensurate with the size of the company and its operational risks whereby the distribution of duties and powers of the supervisory board and of company s officials is disclosed in respect of carrying out and controlling the company s business and the tasks of the company s structural units and the duties of the managers of structural units are clearly determined and distributed, b) the system for identifying, managing, monitoring and reporting the risks inherent to the company s activities and any contingent risks, c) internal control procedures; 3) ensure compliance of its operations with the rules formulated for the functioning of the internal control system, including the procedure whereby personal transactions or transactions in financial instruments on the company s account are made and the procedure whereby applications for buying and repurchasing of investment certificates are executed; 4) ensure establishment of accounting procedures that are adequate to the provided management services, of a facility for storing, protecting and controlling electronic data to enable reconstruction of the transactions made with the fund s assets by reference to their origin, counterparties, transaction essence, time and place of execution and monitoring of compliance of the fund s investments with the fund prospectus, the fund rules and the requirements of this Law; 5) ensure storing of transaction records for 10 years, as well as compliance with the other regulatory requirements with respect to completion and storing of transaction records; 6) ensure that an efficient policy for avoiding conflicts of interest is established, implemented and followed. The company shall take all necessary measures to identify and avoid any conflicts

16 of interest that may arise during the provision of services and, when they cannot be avoided, ensure that the funds it manages are fairly treated; 7) ensure that the financial instruments and money resources of the company itself and of its clients are held, recorded and accounted distinct at all times; 8) ensure establishing, implementing and maintaining of an efficient procedure for handling applications and complaints (disputes) filed by investors whereby applications and complaints (disputes) filed by investors and potential investors are recorded and handled and the measures taken for the resolution of complaints (disputes) are recorded. (11) A company that maintains a register of unit holders shall be responsible for any loss arising to the fund investors and to third parties where the company has failed to comply with the obligations set out in regulatory enactments for maintaining the register of unit holders. (12) A company that manages a fund established in another member state or markets investment certificates of an investment fund in another member state shall, in addition to the requirements set out in Paragraph 1 of this Article, develop and maintain a procedure whereby information is made available upon request of the supervisory authority of the home state of the fund. In that procedure, the company shall indicate the contact person responsible for making available the requested information. (13) A company shall ensure that key investor information is provided without a charge to investors before they purchase investment certificates irrespective of whether the company or any other duly authorised legal or natural person offers subscription to investment certificates or provides investment advise regarding the fund. The company shall be responsible for compliance with the requirements of this Paragraph. (2) If a company provides the investment services referred to Paragraphs 2 and 3 of Article 5 of this Law, in addition to the requirements set out in Paragraph 1 of this Article, it shall comply with and fulfil the following requirements: 1) (deleted by the law of 13 October 2011); 2) prior to the launch of services, enter into a contract in writing with the client for the provision of services; 3) prior to entering into a contract for the provision of services, as well as during the term of validity of the contract, ensure that the client can obtain sufficient information enabling him/her to assess the essence of the provided service and related financial risks; 4) prior to entering into a contract, inform the client of the types of disputes stipulated by the contract that will be resolved by out-of-court-procedures and the procedure for resolving such disputes; 5) participate in the scheme for the protection of investors in compliance with their regulatory enactments; 6) follow and comply with other requirements that are set out in Chapter XII of the Law on the Financial Instruments Market for investment brokerage firms that perform individual management of investors' financial instruments in accordance with the mandates given by investors, provide investment advice concerning financial instruments and hold financial instruments; 7) follow and comply the requirements set out in the Law on the Financial Instruments Market for investment brokerage firms in respect of delegating the services by outsourcing. (3) A company shall, to the extent required to ensure and protect the client s interests and in compliance with the nature and volume of the service provided to the client, request information from a client regarding:

17 1) the client s experience and knowledge pertaining to the transactions to be concluded during the course of providing services; 2) the objectives the client intends to achieve by the relevant transactions; 3) the financial standing of the client. (4) If a client refuses to provide the information referred to in Paragraph 3 of this Article as well as does not inform of the changes in the information provided to the company, the company shall not be liable to the client for the consequences arising from the fact that the company does not possess such information. (5) (Deleted by the law of 13 October 2011). (6) A company in performing activities related to the fund management, also, in exercising the voting rights of the stock (capital shares) belonging to the fund property, shall not require the consent of fund investors. (7) A company has a duty to raise the claims of fund investors against the custodian bank or third persons on its behalf if the relevant circumstances require such an action. This provision shall not restrict the right of the fund investors to raise such claims on their own behalf. (8) A company shall be liable for the losses caused to the fund investors by company officials or authorised persons as a result of violations of this Law, the fund prospectus or the fund rules by malicious exercise of the powers conferred on them or negligent performance of their duties. (9) A company has a duty to inform the Commission in writing of any amendments to the lists of interested parties of the company and the custodian bank, as well as of any amendments and supplements to the documents and information submitted to the Commission within a 10-day period from the date of making the amendments. (10) Within 30 days of the receipt of the application and the documents specified in this Law about supervisory board members and officials of the company, the Commission shall be entitled to prohibit those persons from taking office where they fail to comply or the Commission cannot verify their compliance with the requirements of this Law. (11) A company that manages the assets of the state-funded pension scheme shall draw up the critical situation analysis of investment plans at least once a year to determine and assess the potential impact of various extraordinary but possibly adverse events or changes in market conditions on the investment plan portfolio by analysing and recording the possible development scenarios. For the critical situation analysis, sensitivity tests and scenario analysis are used. Sensitivity tests are carried out to determine the effect of the adverse changes caused by a separate factor on the investment plan portfolio. Scenario analysis is carried out to determine the effect of the adverse changes caused by several factors on the investment plan portfolio by uncovering the cause of those extraordinary but potentially adverse events or changes. (12) The executive board of the company shall approve the results of the critical situation analysis and take a decision about the measures to be taken in cases when the events or the changes mentioned in the critical situation analysis are realised. The critical situation analysis approved by the executive board and the decision about the measures to be taken shall be submitted to the Commission. (13) The Commission shall be entitled to establish additional requirements and the procedure for carrying out the critical situation analysis by determining possible factors and scenarios to be tested. (14) In addition to the requirements set out in Paragraph eleven of this Article, the Commission shall be entitled to request that the company carry out extraordinary critical situation analysis and submit it to the Commission.

18 (15) The Commission shall develop the requirements for establishing the internal control system of the company. (As amended by laws of 8 March 2007, 19 June 2008, 11 March 2010 and of 13 October 2011 taking effect on 16 November 2011) Article 13 1 Obligations of the Company During the Provision of Management Services (1) When providing management services, the company shall have an obligation to perform as an honest, decent and careful manager and to ensure that the services are provided in a professional and careful manner in the interests of fund investors and recipients of management services and do not threaten stability of the financial market. (2) The company shall ensure the following in the interests of fund investors and recipients of management services: 1) that clear, accurate and transparent valuation methods are applied to financial instruments to demonstrate that the portfolios it manages have been appropriately measured; 2) that no unjustified additional costs are charged to fund investors and recipients of management services. (3) The company shall ensure equal and fair treatment of investors of the funds it manages without favouring the interests of any fund investor or any group of fund investors over others. (4) The company shall develop and maintain the procedure for preventing abuse that may affect stability of the financial market in order to avoid a situation when, as a result of activities performed in the interests of individual fund investors, other fund investors are unfairly treated or stability and integrity of the financial market are threatened. (5) In relation to the management or administration of an investment fund, managing investment of investment plans of state-funded pension schemes or managing investments of pension plans established by private pension funds the company shall be prohibited from paying or accepting an inducement as well as providing or accepting any other type of a benefit other than: 1) the fee or the commission that is paid by or paid to the recipient of a management service or a person acting on its behalf or other type of a benefit that is provided or received by the recipient of a management service or a person acting on its behalf; 2) the fee or the commission that is paid or received by a third person or a person acting on its behalf or the benefit that is provided or received by the third person or a person acting on its behalf where: a) the existence, nature and amount or, where the amount cannot be established, the method for calculating the fee, the commission or the benefit is explained to the recipient of the management service before the provision of the respective service in a manner that is comprehensive, accurate and understandable. That information may be provided as a summary but a fund investor is entitled to receive detailed information, b) the payment of the fee or the commission or the provision of the benefit is for the purpose of enhancing the quality of the respective service and this purpose does not affect the obligation of the company to perform in the interests of clients; 3) that ensures the provision of the respective service or is necessary for the provision of that service, including custody costs of financial instruments, settlement fees and costs related to the trading venue, administrative levies or legal fees where due to their nature such payments cannot contradict the company s obligation to perform honestly, fairly and professionally in the interests of clients. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011)

19 Article 13 2 Due Diligence During the Provision of Management Services (1) The company shall select and manage investments with due diligence not only in the interests of the recipients of management services but also to ensure that stability and integrity of the financial market are not threatened. (2) The company shall ensure the following: 1) chairman of the board of directors and at least one more member of the board of directors as well as the fund manager are persons competent in investment issues; 2) investments are made only in those financial instruments whose essence is clear to the company s officials and they have information needed to assess the risks thereof. (3) The company shall develop and make records of the procedure whereby deals are executed and controlled to ensure that the decisions about investments taken on behalf of the recipients of investment management services are assessed with due diligence and in accordance with the investment objective indicated in the fund prospectus, investment policy and investment limitations. (4) The company shall perform with due diligence when taking decisions about delegating the risk management function or terminating receiving of a delegated service. For this purpose the company shall develop and maintain a procedure whereby it assesses and checks the person to whom the risk management function will be delegated in terms of his/her competence and capacity to manage the fund s risks reliably, professionally and efficiently and an on-going assessment of the performance of that person. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011) Article 13 3 Best Execution (1) When executing a decision to deal in the framework of managing the investment portfolio, the company shall take all necessary measures to ensure best possible results to the recipients of management services in terms of transaction price, costs, speed of execution, likelihood of execution and settlement, order size and nature or any other considerations relating to the execution of an order. (2) When assessing the importance of the factors listed in Paragraph 1 of this Article for the execution of an order, the following criteria shall also be considered: 1) the investment objective, investment policy and risks as indicated in the fund prospectus or the fund rules; 2) type of the order; 3) the characteristics of the financial instrument that is the subject of that order; 4) the likely execution venue of the order (a regulated market, multilateral trading facility, systematic internalizer, market maker or other liquidity provider). The company shall develop and implement the policy for executing deals that shall set out the assessment of the above mentioned criteria and the factors referred to in Paragraph 1 hereof to ensure best possible result to the recipients of management services. (3) The requirements of Paragraphs 1 and 2 of this Article shall apply to the execution of deals that have been transferred for execution to a person that is entitled to provide investment services in accordance with the requirements of the Law on the Financial Instruments Market (hereinafter in this Article a person). (4) In the policy for executing deals, for each type of financial instruments the company shall indicate a person with whom deals may be transferred for execution. The company shall be

20 entitled to make an agreement with that person for the execution of deals provided that all requirements set out in this Article are met. (5) To be able to detect weaknesses and correct them, the company shall assess on a regular basis the deal execution policy and the efficiency of related procedures, in particular the quality of the execution of orders placed for execution with another person on behalf of the recipients of management services. The execution policy shall be reviewed annually or where there are significant changes that affect the company s ability to ensure the best possible result to the recipients of management services also in future. (6) A company that intends to provide management services for a fund that is registered in another member state and has been established as a commercial company shall have an obligation to obtain the fund s approval for the developed execution policy prior to commencing the provision of management services. (7) On its website, the company shall publish the execution policy and also information about any material changes made in that policy. (8) The company shall have an obligation to demonstrate that the orders executed on behalf of a recipient of management services, including the orders transferred to another person for execution, comply with the execution policy. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011) Article 13 4 Rules for Handling Orders (1) The company shall develop procedures and implement the measures necessary to ensure prompt, fair and expeditious execution of orders involving funds of the recipients of management services. Acting on behalf of the recipients of management services, the company shall ensure that the following requirements are fulfilled: 1) orders executed on behalf of the recipients of management services are promptly and accurately recorded; 2) comparable orders by the recipients of management services are executed sequentially and promptly unless the specifics of the order or prevailing market conditions make this impracticable, or the interests of the above mentioned persons require otherwise; 3) financial instruments or money resources received as a result of executing the order are immediately delivered to the financial instrument account or the money resources account of the recipient of the management services in full amount. (2) The company and the relevant persons shall not misuse information at their disposal about pending orders of the recipients of management services. (3) The company shall be entitled to aggregate a trading order for a client s account with an order for the company s own account or for account of another client provided that it has developed and implements a policy for aggregating and allocating of orders. The policy for aggregating and allocating orders may form part of the order execution policy and it shall set out the following: 1) orders may be aggregated where this is unlikely to harm the interests of the clients whose orders are aggregated; 2) aggregated orders are fairly allocated and an explanation is provided about how the volume and the price of orders affect the allocation and execution of orders; 3) the procedure whereby the transactions related with the aggregated order are allocated where the aggregated order is executed partially;

21 4) the procedure that ensures fulfilment of the requirements set out in Paragraphs 4 and 5 of this Article in respect of allocating or reallocating orders for account of the recipient of management services or for account of other clients and orders for account of the company itself. (4) Where the company has aggregated orders for its own account with one or more orders for the client s account, it shall allocate or reallocate the respective order without detriment to the clients interests. (5) Where the company aggregates an order for the client s account with an order for its own account and the aggregated order is partially executed, the company shall allocate the respective orders in the order of priority: first for the benefit of the client and then for its own benefit. Where the company may reasonably prove that without that aggregation it could not have executed the order on such advantageous terms or could not have executed the order at all, it may allocate the transaction for own account proportionally. (In the wording of the Law of 13 October 2011 taking effect on 16 November 2011) Article 13 5 Dealing with Applications and Complaints (Disputes) (1) The company shall ensure that the procedure for dealing with applications and complaints (disputes) filed by fund investors is freely available at its location and electronic information is available on its website, if formed. (2) Fund investors and potential investors may file applications and complaints about the received management services without a charge at the location specified by the company as a place where it provides services. (3) The company shall provide an answer in writing within 30 days of receipt of a written application or a complaint (dispute) about a management service. Where that deadline cannot be respected due to objective conditions, the company shall be entitled to extend it by notifying the person submitting the application or complaint (dispute) to this effect in writing. (4) Where a company that provides management services in another member state or markets investment certificates of an investment fund registered in Latvia in another member state, it shall ensure that the procedure for handling applications and complaints (disputes) about management services is translated and the respective applications and complaints (disputes) are dealt with in the language used in the host state of the company and of the fund. (5) Fund investors that shall be treated as consumers in the meaning of the Consumer Rights Protection Law shall be entitled to submit applications and complaints about violations of this Law and of regulatory enactments for the protection of consumer rights to the Consumer Rights Protection Centre if these applications and complaints are about the provision of management services. (6) Where a fund investor incurs a loss due to wrong information provided by the company or due to a failure of the company to fulfil the requirements of this Law, he/she shall be entitled to request compensation of the loss in due course of law. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011 and of law of 9July 2013) Article 14 Conflicts of Interest (1) A company shall ensure such an internal control system that reduces to a minimum the possibility of a conflict of interest between: 1) the company and its clients; 2) funds managed by the company;

22 3) clients of the company; 4) clients of the company and the funds managed by the company; 5) alternative investment funds or fund investors and investment funds managed by the company or investment fund investors. (2) To identify types of conflicts of interest that may arise in the course of providing management services and performing activities that may damage the fund s interests, the company shall take into account situations when the company or the relevant person or a person who exercises (directly or indirectly) control over the company: 1) could make a gain or avoid financial loss at the expense of the fund; 2) is interested in the outcome of a service provided to the fund or to another client or of a transaction carried out on behalf of the fund and that interest is distinct from the fund s interests; 3) has a financial or other incentive to perform for the benefit of another client or a group of clients rather than in the fund s interests; 4) carries out the same activities in the interests of the fund and of the client or of a group of clients other than the fund; 5) receives or will receive an inducement from a person other than the fund for the management services provided to the fund that will be in the form of monies, goods or services other than standard fee or commission for that service. (3) When identifying the types of conflicts on interest, the company shall take into account the following: 1) interests of the company, including interests deriving from its belonging to a group or from the performance of services and activities, and the interests of clients and the company s duty to the fund; 2) interests of two or more funds the company manages. (4) To ensure that the requirements set out in Paragraph 1 of this Article are fulfilled, the company shall develop the policy for preventing conflicts of interest that is commensurate with its size and organisational structure, as well as nature, scale and complexity of its business. Where a company is a member of a group of commercial companies, the policy for preventing conflicts of interest shall provide for preventing those conflicts of interest that may arise due to the activities or the structure of another commercial company in the group. (5) In its policy for preventing conflicts of interest the company shall: 1) identify the circumstances that constitute or may give rise to a conflict of interest and entail material threat or damage to the fund or interests of one or several clients in relation to the management services provided by the company or a third person on the company s behalf; 2) establish the procedures and measures needed to prevent conflicts of interest. (6) When establishing the procedures and measures for preventing conflicts on interest, the company shall ensure that they are commensurate with the size of the company itself or with the size and professional activities of the group to which the company belongs as well as the materiality of damage to the interests of clients. (7) To ensure compliance with the requirements set out in Subparagraph 2 of Paragraph 5 of this Article the company shall establish the following, taking into account its structure and types of services provided: 1) efficient procedures for preventing or controlling information exchange between the relevant persons who are engaged in the provision of management services and whose activities involve a risk of a conflict of interest, where such information exchange may damage the interests of one or several clients;

23 2) separate supervision of the relevant persons whose principal duties are providing management services on behalf of clients or to clients or to fund investors whose interests may be conflicting or who otherwise represent different interests that may be conflicting, including the interests of the company; 3) remove any direct link between the remuneration or income of the relevant persons whose activities are related to the provision of different management services, where the conflict of interest may arise in relation to the activities carried out while providing management services; 4) measures to prevent or limit inappropriate influence of third persons on management services carried out by a relevant person; 5) measures to prevent or control simultaneous or sequential involvement of relevant persons in various activities related to the process of providing management services where such involvement may impair management of conflicts of interest; 6) other additional procedures and measures that are necessary and appropriate to prevent a conflict of interest where the organisational or administrative measures established by the company in line with the requirements of this Article to manage conflicts of interest are insufficient. (8) The company shall keep and update, on a continuous basis, information about the activities for managing investment funds that it has performed itself or that were performed on its behalf and constitute or, where these activities are ongoing, may give rise to a conflict of interest that materially damages the interests of one or several funds or other clients. (9) The persons involved in the provision of management services shall notify the board of directors of the company of any cases when the organisational or administrative measures established by the company to prevent a conflict of interest in due course of this Article are insufficient to ensure, with due confidence, that the risk of damage to the interest of the fund or its unit holders will be prevented. After receiving the notification about the cases referred to in this Paragraph, the board of governors shall take appropriate decisions that are needed to ensure protection of interests of the fund and its unit holders. (10) The company shall inform fund investors about the cases referred to in Paragraph 9 of this Article and the decisions taken by using any appropriate durable medium. (11) The company shall ensure that one and the same employee carries out only one of the following duties: 1) management of the financial instruments owned by the company as well as execution or transferring for execution of related tasks; 2) individual management of the fund s investments and of the financial instruments of clients as well as execution or transferring for execution of related tasks; 3) making records of transactions in financial instruments. (12) The company shall have an obligation to develop the procedure for exercising voting rights attached to the financial instruments in the fund s investment portfolio. The procedure shall include the activities needed to: 1) supervise and ensure the exercising of voting rights that shall only be in accordance with the fund s investment objectives and policy; 2) prevent or manage all conflicts of interest deriving from the exercising of voting rights. (13) On its website, the company shall publish a brief description of the procedure referred to in Paragraph 12 of this Article and, upon request, it shall inform the fund s investors without a charge about any activities carried out on the basis of that procedure. (14) A company shall not be entitled to invest its assets in another company as well as to

24 subscribe to investment certificates of a fund it manages. (15) The restrictions set out in Paragraph 14 of this Article in respect of subscribing to investment certificates of a fund managed by the company shall not apply to cases where the company takes over the management of a fund set up by another company. In that event, within six months of the date of completion of the take-over, the company shall take relevant measures to ensure compliance of its further activities with the provisions of Paragraph 14 of this Article. (16) If a company manages individual financial instrument portfolios of clients, including assets of pension plans set up by private pension funds, it shall not invest assets of this portfolio in the funds it manages unless such authorisation has been explicitly granted by an agreement entered into with the client regarding the provision of such service. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 14 1 Restrictions on Personal Transactions (1) A personal transaction is a trade transaction in financial instruments that is made by a relevant person or that is made on behalf of such person provided that at least one of the following conditions is effective: 1) the transaction has been made outside the scope of the job or of the professional duties of that person; 2) the transaction has been made using the resources that belong to the relevant person; 3) the transaction has been made using the resources belonging to the spouse, a child, a stepchild (a child of the spouse that is not the child of that person) or to another relative who has shared the household with the relevant person at least one year before making the transaction; 4) the transaction has been made using the resources belonging to another person who has a direct or indirect material interest in the outcome of the transaction other than the fee or the commission for the execution of the transaction. (2) The relevant persons shall be prohibited from the following: 1) making a personal transaction on the basis of inside information in accordance with the Law on Financial Instruments Market that is available to the person as a result of job or professional duties in the company, as well as making a personal transaction by using or disclosing information that contains a business secret, or making a personal transaction that contradicts the requirements of this Law; 2) advising a third person to make a transaction in financial instruments that would be a personal transaction of the advising person to which the restrictions set out in Subparagraphs 1 and 2 of Paragraph 3 of Article 1272 of the Law on Financial Instruments Market apply or that gives rise to abusing information available to it about pending orders of a client, except where a transaction has been advised by performing job or professional duties; 3) disclose information to a third person or express an opinion, where the person disclosing information knows or ought to have known that as a result of the disclosed information the third person will make or is likely to make or advise another person to make a transaction in financial instruments that would qualify as a personal transaction to the person disclosing information and to which the restrictions set out in this Paragraph or Subparagraphs 1 and 2 of Paragraph 3 of Article 1272 of the Law on Financial Instruments Market apply or that that would otherwise give rise to abusing information available to it about pending orders of a client, except where information has been disclosed by performing job or professional duties. When making reference to Subparagraphs 1 and 2 of Paragraph 3 of Article 1272 of the Law on Financial Instruments

25 Market, any reference to the persons referred to in paragraph 31 of Article 101 of the Law on Financial Instruments Market shall be understood as a reference to the relevant persons defined by Law. (3) The relevant persons shall notify the company of the personal transactions made. (4) The company shall ensure that the relevant persons are notified of the duty set out in this Article to notify the company about the personal transactions made and of the restrictions established for making personal transactions. (5) The company shall be entitled to establish that the relevant person shall have a permission issued by the company for making personal transactions. (6) The company shall monitor compliance of the relevant persons with the requirements of this Article. (7) The company shall establish and maintain a register for information on the transactions made by the relevant persons on the basis of the information either provided by the relevant persons or uncovered during supervision. Where the company outsources the provision of any management service, the outsourcing contract shall contain the procedure whereby a register of personal transactions of relevant persons is maintained and the procedure whereby the company may receive information from the provider of the outsourced service on the personal transactions made by these persons. (8) Where the company has established that a permission issued by it is necessary for making personal transactions, it shall keep information on the issued permissions or refusals to grant permission. (9) The provisions of this Article shall not apply, where: 1) a personal transaction has been made as part of the management of the financial instruments portfolio on an individual basis and there has been no prior communication in connection with the transaction between the portfolio manager and the relevant person or other person on whose behalf the transaction has been made; 2) a personal transactions has been made with investment certificates of an investment fund and the relevant person or other person on whose behalf the transaction has been made is not involved in the management of that fund. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 15 Delegation of Fund Management Services (1) Upon the basis of a contract, a company may delegate the right to provide separate services related to the fund management (hereinafter fund management services) to another person with a relevant qualification and experience in the provision of said services. (11) Where a company that manages an investment fund registered in another member state wishes to delegate any fund management service, upon receipt of the respective application from the company the Commission shall immediately notify to this effect the supervisory authority of the home state of the fund. (2) A company may delegate the right to manage fund investments only to another company or to the provider of management services that has received a licence in another member state. (3) The right to manage fund investments may not be delegated to a company that is simultaneously an interested person of the custodian bank, an interested person of the company or any other person whose interests might prejudice the interests of the company or fund investors.

26 (4) Prior to delegating fund management services to another person, a company shall develop appropriate policy and procedure for delegating services that shall set out the following: 1) the procedure whereby the company shall take decisions about delegating services; 2) the procedure whereby the agreement on delegating fund management services (hereinafter agreement about delegating) shall be signed, its execution shall be monitored and the agreement shall be terminated; 3) the persons (officials and employees) and the structural units that shall be responsible for cooperating with the provider of the delegated fund management services (hereinafter a service provider) and for monitoring the volume and the quality of the received fund management services and also rights and responsibilities of these persons; 4) the procedure whereby the risks incurred in receiving fund management services shall be assessed and managed; 5) a company's actions where a service provider does not fulfil or will not be able to fulfil the provisions of the agreement about delegating. (5) A company shall submit to the Commission the policy and the procedure referred to in Paragraph 4 of this Article before delegating the fund management services to another person. The Commission shall review and assess the compliance of these documents with the requirements of this Law within 30 days of their receipt. (6) Where the management of the fund investments is delegated, a company shall submit to the Commission a motivated application about the necessity to delegate the service and the original of the agreement about delegating or a copy thereof that has been certified by a company's official as well as the document referred to in Paragraph four of this Article where the company has not provided it to the Commission before. (7) The company shall submit to the Commission all amendments to the documents whose submission to the Commission is established in this Law where such amendments have been made in relation to the delegation of the fund management services. (8) A service provider may start providing the fund investment management services to the company where, within 30 days of receipt of the documents referred to in Paragraphs four and six of this Article, the Commission has not sent a decision to the company to the effect that the company is prohibited from receiving the fund investment management services from the respective service provider. (9) Where the administrative management services or the marketing services of the fund are delegated, the company shall notify the Commission to this effect within five business days after entering into the agreement about delegating and submit to it the original of the agreement about delegating or a copy thereof that has been verified by a company s official. (10) In the agreement about delegating, the company shall include at least the following provisions: 1) a description of the fund management service to be received; 2) exact requirements regarding the volume and the quality of the fund management service to be received; 3) the rights and the obligations of the company and of the service provider, including: a) the company's rights to monitor, on a regular basis, the quality of the provision of the delegated fund management service, b) the company's rights to give instructions to the service provider that are mandatory to it and relate to honest, quality, timely and regulation-compliant fulfilment of the delegated fund management service,

27 c) the company's rights to request that, upon receipt of a written request to this effect, the agreement about delegating be terminated without delay; 4) the Commission's rights to see the documents referred to in Paragraph thirteen of this Article and request other information from the service provider that is related to the delegation of the fund management services and is necessary to the Commission to perform its functions. (11) The Commission shall refuse the permission to delegate the fund management services where: 1) the delegation of the fund management service interferes with a full-fledged management of the fund by the company and may affect the interests of the fund investors; 2) the delegation of the fund management service interferes with the supervision of the company's activities by the Commission; 3) the agreement about delegating fails to comply with the requirements of this Law and to provide clear and fair opinion about the expected cooperation between the company and the service provider during the validity of the agreement about delegating; 4) the fund prospectus does not indicate which services the company intends to delegate to another person; 5) after the transfer of the services, the company no longer provides any of the services included in the management of a fund. (12) The company shall ensure that, not later than 10 days before another person starts providing the delegated fund management service, the fund investors are notified to this effect according to the procedure set out in the fund rules or in the fund prospectus. In the notification to the fund investors, the company shall indicate the type of the delegated fund management service and the information referred to in Subparagraph 22 of Paragraph 3 of Article 57 of this Law about the service provider. (13) The Commission shall be entitled to inspect the activity of the service provider on the site where it is located or provides services, see all documentation, document and accounting registers, make copies thereof and request that the service provider submit information that is related to the provision of the delegated fund management service and is necessary to the Commission to perform its functions. (14) The Commission shall be entitled to request the company that has delegated the fund management services to another person to terminate the valid agreement about delegating without delay where it uncovers the following: 1) the company does not supervise, on a regular basis, the quality of the provision of the delegated fund management service or supervises it irregularly and insufficiently; 2) the company does not manage the risks related to the delegated fund management services or manages them irregularly and without the appropriate quality; 3) material shortcomings in the activity of the service provider that threaten or are likely to threaten fulfilment of the company's obligations; 4) any of the circumstances referred to in Paragraph eleven of this Article has realised. (15) The delegation of a management service to another person shall not release the company from responsibility for the fund management as set out in this Law. (As amended by laws of 8 March 2007, 11 March 2010, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 16 Transfer of the Fund Management Right to Another Company

28 (1) A company may transfer the management of its self-established fund to another company with the permission of the Commission only. (2) In order to obtain permission from the Commission for the transfer of the fund management, the company shall submit to the Commission a motivated application. The application shall be accompanied by the following documents: 1) a contract for the transfer of the fund; 2) amendments to the fund prospectus, key investor information and the fund rules, as well as amendments to the custodian bank agreement that are necessary due to the change of the company. (3) The Commission shall, within a one-month period upon receipt of all the documents referred to in this Article, take a decision on the permission to transfer the fund management to another company if the following conditions have been met: 1) the transfer of the fund management does not affect the interests of fund investors; 2) the documents submitted for the transfer of the fund management have been prepared in compliance with the requirements prescribed by this Law; 3) the company to which the fund management has been transferred, complies with the requirements prescribed by this Law regarding the capital of a company. (4) After the receipt of the Commission s decision in accordance with the procedures prescribed by the fund rules, the company transferring the fund management shall without delay inform all fund investors of the change of the company, as well as shall publish in the Official Gazette Latvijas Vēstnesis and in at least one daily newspaper an announcement regarding the transfer of the fund management to another company. The announcement shall include the firm name, registration number and the location of the board of directors of the relevant other company. (5) The contract regarding the transfer of the fund management to another company shall come into effect no earlier than one month after publishing the announcement referred to in Paragraph four of this Article. Amendments to the fund prospectus, key investor information, the fund rules and the custodian bank agreement shall take effect concurrently with the contract for the transfer of the fund management. (6) Upon the coming into effect of the contract for the transfer of the fund management, all rights and liabilities related to the investment fund shall devolve to the new company. (7) Where the company wishes to transfer the fund management right to a company licensed in another member state, the company that intends to receive the fund management right shall comply with the provisions of Article 771 of this Law in addition to the provisions contained in this Article. (As amended by laws of 8 March 2007, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 17 Transfer of Fund Management Rights to a Custodian Bank (1) If the right of a company to manage a fund terminates, the right to manage the fund shall devolve to the custodian bank of this fund, except as specified in Article 16 of this Law. (2) The custodian bank shall without delay submit for publication in the Official Gazette Latvijas Vēstnesis and at least one daily newspaper an announcement regarding the transition of the fund management right. The announcement shall indicate: 1) the firm name of the company under the management of which the relevant fund was; 2) the name of the investment fund; and 3) the firm name and location of the board of directors of the custodian bank.

29 (3) A company the rights of which to manage the investment fund have terminated other than upon the transfer of the fund management rights to another company, shall without delay transfer to the custodian bank all documents related to the fund management. (4) A custodian bank to which the investment fund management rights have been transferred shall have all the rights of the company, except for the right to issue investment certificates of the fund under its management and perform repurchase of the certificates. (5) Within three months from the day of transfer of the fund management rights, the custodian bank shall transfer the fund management rights to another investment company. The Commission may extend this time limit up to six months. (6) The fund management rights shall be transferred to another company only with the permission of the Commission. (7) If the custodian bank fails to transfer the fund management rights to another company within the time limit prescribed by Paragraph 5 of this Article, the custodian bank shall perform the liquidation of the fund. (As amended by the law of 9 July 2013) Article 18 Termination of Fund Management Rights The rights of a company to manage an investment fund shall terminate: 1) upon the transfer of the fund management rights to another company; 2) upon the cancelling of a licence; 3) (deleted by the law of 9 July 2013) ; 4) upon completion of the fund liquidation if the company itself performs it; 5) upon the moment when the Commission appoints a fund liquidator in accordance with the provisions of Article 35, Paragraph six of this Law. (As amended by the law of 9 July 2013) Article 19 Reorganisation and Liquidation of a Company (1) A company may be reorganised or liquidated with the permission of the Commission only. When assessing the reorganisation of the company, the Commission, in order to ensure protection of depositor interests, may impose on the company an obligation to fulfil particular reorganisation conditions in addition to the obligations set out in the Commercial Law. (2) Reorganisation and liquidation of a company shall take place in accordance with the Commercial Law. (3) (Deleted by the law of 19 June 2008). (4) (Deleted by the law of 19 June 2008). (5) (Deleted by the law of 19 June 2008). (6) A company may not complete its liquidation before its rights to manage all investment funds under its management have not terminated and it has not settled all the liabilities to its other clients. (As amended by the law of 19 June 2008 taking effect on 23 July2008) Chapter III Investment Fund Article 20 Legal Status of an Investment Fund and Its Property

30 (1) An investment fund is an open-end fund aimed at investing money assets aggregated from the public in the investment objects laid down in this Law in line with the principle of risk spreading and investment restrictions provided in this Law where the company managing such fund shall have an obligation, upon request of fund investors, to repurchase investment certificates not later than within one month. An investment fund is not a legal person. (2) The fund property is the joint property of investors of the fund or of its sub-funds (where a fund has been established with sub-funds) and it shall be kept, recorded and managed separately from the property of the company, of other funds or sub-funds under its management (where a fund has been established with sub-funds), as well as of the custodian bank. The fund property (where a fund has been established with sub-funds) is the joint property of sub-funds. That fund may not have property that does not fall within any of the sub-funds. (3) A fund investor has no right to request division of the fund. The pledgee of the pledged property of the investor, creditor or administrator for the insolvency process of the investor shall not have such right either. (4) The fund property may not be included in the property of the company or custodian bank as the property of the debtor if the company or the custodian bank has been declared insolvent or is being liquidated. (5) Claims against a fund investor in respect of his/her liabilities may be directed at his/her investment certificates but not at the fund property. (As amended by the law of 8 March 2007 taking effect on 10 April 2007 and of 9 July 2013) Article 21 Types of Funds (Deleted by the law of 9 July 2013). Article 22 Establishment of a Fund (1) A fund shall be established by a company by approving a fund prospectus, key investor information and fund rules and entering into a custodian bank agreement. (2) The decision regarding the approval of the fund prospectus, key investor information and the fund rules shall be taken by the management body specified in the articles of association of the company. (3) A company may commence the issue of fund investment certificates and the fund management only after registration of the fund with the Commission. (4) An investment fund may be established as a fund with sub-funds. (5) For each sub-fund, an individual investment policy, payment terms for management services and currency of payment may be established in the fund prospectus. (6) The requirements of this Law in respect of an investment fund and restrictions in respect of an investment fund with sub-funds shall apply to each sub-fund separately. (7) Where a company intends to register an investment fund whose name contains words "money market fund", it shall develop the operation rules of the fund in accordance with the Commission s regulatory requirements. (8) The Commission shall review an application by a company licensed in another member state for establishing an investment fund in due course of Article 77 1 of this Law. (In the wording of the law of 24 October 2002 as amended by laws of 8 March 2007, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 23 Fund Registration

31 (1) In order to register a fund, a company shall submit an application to the Commission. The following shall be appended to the application: 1) the fund prospectus (two originals); 1 1 ) key investor information (two originals); 2) the fund rules (two originals); 3) the custodian bank agreement; and 4) a list of the custodian bank s employees who will be responsible for the performance of functions of the custodian bank (indicate the employee s name, surname, identity number and work experience within the last three years). (2) The company shall submit the documents referred to in Paragraph 1 of this Article to the Commission in one of the following ways: 1) as an electronic document in accordance with regulatory requirements for electronic documentation processing and presenting, or 2) as a paper copy (in this case submitting them also electronically by sending them to the electronic mail address of the Commission).. (3) The Commission shall, within 60 days after it has received all the documents which have been prepared in conformity with the requirements of regulatory enactments, take a decision regarding the registration of the fund. (4) The Commission shall not register a fund in cases as follows: 1) the company s own funds does not comply with the requirements as set out in this Law; 2) documents submitted for the registration of the fund does not comply with the requirements set out in this Law; 3) employees of the custodian bank who will be responsible for the fulfilment of the custodian bank s obligations have no relevant experience to ensure qualified fulfilment of the custodian bank s obligations; or 4) the fund rules or the fund prospectus stipulates that fund investment certificates may not be traded publicly in Latvia; 5) the company does not have a valid licence for the provision of management services. (In the wording of the law of 24 October 2002 as amended by laws of 18 March 2004, 8 March 2007, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 24 Name of a Fund (1) The name of a fund shall include the word combination "ieguldījumu fonds" or "investīciju fonds" [investment fund] or its abbreviation "IF". These word combinations and the abbreviation may not be included in the firm names of undertakings. (2) The name of a fund shall significantly differ from the names of other funds whose investment certificates or securities equivalent to investment certificates are marketed in Latvia. (As amended by the law of 24 October 2002 taking effect on 27 November 2002) Article 25 Rights of Fund Investors (1) A fund investor has the following rights: 1) to alienate his/her investment certificates without restriction unless the law provides otherwise; 2) to, in proportion to the number of investment certificates in accordance with the law and fund prospectus, participate in the distribution of income obtained as a result of transactions with the fund property; and

32 3) to, in proportion to the number of investment certificates, participate in the distribution of the fund liquidation proceeds. (2) A fund investor has the right to request the company to repurchase his/her investment certificates. (3) (Deleted by the law of 9 July 2013). (As amended by the law and of 9 July 2013) Article 26 Restriction of Liability of Fund Investors (1) A fund investor shall not be liable for the company s liabilities. (2) A fund investor shall be liable for claims that may be directed at the fund property only with the fund shares belonging to him or her. (3) Agreements which are in conflict with the provisions of this Article are void from the moment of being entered into. Article 27 General Meeting of Closed-end Fund Investors (Deleted by the law of 9 July 2013). Article 28 Fund Rules (1) The fund rules shall determine the procedures for fund management and investment limitations. (2) The fund rules shall be freely accessible to all fund investors upon their request. (3) The fund rules shall include the following: 1) the name of the fund; 2) the firm name, registration number, legal address and licence number of the company; 3) the general principles and procedures of fund management, particularly indicating decisiontaking competence and procedures for dealing with the fund property; 31) investment limitations of the fund; 4) fund investor servicing procedures, particularly indicating the procedures for: a) the issue of the fund prospectus and key investor information; b) (deleted by the law of 24 October 2002); c) (deleted by the law of 24 October 2002); d) provision of information in respect of those changes in the distribution of the income gained in the transactions with the fund property which affect the fund operation, and similar events, and e) performance of the issue, repurchase and redemption of investment certificates; 5) principles for calculation of the fund value, sale and repurchase prices of investment certificates, as well as fund income. Where the fund has different classes of investment certificates, indication shall be provided about the rights attached to each class of investment certificates and the procedure whereby investment certificates of one class may be exchanged for investment certificates of another class, where such option is provided; 6) procedures for fund liquidation; 7) procedures by which the transfer of fund management rights and property to the custodian bank or other persons takes place; 8) procedures by which the co-operation of the company with the custodian bank in respect of fund management takes place; 9) (deleted by the law of 9 July 2013);

33 10) a list of the types of payments the fund is entitled to receive and procedures for the calculation thereof; 11) procedures for providing public announcements and publicly available information; and 12) procedures for amending the fund rules. (4) The fund rules may also include other provisions which are not contrary to the law or regulations of the Commission. (5) If the fund rules are amended, the company shall submit to the Commission an application for registration of the amendments to the fund rules. The application shall be accompanied by: 1) a decision taken by the management body of the relevant company to approve the amendments to the fund rules; 2) the amendments to the fund rules and the text of the fund rules that includes the amendments. The amendments to the fund rules and the text of the fund rules shall be submitted to the Commission in either of ways referred to in Paragraph 2 of Article 23 hereof. 3) (deleted by the law of 11 March 2010). (6) The Commission shall examine submitted amendments and, within a period of 15 business days, register amendments if they comply with the requirements of this Law and do not contradict the legitimate interests of fund investors. (7) Amendments to the fund rules shall come into effect no earlier than 10 days after their registration with the Commission or within any other term specified by the Commission which may not exceed three months as from the date of registration of the amendments and is determined in compliance with the contents of amendments to the fund rules and interests of the fund investors. (8) Where a company wishes to amend the information that is provided in accordance with Subparagraph 2 of Paragraph 3 of this Article, it shall amend respectively the fund rules without their prior registration with the Commission and shall submit to the Commission the full text of the fund rules in accordance with Subparagraph 2 of Paragraph 5 of this Article. The amendments to the fund rules take effect after their approval by the management body of the company. (As amended by laws of 24 October 2002, 18 March 2004, 8 March 2007, 19 June 2008, 11 March 2010, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 29 Fund Manager (1) The board of directors of a company shall appoint a manager to each investment fund (hereinafter fund manager) who shall deal with the property of the managed fund in accordance with the articles of association of the company and the fund rules of the fund. (2) The fund manager may work only in one investment company. (3) The fund manager may manage several funds under the management of one company. Article 30 Fund Value and Fund Unit Value (1) The fund value (hereinafter also net value of fund assets) is the difference between the value of assets and the value of liabilities of the fund. The sub-fund value is the difference between the value of assets and the value of liabilities of the sub-fund. (2) A fund unit is the right to claim attached to one investment certificate in conformity with the fund unit value. Where the fund has several classes of investment certificates, the rights to claim attached to an investment certificate shall be established separately for each class in conformity with the provisions of the fund prospectus or of the fund rules.

34 (3) The fund unit value is the fund value divided with the number of investment certificates issued but not repurchased. The sub-fund unit value is the sub-fund value divided with the number of investment certificates issued but not repurchased. Where the fund has several classes of investment certificates, the value of investment certificates of each class shall be calculated in view of the rights attached to the investment certificates of that class. (4) The company shall establish the unit value of a fund every day. (5) (Deleted by the law of 9 July 2013). (In the wording of the law of 8 March 2007 taking effect on 10 April 2007 and of 9 July 2013) Article 31 Remuneration to a Company, Custodian Bank and Third Persons (1) Remuneration to a company, custodian bank and third persons, as well as any other payments resting on the investment fund shall be paid from the fund property in conformity with the provisions of the fund prospectus. (2) Where assets of investment funds are invested in investment funds that are managed by the company itself or by another company to which management service has been delegated or that has close links with the company or a qualifying holding in the company, none of those companies shall have a right to receive a fee or a commission and a compensation for transactions related to investing fund property in the investment certificates of such funds or their repurchase. (3) Commercial companies are deemed to be in one group where the financial statements of such commercial companies are subject to consolidation in accordance with internationally recognised accounting standards. (As amended by laws of 8 March 2007, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 32 Transactions with Fund Property A company shall perform transactions with the fund property in accordance with this Law, the fund prospectus and fund rules. Article 33 Transaction Restrictions (1) A company does not have the right to undertake liabilities at the expense of fund property if such liabilities do not directly relate to the fund. (2) A company may not perform transactions with the fund property without compensation. (3) Claims against the company and claims that are a part of the fund property shall not be netted off. (4) The fund property may not be pledged or otherwise encumbered with rights in rem except if: 1) it serves as a collateral when receiving loans in accordance with the procedures specified in Paragraphs 9 and 10 of this Article; 2) repurchase (repo) transactions are performed at the expense of the fund property, or 3) it serves as a collateral when performing transactions in financial derivative instruments referred to in Article 65 of this Law. (5) The company may not, by direct agreement, alienate the fund property to the benefit of: 1) the company managing such fund and its interested parties; 2) (deleted by the law of 24 October 2002); or 3) other funds managed by the same company.

35 (6) The company may not by direct agreement purchase property from the persons referred to in Paragraph 5 of this Article at the expense of the fund. (6 1 ) The restrictions on transactions with the interested parties of the company, referred to in Subparagraph 1 of Paragraph 5 and in Paragraph 6 of this Article, shall not apply to transactions with the interested parties of the company that are credit institutions registered in Latvia or in another member state. (7) The securities issued by any person referred to in Subparagraph 1 of Paragraph 5 of this Article may be acquired for the fund property only with the mediation of the regulated market. (8) The following activities may not be performed at the expense of the fund: 1) to perform the liabilities of the company which have occurred on its behalf and at its expense; 2) to issue securities, except for investment certificates; 3) to undertake liabilities arising from guarantee agreements; or 4) to grant loans. The said prohibition shall not apply to asset reverse repurchase transactions (reverse repo) that may be performed provided that the restrictions referred to in this Law are complied with. (9) The company may take loans at the expense of an fund if such loans are taken for a period up to three months and the total amount thereof does not exceed 10 percent of the fund value. (10) (Deleted by the law of 9 July 2013). (11) The company may not take loans at the expense of an open-end fund from the persons referred to in Paragraph five of this Article, except for interest-free loans from the company and loans from the custodian bank at an interest rate which does not exceed the average credit interest rate of the financial market at the moment when the loan is taken. (12) The company shall not sell financial instruments at the fund expense or undertake liabilities for selling financial instruments where these financial instruments are not the fund property at the time of making the transaction. (13) The company may not purchase property at the expense of the fund for a price higher than the market price or alienate the fund property for a price lower than the market price. (14) Shareholders of a company having a qualifying holding in the company may make investments in the investment fund established by the company, where, by investing assets in the fund or withdrawing from the fund, the legitimate interests of other fund investors are not affected. (15) If a shareholder of a company having a qualifying holding in the company has invested assets in conformity with the provisions of Paragraph fourteen of this Article, the accounts of the fund shall provide information regarding the volume of such investments. (16) When managing a fund and receiving collateral in accordance with the concluded financial collateral contracts, receiving guarantees, performing repurchase transactions of assets as well as when lending securities or making other transactions in transferable securities and money market instruments, the company shall ascertain whether these transactions ensure an efficient management of the fund investment portfolio. (17) An efficient management of the fund investment portfolio is ensured where the transactions referred to in Paragraph sixteen of this Article comply with the following criteria: 1) their making is motivated and economically appropriate; 2) they are made for at least one of the following aims: a) to reduce risk, b) to reduce costs,

36 c) to increase the fund net value or income in accordance with the fund investment risk profile and the investment limitations referred to in Article 66 of this Law; 3) their related risks are adequately captured by the fund risk management process. (As amended by laws of 1 June 2000, 24 October 2002; 18 March 2004; 8 March 2007; 19 June 2008, 11 March 2010, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 34 Reorganisation of a Fund (1) Division of a fund shall not be permitted. (2) Investment funds and sub-funds may be merged as specified in Paragraph 32 of Article 1 of this Law by making either a domestic or a cross-border merger. (3) (Deleted by the law of 9 July 2013). (4) The Commission shall authorise the domestic and the cross-border merger of funds or of subfunds where the merging fund involved in the cross-border merger has been registered in Latvia. (5) According to the merger of investment funds specified in Subparagraph a) of Paragraph 32 of Article 1 of this Law: 1) all assets and liabilities of the merging fund shall be transferred to the receiving fund or the custodian bank of the receiving fund; 2) unit holders of the merging fund shall become unit holders of the receiving fund and, where the terms of the merger provide so, they shall be entitled to a cash payment that does not exceed 10 percent of the net asset value of the investment certificates of the merging fund they own; 3) upon the merger taking effect, the merging fund shall be deemed as liquidated. (6) According to the merger of investment funds specified in Subparagraph b) of Paragraph 32 of Article 1 of this Law: 1) all assets and liabilities of the merging fund shall be transferred to the newly constituted receiving fund or to the custodian bank of the receiving fund; 2) unit holders of the merging fund shall become unit holders of the newly constituted receiving fund and, where the terms of the merger provide so, they shall be entitled to a cash payment that does not exceed 10 percent of the net asset value of the investment certificates of the merging fund they own; 3) upon the merger taking effect, the merging fund shall be deemed as liquidated. (7) According to the merger of investment funds specified in Subparagraph c) of Paragraph 32 of Article 1 of this Law: 1) net assets of the merging fund shall be transferred to the receiving fund or to the custodian bank of the receiving fund; 2) unit holders of the merging fund shall become unit holders of the receiving fund; 3) the merging fund shall continue to exist until the liabilities will have been discharged in full amount. (8) The management company of the receiving fund shall develop the procedure that includes arrangements whereby the custodian bank of a fund is notified of a completed transfer of assets and, where necessary, liabilities. (9) Six months after receiving a permission for a merger the receiving fund may exceed the investment limits set out in Article 66 of this Law, except those referred to in Paragraphs 7 and 13 of that Article. (10) Unit holders of the funds to be merged shall be entitled to request repurchase of their investment certificates without any charge other than the charge retained by the funds to cover costs for reducing or realisation of investment or, where possible, to convert them into

37 investment certificates of another fund that has a similar investment policy and that is managed by the same company or another company that has close links with the company or a qualifying holding in the company. These rights shall take effect when the unit holders of the merging fund and of the receiving fund are notified of the proposed merger in accordance with Paragraph 4 of Article 34.1 or Paragraph 9 of Article 34.2 of this Law and they shall cease to exist five business days before the date for calculating the exchange ratio referred to in Paragraph 16 of Article 34.1 of this Law. (11) During the merger of funds, the Commission shall be entitled to require or allow temporary suspension of the subscription to, repurchase or redemption of the investment certificates of funds provided that such suspension is justified for the protection of the legitimate interests of unit holders. Where the Commission has taken the decision referred to in this Paragraph, this does not relieve the company from an obligation to ensure compliance with the requirements set out in Paragraph 10 of this Article, whereas during the validity of the decision it shall be entitled not to comply with the requirements set out in Paragraph 1 of Article 54 of this Law. (12) The companies involved in the merger shall ensure that all costs associated with the merger are covered from own resources of companies. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 34 1 Domestic Merger of Funds (1) To receive an approval from the Commission for a merger of funds or sub-funds, the management company of the merging fund shall submit to the Commission the following documents: 1) common draft terms of the proposed merger that have been approved by the management companies of the merging funds and of the receiving funds; 2) statement by the custodian banks of the merging fund and of the receiving fund to the effect that information about the fund referred to in Subparagraphs 1, 6 and 7 of Paragraph 7 of this Article complies with the requirements of this Law, the respective fund prospectus and the fund rules; 3) information that the merging fund and the receiving fund intend to provide to their investors about the proposed merger; 4) amendments to the agreement of the custodian bank, if needed. (2) The companies involved in the merger shall ensure that information prepared for the unit holders of the merging fund and of the receiving fund that is referred to in Subparagraph 3 of Paragraph 1 of this Article gives a fair presentation of the merger to enable investors to assess the impact of the merger on their investment and take a decision regarding the exercise of their rights as set out in Paragraph 10 of Article 34 of this Law. (3) Information referred to in Subparagraph 3 of Paragraph 1 of this Article shall contain the following: 1) the background to and the rationale for the proposed merger; 2) the possible impact of the proposed merger on unit holders of both the merging fund and the receiving fund, including material differences in respect of investment policy and strategy, costs, expected outcome, periodic reporting and possible performance, and, where taxes or duties applicable to investors change, information about the applied tax treatment in future; 3) rights granted to unit holders in relation to the proposed merger, including the rights to obtain additional information, the right to obtain a copy of the opinion of the certified auditor referred

38 to in Paragraph 9 of this Article, and the right to request the repurchase or, in accordance with Paragraph 10 of Article 34 of this Law, the conversion of their investment certificates without a charge and the date by which that right may be exercised; 4) the relevant procedural aspects and the planned effective date of the merger; 5) key investor information intended for the unit holders of the receiving fund. (4) Information shall be provided to the unit holders of the merging fund and of the receiving fund after the Commission has approved of the proposed merger in accordance with Paragraph 12 of this Article. Information shall be provided at least 30 calendar days before the last day when the unit holders may exercise their rights referred to in Paragraph 10 of Article 34 of this Law to request repurchase of their investment certificates of funds or sub-funds or, where appropriate, convert them into other investment certificates without a charge. (5) Where the Commission detects that information to investors fails to comply with the requirements of this Law, the fund prospectus or the fund rules, the Commission may be entitled to request in writing that information provided be improved. (6) Where investment certificates of the merging fund or of the receiving fund are marketed in another member state, the fund management company shall prepare information referred to in Subparagraph 3 of Paragraph 1 of this Article also in the official language of the host state of the fund or in the language approved by the supervisory authority of that state. A person who is entitled to take decisions on behalf of the merging fund shall certify that the translation faithfully reflects the content of the original documents. (7) Common draft terms of the merger shall include the following information: 1) type of the merger and funds involved; 2) the background to and the rationale for the proposed merger; 3) possible impact of the proposed merger on the unit holders of the merging fund and of the receiving fund; 4) criteria adopted for valuating assets and, where appropriate, liabilities, on the day when the exchange ratio is calculated in due course of Paragraph 16 of this Article; 5) method for calculating the exchange ratio of investment certificates; 6) day when the proposed merger will take effect; 7) rules that will be applied to the transfer of assets and exchange of investment certificates; 8) where the merger is in accordance with Subparagraphs b) and c) of Paragraph 32 of Article 1 of this Law, draft fund prospectus of the newly constituted fund, fund rules and key investor information. (8) Common draft terms of the merger may also include other information that is not specified in Paragraph 7 of this Article. (9) The companies involved in the merger shall authorise one of the custodian banks of the funds or auditors to prepare an opinion about: 1) criteria adopted for valuating assets and, where appropriate, liabilities, on the day when the exchange ratio is calculated in due course of Paragraph 16 of this Article; 2) cash amount for payment for one investment certificate; 3) method for calculating the exchange ratio and also the actual exchange ratio determined on the day when the said ratio is calculated in accordance with Paragraph 16 of this Article. (10) The opinion referred to in Paragraph 9 of this Article shall be submitted to the Commission and, upon request and without a charge, it shall also be provided to unit holders of the merging fund and of the receiving fund.

39 (11) The Commission shall be entitled to request that the company improves the documents and information referred to in Paragraph 1 of this Article that have been submitted to the Commission. The Commission shall request that required additional information be submitted to it within 10 business days after receipt of the documents referred to in Paragraph 1 of this Article. (12) The Commission shall take a decision to approve or refuse the merger of funds within 20 business days after receiving all documents referred to in Paragraphs 1, 9 and 11 of this Article that have been prepared and formatted in accordance with the regulatory requirements. When taking a decision to approve the merger of funds in accordance with Subparagraph b) or c) of Paragraph 32 of Article 1 of this Law the Commission shall simultaneously take a decision about the registration of the newly constituted fund. (13) The Commission shall take a decision to approve the merger of funds provided that the following conditions are met: 1) submitted documents comply with the requirements of this Law; 2) merger of funds does not affect the legitimate interests of unit holders of the funds to be merged; 3) the receiving fund is allowed to market its investment certificates in the home state of the merging fund and also in all member states in which the merging fund has received a permission for marketing its investment certificates; 4) information that the merging fund and the receiving fund intend to provide to their unit holders about the proposed merger complies with the requirements of this Law, the fund prospectus and the fund rules. (14) The Commission s decision to approve the merger of funds or sub-funds and register a newly constituted fund shall take effect on the 40th calendar day after the notification of the decision to the company. After the decision takes effect, it cannot be declared null and void. (15) After receiving the approval of the Commission the company shall forward information referred to in Subparagraph 3 of Paragraph 1 of this Article about the proposed merger to unit holders of the funds or sub-funds in accordance with the procedure set out in the fund prospectuses, and before commencing the merger of funds or sub-funds it shall also repurchase investment certificates from those investors who have requested repurchase of their investment certificates of the fund or of the sub-fund. (16) On the day when the decision referred to in Paragraph 14 of this Article takes effect the exchange ratio shall be calculated for converting investment certificates of the merging fund into investment certificates of the receiving fund and, where the terms of the merger provide for a cash payment, the day for determining the relevant net asset value for cash payments shall be specified. (17) The Commission shall establish detailed content, format and manner of providing information to the unit holders of the merging fund and of the receiving fund. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 34 2 Cross-Border Merger of Funds (1) For a cross-border merger of funds the type of fund merger shall be used that is allowed in the regulatory enactments of the home state of the merging fund. In the cross-border merger of funds the company shall comply with the procedure set out in Articles 34 and 34.1 of this Law unless it contradicts the provisions of this Article.

40 (2) Where the merging fund involved in a cross-border merger has been registered in Latvia, the management company of the merging fund, before commencing the merger, shall submit to the Commission the documents referred to in Paragraph 1 of Article 34.1 of this Law and also the most recent version of the receiving fund s prospectus, fund rules or a document equivalent to fund rules and key investor information. (3) The documents referred to in Paragraph 1 of Article 34.1 of this Law and in Paragraph 2 of this Article shall be submitted to the Commission in both the Latvian language and in the official language of the home state of the receiving fund or in the language approved by the respective supervisory authority. (4) When all documents referred to in Paragraph 1 of Article 34.1 of this Law and in Paragraph 2 of this Article, formatted in accordance with the requirements of this Law, have been submitted to the Commission, the Commission shall immediately send copies of those documents to the supervisory authority of the home state of the receiving fund. (5) Where the supervisory authority of the home state of the receiving fund requests that investor information be improved, the Commission shall take a decision about the merger of funds only after the submitted documents have been improved in line with the indications of the supervisory authority of the home state of the receiving fund. (6) Where the receiving fund involved in a cross-border merger has been registered in Latvia, the Commission may request, within 15 business days after the receipt of the documents from the supervisory authority of the home state of the merging fund, that the management company of the receiving fund improve investor information. In that case the Commission shall inform thereof the supervisory authority of the home state of the merging fund and within 20 business days after receiving the improved information it shall send it to the supervisory authority of the home state of the merging fund. (7) In case of a cross-border merger of funds, when the Commission takes the decision referred to in Paragraph 12 of Article 34.1 of this Law, it shall take into account the information submitted by the supervisory authority of the home state of the receiving fund about compliance of investor information of the receiving fund with the requirements of the regulatory enactments of that country. Where within 20 business days after the day when the Commission, in accordance with Paragraph 4 of this Article, has sent copies of documents to the supervisory authority of the home state of the receiving fund, the Commission has not received any indication about the need to improve investor information of the receiving fund, the Commission may take a decision to approve or reject the merger of funds. (8) The Commission shall notify the supervisory authority of the home state of the receiving fund of its decision to approve or reject the merger of funds. (9) In case of a cross-border merger of funds, information about the proposed merger referred to in Subparagraph 3 of Paragraph 1 of Article 34 1 of this Law shall be provided to unit holders of the merging fund and of the receiving fund after the supervisory authority of the home state of the merging fund has approved the proposed merger. (10) In case of a cross-border merger of funds, a copy of the opinion referred to in Paragraph 9 of Article 34.1 of this Law shall be provided upon request and without a charge to the supervisory authorities of the funds involved in the merger. In that case the opinion shall also be prepared in the language approved by the supervisory authority of the respective country. (11) The day when the decision about approving the merger takes effect shall be determined in accordance with the requirements of regulatory enactments of the home state of the receiving fund. Where the receiving fund has been registered in Latvia, the decision shall take effect on the

41 40th calendar day after the supervisory authority of the home state of the merging fund has notified the Commission of its decision. (In the wording of the Law of 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 35. Liquidation of a Fund (1) Liquidation of a fund shall be performed by a liquidator. The liquidator may be a company, custodian bank or a person appointed by the Commission. (2) The company shall perform the liquidation of a fund if: 1) on the next day after the termination of the custodian bank agreement, a new custodian bank agreement has not come into effect; 2) within a year after the establishment of the fund no investment certificates have been released into circulation; or 3) the company takes a decision to liquidate the investment fund; 4) the Commission has decided to initiate liquidation of the investment fund. (3) (Deleted by the law of 8 March 2007). (4) (Deleted by the law of 9 July 2013). (5) The custodian bank shall perform the liquidation of the fund if it does not transfer the fund management to the investment company within the time limit specified in Paragraph 7 of Article 17 of this Law. (6) If the company or the custodian bank fails to commence liquidation of the fund within a month from the day when such liquidation was due to be commenced, the Commission shall have the right to appoint a fund liquidator. The Commission shall appoint a liquidator also in the case referred to in Subparagraph 4 of Paragraph 2 of this Article. A liquidator that is appointed in due course of this Paragraph shall have all the same rights as the company has in respect of the liquidation. (7) During liquidation, the issue and repurchase of investment certificates and distribution of fund income provided for in the fund prospectus between fund investors may not be performed. The liquidator has the right to perform activities connected with the liquidation only. (8) The liquidator shall act in the interests of creditors and fund investors. (9) The liquidator shall be fully liable to fund investors and third persons in respect of the losses caused during the liquidation if the liquidator intentionally or due to negligence has violated the law or the fund rules or has performed his/her duties negligently. (As amended by laws of 1 June 2000; 8 March 2007, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 35 1 Liquidation of a Fund on the Basis of a Decision of a Company (1) To liquidate a fund on the basis of the decision taken by the company, the company shall receive a permission from the Commission before initiating the liquidation of the fund. (2) To receive a permission to start liquidation of a fund, the company shall submit to the Commission a decision of the executive board indicating the reason for the liquidation of the fund within 20 days of taking the decision to this effect. (3) Within 30 days of receipt of the documents referred to in Paragraph 2 of this Article, the Commission shall take a decision about a permission to start the liquidation of a fund or a refusal to issue permission.

42 (4) The Commission shall not permit to start the liquidation of the fund where that liquidation does not comply with the legitimate interests of investors. (In the wording of the law of 8 March 2007 taking effect on 10 April 2007 and of 9 July 2013) Article 36 Announcement Regarding Fund Liquidation (1) The liquidator shall without delay notify the Commission of the commencement of liquidation of the fund and publish a relevant announcement in the Official Gazette Latvijas Vēstnesis. (2) The announcement regarding liquidation shall include information regarding the liquidator, indicate the time limit and place for applications by creditors. The time limit for applications by creditors may not be shorter than three months from the day the announcement was published. (As amended by the law of 9 July 2013) Article 37 Sale of Fund Property and Satisfaction of Claims (1) After commencement of the liquidation, the liquidator shall organise and perform sale of the fund property, except for the monetary assets in the fund. (2) The custodian bank or the liquidator shall distribute the proceeds gained from the selling of the property of the fund to be liquidated and the monetary assets in the fund (hereinafter proceeds of liquidation) in the following sequence: 1) claims of secured creditors; 2) claims of the creditors who have submitted their claims within the time limit specified in the announcement; and 3) claims of the creditors who have submitted their claims after the time limit specified in the announcement but before the distribution of the proceeds of liquidation. (3) If the proceeds of liquidation do not suffice to satisfy the claims referred to in Paragraph 2 of this Article, the unsatisfied claims shall be satisfied from the property of the investment company, except for the claims which have arisen after the termination of the management rights of such company. (4) If the proceeds of liquidation do not suffice to satisfy the claims referred to in Paragraph 2 of this Article which have arisen during the period when the management rights were exercised by the custodian bank, the claims shall be satisfied by the custodian bank. (5) The remaining proceeds of liquidation shall be divided among the fund investors in proportion to the number of their investment certificates. (6) The custodian bank or the liquidator shall submit for publishing in the Official Gazette Latvijas Vēstnesis an announcement regarding the distribution of the proceeds of liquidation among the fund investors, indicating the sum to be paid for one certificate, as well as the place and time for making the payments. (7) All payments to creditors and fund investors shall be made in cash. (As amended by the law of 9 July 2013) Article 38 Fund Liquidation Expenditures (1) During liquidation, the liquidator has the right to cover liquidation expenditures from the proceeds of liquidation. The liquidation expenditures do not include intermediation payments that are related to selling of the immovable property. These payments shall be included in the fund expenditure that are paid from the fund property and their maximum amount shall be set out in the fund rules.

43 2) Liquidation expenditures may not exceed two percent of the proceeds of liquidation. (As amended by the law of 19 June 2008 taking effect on 23 July 2008) Article 381 Liquidation of a Sub-Fund (1) The procedure whereby a fund is liquidated as set out in this Chapter shall apply to the liquidation of a sub-fund. (2) After the completion of the liquidation of a sub-fund the company shall make the respective amendments to the fund rules and to the fund prospectus. (In the wording of the law of 8 March 2007 taking effect on 10 April 2007) Article 39 Liquidation Reports (1) The liquidator shall submit a report on the course of liquidation to the Commission once a month. (2) Within 10 days of the completion of liquidation, the liquidator shall submit to the Commission a notification regarding the completion of liquidation and the final report of liquidation. (As amended by laws of 1 June 2000; 18 March 2004 taking effect on 1 May 2004) Chapter IV Custodian Bank Article 40 General Provisions Set Forth for a Custodian Bank (1) The company shall perform transactions with the fund property through a custodian bank. (2) A credit institution registered in Latvia that has started providing investment services and non-core services, including holding of financial instruments, or a Latvian branch of a credit institution registered in a member state may be a custodian bank provided that the credit institution is entitled to provide investment services and non-core services, including holding of financial instruments. (3) The custodian bank, in performing the duties prescribed by the law, shall operate independently of the company and solely in the interests of investors. (4) The custodian bank may invest its assets in the investment certificates of a fund of which it is the custodian bank only where the custodian bank is a shareholder of the company managing the fund with a qualifying holding and the provisions of Paragraphs 14 and 15 of Article 33 of this Law have been met. (5) Upon a change of the custodian bank, the new custodian bank, if necessary, shall within six months from the day of coming into effect of the custodian bank agreement take measures so that its operation conforms to the provisions of Paragraph 4 of this Article. (As amended by laws of 1 June 2000, 18 March 2004, 19 June 2008 and 13 October 2011 taking effect on 16 November 2011) Article 41 Keeping of Fund Property in the Custodian Bank (1) The company shall open a separate account in the custodian bank for each fund under its management. The name of the fund and the registration number allocated by the Commission shall be regarded as fund identification data, when opening an account with the custodian bank. (2) Income from the fund property and income from the issue of investment certificates shall be transferred to the account of the relevant fund held in the custodian bank.

44 (3) The custodian bank shall perform payments from the account of the fund only on the basis of an order by the company in accordance with the law, the fund prospectus, the fund rules and the custodian bank agreement. (As amended by the law of 18 March 2004 taking effect on 01 May 2004) Article 42 Custodian Bank Duties (1) A custodian bank has the following duties: 1) to keep the fund property in accordance with the law and the custodian bank agreement; 2) to make sure that the issue, sale and repurchase of investment certificates takes place on behalf of the company and in accordance with the law, the fund prospectus and the fund rules; 3) to make sure that the fund value is calculated in accordance with the law, the regulations of the Commission, the fund prospectus and the fund rules; 4) to fulfil orders of the company if they do not contradict the law, the regulations of the Commission, the fund prospectus, the fund rules and the custodian bank agreement; 5) to ensure that the fund income is used in accordance with the law, the fund prospectus and the fund rules; and 6) to make sure that the payments specified in transactions with the fund property are duly made; 7) in case of a merger of investment funds, to certify that information referred to in Subparagraphs 1, 6 and 7 of Paragraph 7 of Article 34.1 of this Law in respect of a fund whose custodian bank it is complies with the requirements of this Law, the respective fund prospectus and the fund rules; 8) to provide information upon the Commission s request that the custodian bank has received while performing the functions of a custodian bank of a fund. (2) (Deleted with the law of 1 June 2000). (3) The custodian bank has a duty to raise claims of fund investors against the company in its own name if required by the relevant circumstances. This provision shall not restrict the right of fund investors to raise such claims on their own behalf. (4) The custodian bank has a duty to raise a counterclaim if recovery proceedings are directed at the fund property in connection with its liabilities. (As amended by laws of 1 June 2000 and 13 October 2011 taking effect on 16 November 2011) Article 43 Transfer of Custodian Bank Duties (1) The custodian bank has the right to transfer by an agreement the keeping of the fund property and the servicing of the fund account to third persons if provided for in the custodian bank agreement. (2) If the custodian bank fully or partially transfers its functions to a third person, such agreement shall be in effect if it has been approved by the company and the Commission. (3) The transfer of the custodian bank s duties to third persons shall not release the custodian bank from the liability provided for in the law and the custodian bank agreement. Article 44 Remuneration to the Custodian Bank (1) The custodian bank has the right to remuneration for the provision of services provided for in the custodian bank agreement. (2) Remuneration of the custodian bank shall be covered from the fund property on the basis of an order by the company in accordance with the custodian bank agreement. Article 45

45 Duty to Give Notification The custodian bank has a duty to notify the Commission and the company s supervisory board without delay of the actions by the company known to the custodian bank which are in conflict with the law, the fund prospectus, the fund rules or the custodian bank agreement. Article 46 Liability of the Custodian Bank (1) The custodian bank shall be fully liable to fund investors, company and third persons for losses which have been caused if the custodian bank has violated the law or the custodian bank agreement intentionally or through negligence or has performed its duties negligently. (2) If the custodian bank has consented to a transaction which does not conform to the provisions of this Law or has failed to submit an objection regarding a violation of the provisions of this Law, the custodian bank and the company shall be jointly liable for the losses caused to the fund. Article 47 Custodian Bank Agreement (1) A custodian bank agreement is an agreement concluded in writing between the company and the custodian bank in accordance with which the custodian bank undertakes to keep the fund property and perform transactions with the fund property and servicing of the fund accounts in accordance with the law, this agreement and company orders. (2) The custodian bank agreement shall include: 1) the firm name, registration number, licence number, legal address and the location of the board of directors of the company; 2) the firm name, registration number, licence number, legal address and location of the board of directors of the custodian bank; 3) the name of the fund; 4) the rights and obligations of the parties; 5) the procedures for servicing the fund accounts; 6) the amount of custodian bank remuneration and payment procedures; 7) the procedures for covering expenditures of the custodian bank which have arisen while carrying out transactions with the fund property or servicing the fund accounts; 8) the procedures by which the custodian bank transfers fund accounts, documents and other matters to third persons; 9) the liability for non-performance or improper performance of the agreement; 10) the term of the agreement; 11) the procedures for amending provisions of the agreement; 12) the conditions and procedures for early termination of the agreement; 13) the procedures for adjudication of disputes; and 14) other provisions arising from the fund prospectus. (3) The parties may also include other provisions in the custodian bank agreement which are not in conflict with the law, the fund prospectus and the fund rules. (4) Where a company licensed in a member state wishes to manage or to establish a fund in Latvia, in addition to the custodian bank agreement specified in this Article the company and the custodian bank shall also sign an agreement governing information exchange between the company and the custodian bank that is necessary to enable the custodian bank to perform its functions set out in this Law. (5) The Commission shall issue regulations governing the content of the agreement referred to in Paragraph 4 of this Article.

46 (As amended by laws of 24 October 2002 and 13 October 2011 taking effect on 16 November 2011) Article 48 Termination of Custodian Bank Agreements (1) Custodian bank agreements shall terminate in the following cases: 1) the time limit specified in the agreement expires; 2) parties to the agreement reach a mutual agreement; 3) one person unilaterally withdraws from the agreement taking into account the time periods prescribed in Paragraph 2 of this Article; 4) circumstances arise as a result of which the custodian bank no longer meets the requirements of the law; 5) the custodian bank is declared insolvent; 6) the custodian bank terminates its operation; 7) fund liquidation has been commenced; 8) the Commission instructs the company to change the custodian bank; or 9) in other cases specified in the custodian bank agreement. (2) The person which unilaterally withdraws from the agreement has a duty to notify the other person thereof three months in advance unless the custodian bank agreement provides for a longer time period. (3) The custodian bank agreement shall not terminate upon the transfer of the fund management rights to the custodian bank. Article 49 Instructions Regarding Change of the Custodian Bank (1) The Commission has the right to give an instruction to the company to change the custodian bank if the custodian bank violates the provisions of this Law or the custodian bank agreement or if required for the protection of interests of the fund investors. (2) In the cases specified in Paragraph one of this Article, the custodian bank agreement shall terminate within the time limit and in accordance with the procedures specified by the Commission. (As amended by the law of 24 October 2002 taking effect on 27 November 2002) Article 50 Entering into a New Custodian Bank Agreement (1) The company shall ensure that on the next day after termination of the custodian bank agreement a new custodian bank agreement comes into effect, except in the case where the agreement terminates due to fund liquidation. (2) If the company fails to enter into a new custodian bank agreement within the time limit prescribed in Paragraph 1 of this Article, it shall commence fund liquidation. (As amended by the law of 1 June 2000 taking effect on 4 July 2000) Chapter V Issue and Circulation of Investment Certificates Article 51 Investment Certificates (1) Public circulation of investment certificates shall take place in accordance with the Law on the Financial Instruments Market unless otherwise provided by this Law.

47 (2) Investment certificates of a fund may be of various classes with a different face value, related payments or different rights regarding the distribution of the fund income. The rights and liabilities attached to investment certificates shall cover all fund property. Equal rights shall be attached to the same class of investment certificates of the same fund. (3) Upon alienation of an investment certificate, the undivided share of the relevant alienor in the fund shall also be transferred to the acquirer. (4) Investment certificates shall be issued in a dematerialised form. (5) Investment certificates of a fund shall be regarded as securities in public circulation also in cases where they have not been admitted to trading on a regulated market. (6) (Deleted by the law of 9 July 2013). (7) In order to admit investment certificates to trading on a regulated market, the fund prospectus and the fund rules shall be equivalent to a prospectus prepared in compliance with the Law on the Financial Instruments Market. (8) Investment certificates shall be divisible. The fund prospectus shall set the procedure whereby the number of investment certificates is rounded after the division. (As amended by laws of 18 March 2004, 8 March 2007 taking effect on 10 April 2007 and of 9 July 2013) Article 52 Issue of Investment Certificates (1) The number and the period of issue of the investment certificates of an investment fund, except of a structured fund referred to in Article 36 of the Commission Regulation (EU) No 583/2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards key investor information and conditions to be met when providing key investor information or the prospectus in a durable medium other than paper or by means of a website (hereinafter European Commission s Regulation No 583/2010), shall not be restricted. (2) (Deleted by the law of 9 July 2013). (3) (Deleted by the law of 9 July 2013). (4) Investment certificates shall be issued only in return to full payment of the price of such certificates in cash in accordance with the provisions of the fund prospectus. The cash received for investment certificates, except for the issue commissions, shall be transferred to the fund without delay. (5) If investment certificates have been released into circulation but the value of the relevant fund units is not transferred to the fund, the company shall invest the missing amount in the fund from its own property. (As amended by laws of 8 March 2007, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 53 Price of Investment Certificates (1) The issue price of a fund investment certificate is the sale price of the first investment certificate. (2) (Deleted by the law of 9 July 2013). (3) The issue price of a fund investment certificate shall be determined by the company in accordance with the provisions of the fund prospectus. (4) The sale price of a fund investment certificate is the sum of the investment fund share value and the commissions for the issue.

48 (5) Commissions for the issue is remuneration to the company for the issue of investment certificates. (6) Commissions for repurchase is remuneration to the company for repurchase of fund investment certificates. (7) The sale price of a fund investment certificate shall be determined concurrently with the fund share value and the information thereof shall be available in the places specified in the fund prospectus. (8) The repurchase price of an investment certificate of a fund is the investment fund unit value that shall be reduced by the commissions for repurchase in accordance with the fund prospectus. Where the fund has different classes of investment certificates, the repurchase price of investment certificates shall be established separately for each class. (9) If the company announces the sale price of investment certificates it also has a duty to announce the repurchase price and vice versa. (As amended by the law of 8 March 2007 taking effect on 10 April 2007 and of 9 July 2013) Article 54 Repurchase of Investment Certificates (1) The company managing a fund shall have a duty to perform repurchase of investment certificates at the request of fund investors by paying to them the repurchase price in cash in accordance with the provisions of the fund prospectus. (2) Investment certificates shall be withdrawn from circulation when the company receives a repurchase application from an investor and the investor transfers the investment certificate to the issue account of the fund. After withdrawal from circulation the rights of fund investors arising from the investment certificate shall terminate, except for the right to claim in the amount of the repurchase price of the investment certificate. (3) The company may temporarily suspend the repurchase of fund investment certificates in the cases and in accordance with the procedures prescribed in the fund prospectus. Suspension of the repurchase may only be provided for in exceptional cases if circumstances so require, and suspension is justified by taking into account the interests of the investors. (4) The repurchase price shall be paid from the fund property in accordance with the procedures and within the time limit prescribed in the fund prospectus. (5) Investment certificates shall be repurchased in the order in which repurchase claims were submitted. (As amended by the law of 1 June 2000 taking effect on 4 July 2000 and of 9 July 2013) Article 54 1 Reporting of the Execution of Buying and Redemption Orders in Respect of the Investment Certificates of a Fund (1) The company shall use a durable medium to notify fund investors that it has executed a subscription or a redemption order not later than on the next business day following the execution or, where the company receives the confirmation from a third person, not later than on the next business day following the receipt of the confirmation from the third person. (2) Paragraph 1 of this Article shall not apply where the notice contains the same information as the confirmation that is to be sent by the third person to fund investors without delay. (3) The notice referred to in Paragraph 1 of this Article shall contain the following information: 1) identification of the company; 2) identification of the fund investor (name, surname or company name); 3) the date and time of the receipt of the order and the payment method;

49 4) the date of execution; 5) identification of the fund; 6) the type of the order: buying, repurchase or redemption; 7) the number of investment certificates; 8) the value of investment certificates at which they were bought, repurchased or redeemed; 9) the reference value date; 10) the gross value of the order, including issuing charges, or net value after charges for repurchasing; 11) the total amount of commission or other charges in relation to the transaction and, where the fund investor so requests, an itemised breakdown of charges. (4) Where the company executes the orders of a fund investor periodically, it shall comply with the requirements of Paragraph 3 of this Article or at least once every six months it shall submit to the fund investor information about executed transactions. (5) Upon the investor s request, the company shall have an obligation to provide him/her with information about the status of the order. (6) The company that manages a fund shall be exempt from the obligation to repurchase investment certificates where the investment certificates are admitted to trading on a regulated market and the company that manages the fund takes the necessary measures to ensure that the market price of investment certificates does not differ notably from the fund unit value. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 55 Request for Redemption of Investment Certificates (1) If due to the fault of the company the information in the fund prospectus and the documents attached thereto which is substantial for the assessment of investment certificates is wrong or incomplete, a fund investor has the right to request that the company redeems his/her investment certificate and compensates him/ her for all losses caused due to this reason. (2) If in the case referred to in Paragraph 1 of this Article the fund investor has obtained the investment certificate from a person who is engaged in intermediary activity on the securities market, such person, together with the company, shall be jointly liable for the payment of damages to the fund investor. Such person shall not be liable if he/she proves that he/she has not known and could not know that the information was wrong or incomplete. (3) If, at the moment when the fund investor has learned that the information is wrong or incomplete, he/she is no longer the owner of the investment certificate, he has the right to request that the company pays the difference by which the sum invested by him or her exceeds the repurchase price of the investment certificate at the moment of repurchase. (4) The claim in accordance with the provisions of Paragraphs 1, 2 and 3 of this Article may be raised within a period of six months from the day when the fund investor learned that the information was wrong or incomplete, however, not later than within a period of three years from the day when the investment certificate was purchased. Article 56 Fund Prospectus, Key Investor Information and Amendments Thereto (1) The issue of investment certificates shall not be commenced without a fund prospectus that has been approved by the company. The company shall draw up also key investor information in which information referred to in Article 57 1 of this Law shall be provided.

50 (2) The fund prospectus shall include information necessary for investors so that they could take a reasoned decision regarding the investment offered and the potential risk that may be incurred by such investment. (21) Key investor information shall present, in a concise form, the essential performance indicators of the fund. The company shall ensure that key investor information is fair, clear and not misleading and is consistent with the fund prospectus. (3) The fund prospectus shall include the information referred to in Article 57 of this Law. The fund prospectus need not repeat the information which is included in the fund rules of the relevant fund and which is equal to the information referred to in Article 57 of this Law. (4) The fund prospectus and key investor information shall come into effect upon the registration of the fund with the Commission. (5) Where the company intends to amend the information provided in compliance with Subparagraphs 1, 2, 3, 4, 5, 7, 8, 9, 10 1, 11, 12, 13, 14, 15, 16 and 23 of Paragraph 3 of Article 57 of this Law, prior to making the relevant amendment, the company shall submit to the Commission: 1) a decision of the management body of the relevant company to approve the amendments to the fund prospectus; 2) the amendments to the fund prospectus and the text of the fund prospectus that contains the amendments. The amendments to the fund prospectus and the text of the fund prospectus shall be submitted to the Commission in either of ways referred to in Paragraph 2 of Article 23 hereof. 3) (Deleted with the law of 11 March 2010). (6) The Commission shall examine the submitted amendments to the fund prospectus and, within 15 business days, register amendments if they meet the requirements of this Law and are not in conflict with the legitimate interests of the investors. (7) If amendments are required in the fund prospectus, taking into account changes in the company s capital, the composition of the supervisory board or officials or any other changes in the operation of the company or the fund which in compliance with this Law shall be coordinated with the Commission, the company shall, after the coordination of these changes with the Commission, make relevant amendments to the fund prospectus without their prior registration with the Commission and, in compliance with Subparagraph 2 of Paragraph 5 of this Article, submit to the Commission the full text of the fund prospectus. (8) After registration of the amendments to the fund prospectus with the Commission, the company shall, in accordance with the procedures specified in the fund rules, without delay, inform the fund investors of the amendments to the fund prospectus and their coming into effect. (9) The amendments to the fund prospectus referred to in Paragraph 5 of this Article shall come into effect not earlier than 10 days after their registration with the Commission or within another term determined by the Commission that shall not exceed three months after the registration date of the amendments and that is determined in view of the contents of the amendments to the fund prospectus and the interests of fund investors. (10) The amendments to the fund prospectus referred to in Paragraph seven of this Article shall come into effect after their approval by the management body of the company. (11) The provisions for amending the fund prospectus specified in this Article shall apply to the amendments to key investor information, taking into account the requirements of European Commission Regulation No 583/2010. [In the wording of the law of 18 March 2004, as amended by laws of; 8 March 2007, 19 June 2008, 11 March 2010, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013)

51 Article 57 Content of the Fund Prospectus (1) The fund prospectus shall have a title page. The title page shall include the following information: 1) the type and name of the fund, as well as an indication of the country in which the fund has been established (registered); 2) the firm name and legal address of the company of the fund; 3) the custodian bank of the fund; 4) the firm name of the distributor of fund investment certificates and the addresses of the places of distribution; 5) the name and surname of the fund certified auditor or the firm name of the commercial company of certified auditors; 6) the date of establishing the fund and the term of operation (if any); 7) the note on the fund registration with the Commission; 8) the note on the amendments made to the fund prospectus and the date of their coming into effect; 9) the address of the place where the fund prospectus, key investor information, the fund rules (if such have not been attached to the prospectus), annual and half-yearly reports of the fund, as well as information on the fund value and the sale and repurchase price of investment certificates may be received. (2) The fund prospectus shall have content and explanations of the terms and abbreviations used. (3) The fund prospectus shall include at least the following information according to the sequence given in this Paragraph: 1) the purpose, also, the financial objective (for example, the capital increase or income from investments), the investment policy (for example, types of investment objects, specialisation in specific geographical regions or industrial sectors), as well as the information specified in Article 65 of this Law; 11) an announcement drawing the attention of fund investors to the following features of the fund s operations: a) the major part of fund s assets is intended for investment in investment objects other than transferable securities or money market instruments, b) the fund intends to replicate the composition of a stock or debt security index, c) the fund s net asset value is highly volatile; 2) a description of the fund risk profile and an analysis of the investment-related risk; 3) fund investment limits and a description of the investment practice or techniques applied to the fund management and the principles and procedures for loans to be made at the expense of the fund; 4) a brief explanation of the rights of fund investors provided for in this Law and a short description of the rights attaching to investment certificates; 5) characteristics of the typical investor (investor for whom the fund has been provided); 6) information on tax and duty payments applicable to fund investors and procedures for making thereof; 7) the maximum amount of the commissions charged for the sale and repurchase of investment certificates (as a percentage of the fund unit value); 8) the maximum amount of the remuneration to be paid from the fund property to the company, custodian bank and other persons referred to in the fund prospectus (both the total amount and

52 the amount of remuneration payable to each person separately) and the procedure for calculation and payment thereof. The maximum remuneration amount shall be indicated as a percentage of the average value of fund net assets; 9) other possible expenses and payments, as well as the procedure for covering thereof. Payments that are to be made by fund investors individually and those effected from the fund resources shall be indicated separately; 10) information on the fund auditor the name, surname and certificate number or firm name, registration number and licence number of a commercial company of certified auditors; 101) classes, face value, related payments and rights to the distribution of the fund income of the fund investment certificates; 11) procedure for sale, repurchase and redemption of investment certificates as well the procedure for rounding the number of investment certificate units after the division of investment certificates; 12) circumstances under which repurchase and redemption of investment certificates may be suspended; 13) methods and frequency of calculation of the sale and repurchase price of investment certificates, as well as where and how often these prices are made public; 14) principles and provisions for determining the fund value; 15) provisions for the calculation of the fund income, its use and distribution among fund investors; 16) the beginning and end of the financial year of the fund; 17) the firm name, registration date and number, legal address and, if the company has established a branch, its location; 18) the amount of registered and paid-up capital of the company; 19) the name, surname of the company s supervisory board members and officials, office held, as well as their duties outside the company if they are of any relevance to the company s operation; 20) the names of other funds managed by the company; 21) the firm name, registration date and number, the legal address and location of the custodian bank; 22) the name, surname or firm name, registration number and location of the consultant and other service providers if the company has entered into a contract to provide relevant services at the fund management and under this contract remuneration to the service provider is paid from the fund resources. A short description of basic activities of the provider of the relevant services and those provisions of the contract to provide services which are relevant for fund investors; 23) if the company plans to transfer any of the fund management services to a third person, an indication of these services and a description of the procedure for the transfer of services; 24) characteristics of the previous activities of the fund and a comparative table listing financial indicators for the three preceding years (prepared in compliance with the regulations for fund reports). This information shall be followed by a note that that these indicators do not determine (influence) further operations of the fund. The said information may be included in, or appended to, the fund prospectus; 25) the manner and the procedure for receiving fund s annual and half-yearly reports. (4) (Deleted by the law of 13 October 2011). (5 (Deleted by the law of 9 July 2013)). (6) (Deleted by the law of 9 July 2013).

53 (7) The provisions of the fund prospectus shall become binding in the mutual relationships of the company and the investor as soon as the investor in accordance with the procedures provided for in the fund prospectus and the fund rules has obtained investment certificates of the relevant fund. [In the wording of the law of 18 March 2004 as amended by laws of 8 March 2007, 19 June 2008, 11 March 2010, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 57 1 Content of Key Investor Information (1) Key investor information shall be simple and understandable to fund investors so that they can understand the essential aspects of the investment and take an informed decision about the offered investment. (2) Key investor information shall include at least the following information about essential elements of the fund s operations: 1) identification of the fund; 2) the fund s investment objective and a short description of its investment policy; 3) past performance indicators or performance scenarios; 4) charges associated with the fund s activities; 5) a description of the fund s risk profile that includes guidance and warnings in respect of the risks associated with investments in the respective fund. (3) Information referred to in Paragraph 2 of this Article shall be prepared without any reference to other documents. (4) Key investor information shall clearly indicate the address of the location where additional information may be received and where, upon request, the fund prospectus, a copy of the annual and of the half-yearly reports are provided to fund investors without a charge, and it shall also specify the languages in which these documents have been prepared. (5) Key investor information shall be drawn up in a concise manner and non-technical language. It shall be prepared in a common format to facilitate comparison with key investor information of other funds and presented in a way that is understood by retail clients. (6) Key investor information shall be used without alterations or supplements, except translation, in all member states where investment certificates of the respective fund are marketed. (7) Key investor information shall become binding in the relationship between the company and an investor as soon as the investor subscribes to investment certificates of the respective fund in due course of the fund prospectus and the fund rules, except in cases when such information is false, inaccurate, misleading or inconsistent with the fund prospectus. The said information shall be explicitly indicated in key investor information. (8) Information referred to in Paragraph 2 of this Article shall be updated regularly in line with the requirements of European Commission Regulation No 583/2010. (9) Detailed format and content of key investor information shall be established in accordance with European Commission Regulation No 583/2010. (10) The Commission shall establish the procedure for drawing up key investor information. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011) Article 58 Availability of the Fund Prospectus and Key Investor Information (1) A company shall have an obligation to ensure that the fund prospectus and key investor information is provided without a charge to all interested parties.

54 (2) To ensure compliance with the requirements set out in Paragraph 1 of this Article, the company shall place the fund prospectus and key investor information on its website or use a durable medium in line with the requirements of European Commission Regulation No 583/2010. (3) Upon request, a paper copy of the fund prospectus and of key investor information shall be provided to fund investors without a charge. (4) Where amendments are made to the fund prospectus or to key investor information, the company shall, after their coming into effect, immediately ensure that the full text of the fund prospectus indicating the amendments and the date of their coming into effect and the latest version of key investor information are available on its website. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011) Article 59 Advertising of the Fund Issue (1) In advertising of the fund issue by placing advertisements or publicly announcing the regulations of the issue it is mandatory to indicate the following: 1) the name of the fund; 2) the firm name, legal address and location of the executive body of the company managing the fund; 3) the firm name, legal address and location of the custodian bank; 4) the starting date of investment certificate distribution; 5) the issue or sale price of investment certificates; 6) the place where the fund prospectus and key investor information may be received specifying the languages in which those documents are available; 7) that profit is not guaranteed. (2) In the marketing communication about an opportunity to subscribe to investment certificates of the respective fund information shall be fair, clear and not misleading and be consistent with the fund prospectus and key investor information. (3) Where the fund s investment policy foresees to invest the major part of fund s assets in investment objects other than transferable securities or money market instruments, the fund intends to replicate the composition of a stock or debt security index, or the value of fund s net assets is highly volatile, a statement shall be included in the marketing communication about the issue that would draw attention of the potential investors to the features of the fund s investment policy listed in this Paragraph. (As amended by laws of 24 October 2002 and 13 October 2011 taking effect on 16 November 2011) Article 60 Public Circulation of Investment Certificates of Foreign Open-end Funds (Deleted with the law of 13 October 2011 taking effect on 16 November 2011) Chapter VI Fund Investments (Chapter in the wording of the law of 24 October 2002 taking effect on 27 November 2002) Article 61 Fund Investment Objects (1) Fund assets may be invested in transferable securities, money market instruments, deposited in credit institutions and invested in other financial instruments referred to in this Law, taking into account the investment limits specified by this Law.

55 (2) (Deleted by the law of 9 July 2013). (3) Fund assets may not be invested in precious metals and financial derivative instruments the underlying assets of which are precious metals or commodities. (4) Fund assets may be kept in liquid assets (including in cash) in the amount required for the fund operation. (5) When making investments at the fund expense, the company shall have a duty to invest only in the investment objects set out in the fund prospectus, observe the investment limitations set out therein, obtain sufficiently comprehensive information regarding the potential or acquired investment objects, as well as constantly monitor and analyse the financial standing of those persons into whose financial instruments the fund assets are or will be invested. (6) The Commission shall establish requirements for the investment objects of investment funds, transactions, funds of certain business model, as well as requirements for information disclosure. (As amended by laws of 18 March 2004, 8 March 2007, 19 June 2008, 11 March 2010 taking effect on 14 April 2010 and of 9 July 2013) Article 62 Investments in Transferable Securities and Money Market Instruments (1) Fund assets may be invested in transferable securities and money market instruments which meet at least one of the following conditions: 1) they are traded on the regulated market in a member state or on another trading venue referred to in Paragraph 8 of Article 2 of the Commission Regulation (EC) No 1287/2006 of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and of the Council as regards recordkeeping obligations for investment firms, transaction reporting, market transparency, admission of financial instruments to trading, and defined terms for the purposes of that Directive (hereinafter European Commission Regulation No 1287/2006); 2) they are included in the official listing of a stock exchange or are traded on other trading venues abroad referred to in Paragraph 8 of Article 2 of the European Commission Regulation No 1287/2006 and the choice of the stock exchange or of the trading venue is envisaged in the fund prospectus; 3) they are not included in the official listing of stock exchanges or are not traded on trading venues but, according to the provisions for the issue of these securities or money market instruments, they will be included in the official listing of the stock exchanges or admitted to trading on the regulated market referred to in Subparagraphs 1 and 2 of Paragraph 1 of this Article and the inclusion or the admission of these securities or money market instruments to trading shall take place within one year from the day when subscription to these securities or money market instruments is commenced. (2) Fund assets may be invested in money market instruments that are not traded on the regulated markets provided that they are freely transferable (there are no conditions restricting the transaction) and at least one of the following conditions has realised: 1) they have been issued or guaranteed by a member state or a local government of a member state, another state or, in case of a federal state, one of the members of the federation or an international financial institution if one or several member states are members thereof; 2) they have been issued or guaranteed by the central bank of a member state, the European Central Bank or the European Investment Bank; 3) they have been issued by a commercial company whose securities are traded in accordance with the procedure prescribed in Subparagraphs 1 and 2 of Paragraph 1 of this Article;

56 4) they have been issued or guaranteed by a credit institution that is registered in a member state and its operation is supervised by a financial services supervisory authority in accordance with the requirements established in the European Union or by an issuer in respect of which the requirements governing its operation are as strict as the requirements established in the European Union and that complies with at least one of the following requirements: a) it is registered in a member state of the Organisation for Economic Co-operation and Development that is also the country of the Group of Ten, b) it has been assigned the investment grade rating, c) a comprehensive analysis of the legal regulation of the issuer s operation evidences that the requirements governing the issuer s activities are as strict as those established in the European Union; 5) they have been issued by a commercial company whose capital and reserves amount to 10 million euros or a larger amount and that draws up and publishes audited annual accounts in accordance with the requirements for drawing up and publishing annual report that are equivalent to the requirements established in the European Union. Such commercial company is in a group with one or several commercial companies whose shares are traded on the regulated market and has been established for the purpose of attracting funds to the group or it is a structure that was established for a specific purpose, specialises in debt securitisation and has entered into an agreement for the provision of liquidity with a bank that complies with the requirements set out for credit institutions in Subparagraph 4 of this Paragraph. Investor protection that is equivalent to the protection set out in Subparagraphs 1, 2, 3 and 4 of this Paragraph shall apply to investments in such money market instruments. (In the wording of the law of 19 June 2008 as amended by the law of 13 October 2011 taking effect on 16 November 2011 and of 19 September 2013) Article 63 Deposits in Credit Institutions (1) Fund assets may be deposited in a credit institution that has obtained a licence for the operation of a credit institution in Latvia, in another member state or in a member state of the Organisation for Economic Co-operation and Development that is a member of the Group of Ten. (2) Deposits in credit institutions may be made if they are repayable on demand or they can be withdrawn prior to the end of the time limit and the time limit thereof does not exceed 12 months. (As amended by laws of 18 March 2004 and 19 June 2008 taking effect on 23 July 2008) Article 64 Investments in Fund Investment Certificates (Units) (1) Fund assets may be invested in investment certificates or units of an investment fund registered in a member state or of a collective investment undertaking equivalent to an investment fund whose activity is governed by regulatory enactments analogous to the requirements of this Law. (2) Fund assets may be invested in investment certificates or units of a foreign investment fund or of a collective investment undertaking equivalent to an investment fund provided that the investment fund or the collective investment undertaking equivalent to an investment fund complies with the following requirements:

57 1) it is registered in a foreign country whose legal framework provides for the supervision of such undertakings that is similar to the supervision specified in this Law and the supervisory authority of the respective foreign country cooperates with the Commission; 2) the requirements governing its operations, including the protection of investors, limitations on investments and transactions, are analogous to the provisions of this Law regarding the operation of investment funds; 3) it prepares and makes available to the public half-yearly and annual reports to enable the assessment of its assets, liabilities, income and performance during the reporting period. (3) Fund assets may be invested in the certificates (units) of the funds and collective investment undertakings referred to in Paragraphs 1 and 2 of this Article if the prospectus, the fund rules or an equivalent document of the fund or collective investment undertaking [the investment certificates (units) of which it is intended to purchase] provides that investments in other funds or collective investment undertakings may not exceed 10 percent of the assets of the fund or collective investment undertaking. (4) If the fund assets will predominantly be invested in the funds or collective investment undertakings referred to in this Article, the fund prospectus shall include information regarding the maximum fund management costs which may be withheld from the fund itself and from those funds or collective investment undertakings in which such fund makes investments. (5) Where the assets of a fund (sub-fund) are intended to be invested in the funds (sub-funds) that are managed by companies of one group, the prospectus shall specify these funds (subfunds) and the total maximum amount intended for investment therein. (As amended by laws of 18 March 2004, 8 March 2007, 19 June 2008, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 65 Transactions in Financial Derivative Instruments (1) Fund assets may be invested in financial derivative instruments that are traded on the markets referred to in Paragraph 1 of Article 62 of this Law or that are not admitted to trading on the regulated market and that concurrently meet the following requirements: 1) their underlying asset is the financial instruments referred to in Articles 62, 63 and 64 of this Law, financial indices, interest rates, exchange rates or currencies in which investments of fund assets are intended, as set out in the fund prospectus or the fund rules; 2) the counterparty in a transaction with a financial derivative instrument not admitted to trading on the regulated market is a credit institution that meets the requirements of Article 63, Paragraph one of this Law or an investment brokerage firm whose capital and reserves amount to 10 million euros or to a larger amount and that is registered in a member state or in a member state of the Organisation for Economic Co-operation and Development that is a member of the Group of Ten and whose operation is supervised by the financial services supervisory authority; 3) a reliable and verifiable valuation of the financial derivative instrument not admitted to trading on the regulated market takes place each day and the financial derivative instrument may be sold or liquidated at its fair value at any time at the initiative of the company or a transaction may be made with that financial instrument as a result of which the position is closed (offsetting claims or liabilities in respect of the financial instrument). (2) If it is intended to perform transactions in financial derivative instruments at the expense of the fund, the fund prospectus shall explicitly state whether such transactions will be performed to limit the risk or to gain profit, as well as the possible effect of financial derivative instruments on the global exposure of the investment portfolio of the relevant fund.

58 (3) The company shall implement such risk management policy as enables it to determine and manage the risks related to financial derivative instruments and the effect of these financial derivative instruments on the global exposure of the fund investment portfolio at any time. (4) The company shall develop and follow the valuation policy of the financial derivative instruments that ensures accurate and independent valuation of the financial derivative instruments not admitted to trading on the regulated market, taking into account the nature and complexity of the financial derivative instruments. The Commission shall establish the requirements for measuring financial derivative instruments not admitted to trading on the regulated market. (5) If the fund prospectus indicates transactions in financial derivative instruments, before making such transaction the company shall prepare and submit to the Commission a report describing the risk management policy and the valuation procedure for financial derivative instruments as well as providing true and fair information about the types of financial derivative instruments used, the risks deriving from them, quantitative restrictions and methods that will be used to measure and hedge the risk of the relevant financial derivative instrument. (6) The company shall update information included in the report to the Commission in accordance with the requirements of Paragraph 5 of this Article in view of the complexity and scale of the business during the reporting period and it shall submit the report to the Commission together with the annual report. (As amended by laws of 18 March 2004, 8 March 2007, 19 June 2008 and 13 October 2011 taking effect on 16 November 2011; and of 19 September 2013) Article 66 Investment Limitations (1) Fund investments, except the fund investments referred to in Paragraphs 2 and 4 of this Article, in transferable securities or money market instruments of single issuer may not exceed five percent of the fund assets. The limit referred to may be raised to 10 percent of the fund assets but in such cases the total value of investments exceeding five percent may not exceed 40 percent of the fund assets. (11) Without prejudice to the investment limitations set out in Article 67 of this Law, the limitation referred to in Paragraph one of this Article in respect of an investment in transferable securities of single issuer may be increased to 20 percent of the fund assets where, in accordance with the fund prospectus or with the fund rules, the fund investment policy is aimed at replicating the composition of certain equity or debt securities index that is recognised by the Commission, provided that the following requirements are observed: 1) the composition of the index is sufficiently diversified; 2) the index represents an adequate benchmark for the market to which it refers; 3) the index has been published in due course of the regulatory enactments. (12) The limitation set out in Paragraph 11 of this Article in respect of an investment in transferable securities of single issuer may be increased to 35 percent of the fund assets where this is justified by exceptional market conditions especially on the regulated markets where certain transferable securities or money market instruments are highly dominant. The higher limitation set out in this Paragraph shall be applied only to transferable securities of a single issuer. (2) Fund investments in transferable securities or money market instruments of a single issuer may be increased to 35 percent of the fund assets if the transferable securities or money market instruments are issued or guaranteed by a member state, a foreign country, a local government of

59 a member state or an international institution if one or several member states are members thereof. (3) The limit specified in Paragraph 2 of this Article may be exceeded if the following conditions are concurrently fulfilled: 1) the exceeding is provided for in the fund rules; 2) the fund owns transferable securities or money market instruments from six or more issues and the value of transferable securities or money market instruments of each issue separately does not exceed 30 percent of the fund assets; and 3) to draw the attention of fund investors, in the fund prospectus or advertising materials those persons shall be specified in whose issued or guaranteed transferable securities or money market instruments the fund intends to invest or has invested more than 35 percent of its assets. (4) Fund investments in transferable securities of a single issuer may be increased to 25 percent of the fund assets if they are debt securities issued by a credit institution registered in member state and the liabilities attached to them provide for investing of the obtained funds in the property items that during the whole circulation period of debt securities fully ensure the liabilities attaching to them and such liabilities shall be fulfilled on a priority basis in case of insolvency of the issuer of such securities. (5) If the value of fund investments in the debt securities of a single issuer referred to in Paragraph four of this Article exceeds five percent of the fund assets, the total fund investment value that exceeds five percent shall not exceed 80 percent of the fund assets. (6) Fund deposits in one credit institution may not exceed 20 percent of the fund assets. The said limitation shall not apply to claims on demand to a custodian bank. (7) Global exposure arising from transactions in financial derivative instruments, including financial derivative instruments embedded in transferable securities or in money market instruments, shall not exceed the net asset value of the fund. When calculating the global exposure, the value of the underlying assets of the financial derivative instrument, the counterparty risk, the future market movements and the time available to liquidate the relevant position shall be taken into account. The Commission shall be entitled to establish stricter restrictions in respect of the global exposure where no efficient internal control system functions in respect of managing the operational risk relating to financial derivative instruments. (71) Global exposure shall also include risk stemming from transactions referred to in Paragraph 16 of Article 33 of this Law, including repurchase (repo) transactions of assets, or reinvestment of gain from lending of transferable securities. (72) The company shall calculate global exposure of the fund at least on a daily basis. (8) The risk exposure to a counterparty in a transaction with a financial derivative instrument not admitted to trading on the regulated market shall not exceed: 1) 10 percent of the fund assets if the counterparty is a credit institution that complies with the requirements of Paragraph 1 of Article 63 of this Law; 2) five percent of the fund assets in case the counterparty is an investment brokerage firm that complies with requirements of Subparagraph 2 of Paragraph 1 of Article 65 of this Law. (8 1 ) The Commission shall establish the procedure whereby global exposure and the risk exposure referred to in Paragraph 8 of this Article are calculated. (9) If, in accordance with the fund prospectus, the performance of transactions in financial derivative instruments is intended for the purpose of gaining profit, the limitations prescribed by this Article shall apply to the underlying asset of the financial derivative instrument.

60 (10) Fund investments in investment certificates (units) of one fund or a collective investment undertaking equivalent to an investment fund may not exceed 10 percent of the fund assets. The total investments of a fund in the certificates (units) of collective investment undertakings referred to in Paragraph 2 of Article 64 of this Law may not exceed 30 percent of the fund assets. (11) Disregarding the investment limits specified separately in Paragraphs 1, 6, 7 and 8 of this Article, the total fund investments in transferable securities and money market instruments, fund deposits and transactions in financial derivative instruments, the issuer or guarantor, investment attractor or transaction counterparty of which is one and the same person, may not exceed 20 percent of the fund assets. In applying the investment limits prescribed by this Article, commercial companies belonging to one group shall be considered as one person. (12) The investment limits specified separately in Paragraphs 1, 2, 4, 5, 6, 7 and 8 of this Article may not be combined and thus the total investments of a fund in transferable securities and money market instruments, fund deposits and transactions in financial derivative instruments whose issuer or guarantor, investment attractor or counterparty in a transaction is one and the same person, may not exceed 35 percent of the fund assets. (13) Disregarding the provisions of Article 62 of this Law regarding the fund investments in transferable securities and money market instruments, up to 10 percent of the investment fund assets may be invested in transferable securities and money market instruments which do not meet the requirements specified in Article 62 of this Law. (14) (Deleted by the law of 9 July 2013). (As amended by laws of 18 March 2004, 8 March 2007, 19 June 2008, 11 March 2010, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 67 Investment Limitations in Respect of Single Issuer (1) Fund investments in separate investment objects may not exceed the following criteria: 1) 10 percent of the nominal value of those shares of single issuer which carry no voting rights; 2) 10 percent of the total amount of debt securities issued by a single issuer; 3) 25 percent of the number of investment certificates (units) of one fund or collective investment undertaking; and 4) 10 percent of the total value of money market instruments issued by single issuer. (2) Investments of assets of the funds managed by the company shall not either in total or for each fund separately directly or indirectly exceed 10 percent of any of the following indicator: 1) share capital of a single issuer; 2) total amount of voting rights of a single issuer. (3) (Deleted by the law of 9 July 2013) (As amended by the law of 8 March 2007 taking effect on 10 April 2007 and of 9 July 2013) Article 68 Investments in Immovable Property (Deleted by the law of 9 July 2013) Article 69 Exceeding of Investment Limits (1) Exceeding the investment limits prescribed by this Law shall not revoke the validity of the relevant transaction, but the company shall be liable to fund investors and third persons for the losses caused due to such action, except for the cases specified in Paragraphs two, four, five and six of this Article.

61 (2) Exceeding the investment limits set out in Article 66, except in Paragraphs 7 and 13 thereof, as well as in Article 67 of this Law shall be allowed within a period of six months after the registration of a fund with the Commission. (3) Paragraph 2 of this Article shall not apply to funds the value of which exceeds euros. (4) Exceeding the investment limits prescribed by this Law may be allowed if it has been caused by exercising the right to subscribe which arises from transferable securities or money market instruments belonging to the fund property or other circumstances which the company was unable to predict. In order to prevent the exceeding of investment limits, the company shall without delay perform trading operations in conformity with the exposure reduction principle and the interests of fund investors. (5) At the moment when investment is made it may be allowed to exceed the investment limits specified in Subparagraphs 2, 3 and 4 of Paragraph 1 of Article 67 of this Law if at that moment it is impossible to determine or calculate the quantity or value of all issued securities with attaching indebtedness, or the value or number of the investment certificates (units) issued or in circulation. (6) A company has a duty to notify the Commission of the exceeding of investment limits, as well as of the measures for prevention thereof without delay. (As amended by the law of 19 September 2013) Article 70 Provisions for Making Transactions in Derivative Securities (Deleted with the law of 24 October 2002 taking effect on 27 November 2002) Article 71 Exceeding Investment Limitations (Deleted with the law of 24 October 2002 taking effect on 27 November 2002) Chapter VI 1 Dealing Between Master-Feeder Structures (Chapter in the wording of the law of 13 October 2011 taking effect on 16 November 2011) Article 71 1 Scope (1) (1) Investment funds shall be entitled to perform dealing between master-feeder structures. A feeder fund up to 15 percent of its assets that are not invested in a master fund may invest: 1) in assets in accordance with Paragraph 4 of Article 61 of this Law; 2) in transactions in financial derivative instruments provided they are made for hedging purposes in accordance with the requirements of Paragraph 1 of Article 65 and of Paragraph 16 of Article 33 of this Law and in view of the investment limits set out in Paragraph 7 of Article 66 of this Law. (2) To ensure compliance with the requirements of Paragraph 7 of Article 66 of this Law the feeder fund shall calculate its global exposure deriving from transactions in financial derivative instruments by combining it with the global exposure of the master fund. Global exposure of the master fund shall be determined in proportion to the investment by the feeder fund in the master fund, using the actual global exposure of the master fund or the potential maximum global exposure of the master fund as set out in its fund rules or fund prospectus. In future, the feeder fund shall use the chosen calculation method. (3) The master fund shall comply with the following requirements: 1) at least one investor of that fund is a feeder fund;

62 2) the fund itself is not a feeder fund; 3) the fund is not an investor in the feeder fund. (4) The following derogations shall apply to the master fund: 1) where at least two feeder funds are investors in the master fund, the master fund may not raise additional capital from other investors; 2) where the master fund does not market investment certificates in another member state but it has one or several feeder funds in that member state, the master fund may not ensure compliance with the requirements of Articles 77.2 and 77.3 of this Law. (5) The feeder fund shall have an obligation to monitor compliance of the master fund s operations with the procedure set out in the fund prospectus and fund rules of the master fund. For this obligation the feeder fund shall be entitled to rely on information and documents received from the master fund or, where applicable, from the management company, the custodian bank and the auditor of the master fund unless there is a motivated reason to doubt their accuracy. For the purposes of this Chapter, an auditor of the fund is the auditor specified in the fund prospectus or fund rules or a document equivalent to fund rules. (6) Where the management company of the feeder fund or any other person acting on behalf of the feeder fund or of the management company, receives a fee or a commission or other payment in relation to an investment in investment certificates of the master fund, that sum or payment shall be credited to the assets of the feeder fund. (7) The master fund shall immediately notify the Commission of any feeder fund that makes investments in its investment certificates. Where a feeder fund is established in another member state, the Commission shall immediately notify the supervisory authority of the home state of the feeder fund of that investment. (8) The master fund shall not charge a fee or a commission from the feeder fund in respect of issuing or repurchasing of investment certificates. (9) The master fund shall ensure that all information it provides in accordance with this Law or the Commission s regulations, the fund rules or the prospectus is available to the management company, the supervisory authority, the custodian bank and the auditor of the feeder fund. (10) Where the master fund and the feeder fund are registered in Latvia, the Commission shall immediately notify the feeder fund of any decisions taken and violations of the requirements of this Chapter detected in the activity of the master fund and of the management company, the custodian bank or the auditor of the master fund. (11) Where the master fund and the feeder fund are established in different member states, the Commission shall immediately notify the supervisory authority of the home state of the feeder fund about all decisions taken and violations of this Law or of other regulatory enactments relating to the activity of the master fund registered in Latvia and of the management company, the custodian bank or the auditor of the master fund. The Commission shall immediately notify the feeder fund registered in Latvia of any information it has received from the supervisory authority of the home state of the master fund. Article 71 2 Receiving the Approval for Dealing Between Master-Feeder Structures (1) Dealing between master-feeder structures may be made only after receiving an approval from the supervisory authority of the home state of the feeder fund and the agreement referred to in Paragraph 1 of Article 71.3 and in Paragraphs 1 and 7 of Article 71.4 of this Law or the rules have taken effect.

63 (2) Where the home state of the feeder fund is Latvia, before making a deal between masterfeeder structures the feeder fund shall receive an approval from the Commission for making the deal. The Commission shall issue its approval where the feeder fund, its custodian bank and auditor as well as the master fund comply with all requirements of this Chapter. To receive the approval, the management company of the feeder fund shall submit the following documents to the Commission: 1) the fund rules of the feeder fund and of the master fund; 2) the prospectus and key investor information of the feeder fund and of the master fund; 3) the agreement referred to in Paragraph 1 of Article 71.3 of this Law or the rules governing the business of the feeder fund and of the master fund; 4) when an existing fund is converted into a feeder fund, information to be provided to investors of the feeder fund referred to in Paragraph 1 of Article 71.6 of this Law; 5) where the master fund and the feeder fund have different custodian banks, the information sharing agreement between the custodian banks referred to in Paragraph 1 of Article 71.4 of this Law; 6) where the master fund and the feeder fund have different auditors, information sharing agreement between the auditors referred to in Paragraph 7 of Article 71 4 of this Law. (3) Where the home state of the master fund is not Latvia, the management company of the feeder fund, in addition to the documents listed in Paragraph 2 of this Article, shall also submit to the Commission the statement by the supervisory authority of the home state of the master fund to the effect that the master fund is an open-end investment fund or a sub-fund of the fund that complies with the requirements of Subparagraphs 2 and 3 of Paragraph 3 of Article 71 1 of this Law. The statement shall be submitted in the Latvian language or in another language approved by the Commission. (4) Within 15 business days after the receipt of the documents referred to in Paragraphs 2 and 3 of this Article, the Commission shall notify in writing the management company of the feeder fund of an approval or a rejection for an investment by the feeder fund in the master fund. Article 71 3 Dealing Arrangements Between Master-Feeder Structures (1) Before dealing between master-feeder structures, the relevant funds shall make an agreement governing the business of the feeder fund and of the master fund. This agreement shall be provided to fund investors upon their request and without a charge. Where the relevant funds have the same management company, the company does not sign the agreement but develops internal rules to ensure compliance with the requirements of this Article. (2) The Commission shall lay down the content of the agreement and of the internal rules referred to in Paragraph 1 of this Article. (3) Where the feeder fund and the master fund are registered in Latvia, the agreement referred to in Paragraph 1 of this Article shall be made in accordance with the requirements of Latvian regulatory enactments and disputes shall be resolved in a court in Latvia. (4) Where the feeder fund and the master fund are established (registered) in different member states, the agreement referred to in Paragraph 1 of this Article shall contain a provision about the choice of applicable law stating that this agreement is subject to the regulatory enactments of the home state of the feeder fund or of the master fund and that both parties agree to the jurisdiction of the court of that country whose law is applicable to the agreement.

64 (5) The master fund and the feeder fund shall ensure that the timing for calculating and publishing their net assets is agreed to avoid differences that may be caused by different market timing in different countries. (6) Where the management company of the master fund takes a decision to temporarily suspend repurchasing of investment certificates, all feeder funds of that master fund, disregarding the provisions of Paragraph 3 of Article 54 of this Law, shall be entitled to suspend repurchasing of their investment certificates for the same time as the master fund. (7) Where the master fund goes into liquidation, the feeder fund is also liquidated, except in cases when the Commission takes a decision to issue an approval to the feeder fund it has registered for the following: 1) to invest at least 85 percent of the feeder fund s assets in investment certificates of another master fund; 2) to convert into a fund other than a feeder fund. (8) The master fund may be liquidated not earlier than three months after it has notified all its investors and the supervisory authorities of the home countries of its feeder funds about its decision to go into liquidation. (9) To receive the approval referred to in Paragraph 7 of this Article, the management company of the feeder fund, not later than two months after the day when it has been notified by the master fund of the commencement of the intended liquidation, shall submit to the Commission an application and documents whose content is determined by the Commission. In case of a liquidation, the feeder fund shall submit to the Commission the document referred to in Article 35.1 of this Law, taking into account the deadline specified in this Paragraph. (10) Where the master fund notifies the feeder fund of the commencement of the intended liquidation more than five months before the day of actual commencement, the documents referred to in Paragraph 9 of this Article shall be submitted to the Commission not later than three months before the commencement of liquidation. The management company of the feeder fund shall notify fund investors of the intended liquidation of the fund as soon as possible. (11) Where the master fund is merged with another fund or, in accordance with the regulatory enactments of its home state, divided into two or more funds, the feeder fund shall be liquidated except in cases when the Commission takes a decision to issue an approval to the feeder fund it has registered for the following: 1) to continue its operation as a feeder fund of the same master fund or of another master fund resulting from the merger or the division of the master fund; 2) to invest at least 85 percent of its assets in another master fund that is not resulting from the merger of the division; 3) to convert into a fund other that a feeder fund. (12) To receive the approval referred to in Paragraph 11 of this Article or to start liquidation of the feeder fund, the management company of the feeder fund, not later than one month after the day when it has been notified by the master fund of the intended merger or division, shall submit to the Commission the application and documents whose content is determined by the Commission. (13) The merger of the master fund shall take effect not earlier than 60 days after the master fund has provided to its investors and the supervisory authority of the home countries of its feeder funds information referred to in Article 34.1 of this Law or an equivalent information. (14) Where the supervisory authority of the home state of the feeder fund has not issued an approval for the feeder fund to continue its operations as a feeder fund of the master fund or of

65 another master fund resulting from the merger of the distribution of the master fund, the master fund shall ensure that the feeder fund may repurchase all its investment certificates from the master fund before the merger or the division of the master fund takes effect. (15) Where the master fund has notified the feeder fund by submitting to it information referred to in Article 34.1 of this Law or equivalent information more than four months before the effective day of the merger or the division, the documents referred to in Paragraph 12 of this Article shall be submitted to the Commission not later than three months before that day. The management company of the feeder fund shall notify fund investors and the master fund of the intended liquidation of the fund as soon as possible. (16) Within 15 business days after the receipt of all documents referred to in Paragraphs 9 and 12 of this Article, the Commission shall inform in writing the management company of the feeder fund of its approval or rejection for the feeder fund to perform the activities referred to in Paragraphs 7 or 11 of this Article. After receiving the Commission s decision, the management company of the feeder fund shall notify the master fund about the decision. Article 71 4 Information Sharing Agreement (1) Where the master fund and the feeder fund have different custodian banks, these banks shall make an information sharing agreement. The Commission shall determine the content of the agreement. (2) Where the feeder fund and the master fund have concluded an agreement in accordance with Paragraph 1 of Article 71.3 of this Law, the agreement referred to in Paragraph 1 of this Article shall provide that the regulatory enactments of the member state that were applied to the fund agreement shall also apply to the agreement of the custodian banks and both custodian banks agree to the jurisdiction of the courts of that country. (3) Where the agreement between the feeder fund and the master fund is replaced by internal rules, the agreement specified in Paragraph 1 of this Article shall provide that the regulatory enactments that apply to the information sharing agreement between both custodian banks shall be either of the member state in which the feeder fund is established or, where different, of the member state in which the master fund is established, and that both custodian banks agree to the exclusive jurisdiction of the courts of the member state whose regulatory enactments are applicable to the information sharing agreement of custodian banks. (4) Where the custodian bank of the master fund and of the feeder fund complies with the obligations set out in this Chapter, sharing the respective information shall not be regarded as a violation of the provisions governing disclosure of information or data protection that are binding on the bank in accordance with the contract or regulatory enactments, and shall not subject either the custodian bank or any other person acting on its behalf to liability. (5) The management company of the feeder fund shall be responsible for the provision of all information about the master fund to the custodian bank of the feeder fund that it needs to perform its duties. (6) The custodian bank of the master fund shall have an obligation to immediately notify the supervisory authority of the home state of the master fund, the management company and the custodian bank of the feeder fund of all irregularities in the activity of the master fund that the custodian bank detects while performing its functions that contradict the regulatory enactments, the fund prospectus, the fund rules or the agreement of the custodian bank, including: 1) errors in the net asset value calculation of the master fund;

66 2) errors in transactions undertaken by the feeder fund in respect of buying investment certificates from the master fund, subscribing to investment certificates or requests to redeem or repurchase them; 3) errors related to the payments made by the master fund to fund investors, to the capitalisation of income or to the calculation of any related withholding tax; 4) breaches of the investment objectives, investment policy or strategy as set out in the fund rules, the fund prospectus or key investor information of the master fund; 5) breaches of investment and borrowing limits set out in national regulatory enactments or in the fund rules, the fund prospectus or key investor information. (7) Where the master fund and the feeder fund have different auditors, these auditors shall conclude an information sharing agreement to ensure the performance of their duties. (8) The agreement referred to in Paragraph 7 of this Article shall contain a provision that, in the audit report of the feeder fund, the auditor of the feeder fund shall take into account the audit report of the master fund. Where the reporting year of the feeder fund and of the master fund differs, the auditor of the master fund shall prepare the audit report on the last day of the reporting year of the feeder fund. The auditor of the feeder fund shall have an obligation to report of all violations disclosed in the audit report of the master fund and of their effect on the feeder fund. (9) Disclosure of information and provision of the documents referred to in this Chapter shall not be regarded as a violation of any laws, regulatory enactments, rules or agreements and shall not incur civil liability to the auditor. (10) Where the feeder fund and the master fund have concluded an agreement in accordance with Paragraph 1 of Article 71.3 of this Law, the agreement referred to in Paragraph 7 of this Article shall provide that the regulatory enactments of the member state that were applied to the fund agreement shall also apply to the agreement of the auditors, and auditors of both funds agree to the jurisdiction of the courts of that country. (11) Where the agreement between the feeder fund and the master fund is replaced by internal rules, the agreement specified in Paragraph 7 of this Article shall provide that the regulatory enactments that apply to the information sharing agreement between the auditors of both funds shall be either of the member state in which the feeder fund is established (registered) or of the member state in which the master fund is established (registered), and that the auditors of both funds agree to the jurisdiction of the courts of the member state whose regulatory enactments are applicable to the information sharing agreement of the auditors of both funds. Article 71 5 Information To Be Provided by the Feeder Fund (1) In addition to information referred to in Article 57 of this Law, the prospectus of the feeder fund shall also contain the following information: 1) a statement to the effect that the fund is subject to a definite master fund and permanently invests 85 percent or more of its assets in the investment certificates of the master fund; 2) investment objective and policy, including risk profile and an indication whether the performance of the feeder fund and of the master fund are identical or to what extent and for which reasons they differ, including a description of investment conditions laid down in Paragraph 1 of Article 71.1 of this Law; 3) brief description of the master fund that shall include information about its organisation, investment objectives and policy, risk profile and an indication of how the updated prospectus of the master fund may be obtained;

67 4) brief description of the agreement concluded in accordance with Paragraph 1 of Article 71.3 governing the business of the feeder fund and the master fund; 5) information about how fund investors may obtain complete information about the master fund and about the agreement concluded by the feeder fund and the master fund in accordance with Paragraph 1 of Article 71.3 of this Law; 6) remuneration and payments made by the feeder fund in respect of its investments in investment certificates of the master fund as well as aggregate charges of the feeder fund and the master fund; 7) payments of taxes and duties applicable to the feeder fund where it invests its assets in the master fund. (2) In addition to information referred to in Article 75 of this Law, the financial statements of the feeder fund shall include information about the fees and commissions retained and paid and other charges made by the feeder fund and the master fund. The annual and half-yearly reports of the feeder fund shall also indicate where copies of the master fund s annual and half-yearly reports are available. (3) In addition to the requirements of Paragraph 1 of Article 23, Paragraph 5 of Article 56 and Paragraphs 4 and 5 of Article 75 of this Law, the feeder fund registered in Latvia shall send to the Commission the prospectus and key investor information of the master fund, amendments thereto and also annual and half-yearly reports. (4) In all public communication the feeder fund shall disclose that it permanently invests 85 percent or more of its assets in investment certificates of the master fund. (5) The management company of the feeder fund, upon request of fund investors, shall provide them with a paper copy of the prospectus, annual and half-yearly reports of the master fund without a charge. Article 71 6 Conversion of a Fund into a Feeder Fund and Change of the Master Fund (1) Before converting a fund into a feeder fund, the management company of that fund shall provide fund investors with the following information: 1) a statement that the Commission has approved investments by the feeder fund in investment certificates of the respective master fund; 2) key investor information to investors of the feeder fund and of the master fund. Key investor information of the feeder fund shall be updated in view of the intended activity of the fund; 3) the date on which the feeder fund will start to invest in the master fund or, where it has already invested, the date on which the investment will exceed the limit set out in Paragraph 10 of Article 66 of this Law; 4) a statement that fund investors, within 30 calendar days, are entitled to request repurchase of their investment certificates without any charge except the costs related to the realisation of fund assets. These rights arise when the feeder fund has provided its investors with the information referred to in this Subparagraph. (2) Information referred to in Paragraph 1 of this Article shall be provided not later than 30 calendar days before the day indicated in Subparagraph 3 of Paragraph 1 of this Article. The Commission shall establish the procedure whereby information referred to in Paragraph 1 of this Article shall be provided. (3) Where in due course of Article 77.2 of this Law investment certificates of the feeder fund are distributed in another member state, the management company of the fund shall provide information referred to in Paragraph 1 of this Article in the official language of the host state of

68 the feeder fund or in one of its official languages or in the language approved by the supervisory authority of the host state of the feeder fund. The management company of the feeder fund shall be responsible for preparing the translation and it shall certify that the translation faithfully reflects the content of the original documents. (4) The feeder fund shall not be entitled to invest in investment certificates of the master fund in excess of the limit specified in Paragraph 10 of Article 66 of this Law before the expiry of the deadline specified in Paragraph 2 of this Article. Chapter VII Reports/Accounts Article 72 General Provisions Regarding Fund Reports (1) The company shall maintain accounting of the fund and prepare annual and half-yearly reports of the fund in accordance with this Law, the Law on Accounting and Commission regulations. (2) Where it is necessary for performing the supervision function, the Commission shall be entitled to request other reports of a fund and determine the procedure for drawing up and submitting these reports. (In the wording of the law of 24 October 2002 as amended by the law of 19 June 2008 taking effect on 23 July 2008) Article 73 Fund Accounting Records and Preparation of Reports/Accounts (1) Accounting records of a fund shall be maintained by the company or its authorised person ensuring that all assets and liabilities may be identified at all times. (2) Accounting records of each fund shall be maintained separately. (3) The reporting period of a fund shall normally be one year and it shall correspond with the reporting year of the company. (4) The company shall prepare annual and half-yearly reports of a fund, the content of which, the amount of information to be included in which, and the time periods for the publishing of which shall be prescribed by this Law and Commission regulations. (5) Annual and half-yearly reports of a fund shall be approved by the board of directors of the company. (6) Annual and half-yearly reports of a fund shall be publicly available to all persons interested in fund operations. (7) Fund investors have the right to request and to receive free of charge a paper copy of the annual and half-yearly reports of the fund. (8) No later than a month from the approval of the annual report of the fund and no later than four months after the end of the reporting year the company shall in accordance with the procedures specified by the Commission publish the annual report of the fund, as well as ensure that all persons interested in fund operations have a possibility to become acquainted with it. For this purpose the company shall place the annual report of the fund on its website, if any, or provide the information thereon in accordance with different procedures provided for in the fund rules of the relevant fund. (9) No later than two months after the end of the reporting period the company shall ensure that all persons interested in fund operations have a possibility to become acquainted with the halfyearly report of the fund. For this purpose the company shall place the half-yearly report of the

69 fund on its website, if any, or provide the information thereon in accordance with the procedures provided for in the fund rules of the relevant fund. (10) Where the company provides cross-border management of funds in another member state, it shall develop accounting policy and procedures in line with the requirements applicable in that member state to enable, on the basis of accounting records, accurate measurement of the fund s net asset value and calculation of the price of investment certificates or of the fund unit value used to ensure subscription to and repurchase of investment certificates. (As amended by laws of 24 October 2002 and 13 October 2011 taking effect on 16 November 2011) Article 74 Audit of Annual Accounts of a Fund (1) The annual accounts of a fund shall be audited by a person who in accordance with the law is entitled to provide audit services. (2) The fund auditor shall be approved by the management body provided for in the articles of association of the company. (3) The task of the fund auditor is to audit whether the annual accounts of the fund prepared by the company conforms to regulatory enactments and the fund prospectus, whether financial statements included in the annual accounts give a true and fair view of the financial position and results of operations of the fund and whether the report of the company and custodian bank meets the requirements of regulatory enactments and Commission regulations. (In the wording of the law of 24 October 2002 as amended by the law of 18 March 2004 taking effect on 1 May 2004) Article 75 Information to be Included in Annual Report of a Fund (1) The annual report of a fund as a composite whole shall consist of financial statements, the report of the investment management company, a statement about responsibility of the executive board of the investment management company and a report by the custodian bank. (2) The annual report of the fund shall be accompanied by a report of the fund auditor. (3) The composition of a half-yearly report of a fund shall be determined by the Commission. Half-yearly reports of the fund shall not be subject to compulsory audit by the fund auditor. (4) The company shall submit the annual report of the fund under its management and the report of the fund auditor to the Commission within 10 days from the approval of the annual report but no later than four months after the end of the reporting period. (5) The company shall submit the half-yearly report of the fund under its management to the Commission within 30 days after the end of the reporting period. (In the wording of the law of 24 October 2002 as amended by laws of 18 March 2004 and 8 March 2007 taking effect on 10 April 2007) Article 75 1 General Provisions Regarding Company's Reports (1) The company shall maintain accounting records and draw up annual report in accordance with the Law on Accounting, this Law and regulatory enactments of the Commission. (2) For each reporting year, the company shall draw up annual report that includes financial statements, company's management report and a statement about management responsibility. (3) The Commission shall establish the procedure for drawing up the annual report and the consolidated annual accounts in compliance with the regulatory enactments governing accounting and international financial reporting standards.

70 (4) If it is necessary for the performance of supervisory functions, the Commission shall be entitled to request that the company draw up other reports and shall determine the procedure for preparing and submitting such reports. (In the wording of the law of 18 March 2004 as amended by laws of 8 March 2007, 29 May 2008, 19 June 2008 and 11 March 2010 taking effect on 14 April 2010) Article 75 2 Preparing, Auditing and Publishing a Company Annual Report (1) The annual accounts shall give a true and fair view of the assets and liabilities, financial position, results of operations and cash flow of the company. If the annual accounts prepared in compliance with the requirements of this Law do not give a true and fair view of the company, the notes to the annual accounts shall include additional information. (2) The annual accounts shall be audited by a certified auditor or a commercial company of certified auditors (hereinafter certified auditor). The company shall, within a 10-day period after the receipt of the certified auditor s report addressed to its board of directors, but no later than three months after the end of the reporting year, submit to the Commission a copy thereof. (3) The shareholders meeting is entitled to approve the annual report after the receipt of the certified auditor s report. (4) (Deleted by the law of 29 May 2008). (4 1 ) Not later than within 10 days after the approval of the annual report and not later than within three months after the end of the reporting year, the company shall submit to the State Revenue Service a copy of the annual report and of the certified auditor s report together with an extract from the minutes of the shareholders meeting about the approval of annual report. Not later than within 10 days after the approval of the consolidated annual accounts and not later than within seven months after the end of the reporting year, a company that prepares consolidated annual accounts shall submit to the territorial office of the State Revenue Service, by the registration place of the company, a copy of the consolidated annual accounts and of the certified auditor s report in addition to the documents specified in the first sentence of this Paragraph together with an extract from the minutes of the meeting of shareholders about approval of the consolidated annual accounts. A company shall submit the documents referred to in this Paragraph either as paper or electronic documents. (4 2 ) The documents referred to in Paragraph 41 of this Article, where they have been submitted as electronic documents, or the copies of those documents in an electronic form, where they have been submitted as paper documents, shall be transferred by the State Revenue Service to the Enterprise Register in an electronic form not later than within five business days. The Enterprise Register shall ensure that the received documents are available to the public. The procedure whereby electronic documents are transferred and certified shall be set out in an interinstitutional agreement signed by the State Revenue Service and the Enterprise Register. (4 3 ) Upon receipt of the documents referred to in Paragraph 42 of this Article, not later than within five business days the Enterprise Register shall publish in the Official Gazette Latvijas Vēstnesis an announcement to the effect that the information referred to in Paragraph 41 of this Article is available at the Enterprise Register. (5) A company to which the requirements for capital adequacy are applied in accordance with this Law both individually and at the level of the consolidation group shall, in addition to the conditions set out in Paragraph 41 of this Article, itself ensure that its annual report together with the certified auditor s report are disclosed to the public not later than on May 1 of the year following the reporting year, but the consolidated annual accounts together with the certified

71 auditor s report - not later than within seven months after the end of the reporting year. The above mentioned annual report and the consolidated annual accounts shall be identical with the documents audited by the certified auditor. The company may publish that information on its website or choose another medium or location for making that information available to public. (In the wording of the law of 18 March 2004 as amended by laws of 8 March 2007, 29 May 2008, 11 March 2010, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 75 3 Reports by Sub-Funds In respect of funds with sub-funds, the fund reports referred to in this Chapter shall be prepared separately for each sub-fund. In the annual and half-yearly reports of a sub-fund, the company may use the currency established for the respective sub-fund as a measure of value. (In the wording of the law of 8 March 2007 as amended by the law of 19 June 2008 taking effect on 23 July 2008) Chapter VIII Freedom to Provide Management Services (Chapter in the wording of the law of 18 March 2004 taking effect on 1 May 2004) Article 76 Right of a Company Licensed in Latvia to Provide Management Services in a member state (1) A company licensed in Latvia is entitled to provide in a member state only those management services whose provision is allowed in Latvia. (2) A company licensed in Latvia is entitled to commence the provision of management services in a member state in accordance with the procedures specified in this Article by opening a branch or without opening a branch. (3) If a company wishes to commence the provision of management services in any member state, it shall submit an application to the Commission. In the application, it shall specify the member state in which it intends to provide management services and the manner of providing these services, i.e., by opening a branch or without opening a branch. Together with the application the company shall submit the developed programme of operations indicating the following: 1) the management services the company intends to provide in the member state; 2) a description of the risk management procedures; 3) a description of the procedures developed by the company for dealing with applications and complaints (disputes) by fund investors regarding the provision of management services by the company and of the measures to be taken; 4) a description of the procedures developed by the company for ensuring availability of information upon request by the supervisory authority of the home state of the fund. (4) A company intending to commence the provision of management services in any member state by opening a branch shall include in its application the address of the branch and the information specified in Paragraph 3 of Article 10 of this Law regarding the head of the branch. The application shall be accompanied by the programme of operations of the branch that shall present its organisational structure and give a clear and fair view of the intended operations of the branch, services to be provided, and appropriate work organisation. (5) The Commission shall examine an application for the commencement by a company of services in a member state and shall inform of its decision in writing the supervisory authority of

72 the relevant member state and the relevant company within a 30-day period after the receipt of all the documents prepared in compliance with the requirements of regulatory enactments. (6) Together with the decision referred to in Paragraph 5 of this Article the Commission shall forward to the supervisory authority of the relevant member state information regarding the investor protection scheme effective in Latvia and the compensation ceiling, and a description of the scope of the licence granted to the company where the company wishes to provide fund management services in the member state. Where information referred hereof is amended, the Commission shall notify the supervisory authority of the host state of the company to this effect. (7) The company shall inform in writing the Commission and the supervisory authority of the host state of the company about changes in the information set out in Paragraphs 3 and 4 of this Article, as well as of its intention to discontinue the operation of the branch no later than 30 days prior to implementing the changes or the planned discontinuance of the operation of the branch. (8) The Commission shall examine the documents set out in Paragraph 7 of this Article and inform of its decision in writing the supervisory authority of the host state of the company and the company within a 30-day period of the receipt of the documents. (9) Where the company provides services in a member state by opening a branch, it shall respect the rules of operation for companies that are effective in the host state of the company. (10) Where the company provides services in a member state without opening a branch, it shall comply the requirements of Articles 13 1, 13 2, 13 3, 13 4, 14, 14 1 and 54 1 of this Law and the requirements for establishing an efficient internal control system. (11) A company that provides management services on a cross-border basis to a fund registered in another member state, either by opening a branch or without opening a branch, shall comply with the requirements of this Law and of the Commission s regulations for arranging the business of a company, including rules for delegating functions, risk management procedures, supervision of compliance with the requirements for the operation of a company, as well as provisions governing drawing up and submission of reports and internal control system rules developed by the company. (12) The company that carries out the activities referred to in Paragraph 11 of this Article shall submit to the Commission, upon its request, copies of the annual and of the half-yearly reports of the fund to which it provides management services on a cross-border basis, as well as the prospectus of that fund and any further amendments thereto. (As amended by laws of 8 March 2007 and 13 October 2011 taking effect on 16 November 2011) Article 77 Right of a Company Licensed in a member state to Provide Management Services in Latvia (1) A company licensed in a member state is entitled to provide in Latvia only those management services for the provision of which the company has obtained a licence in its home state by opening a branch in Latvia or without opening a branch. (2) A branch of a company licensed in a member state may commence its operations in Latvia only after: 1) the Commission has received notification from the supervisory authority of the home state of the company including: a) confirmation that the relevant company has a valid licence to provide management services in the home state of the company. Where the company wishes to provide fund management services, it shall also submit a description about the scope of the licence granted to the company and the restrictions specified in the licence in respect of types of funds it is entitled to manage,

73 b) the programme of operations indicating those management services that the company intends to provide in Latvia and a description of risk management procedures. The programme of operations shall also include the procedure for dealing with applications and complaints (disputes) by fund investors as developed by the company and the measures to be taken, and also a description of the procedures for ensuring availability of information to the supervisory authority of the home state of the fund upon its request, c) the address and organisational scheme of the branch, d) the name, surname, citizenship, identity number (if any) or the year and date of birth of the head of the branch, e) information regarding the scheme for the protection of investors whose participant the relevant company is, f) written confirmation by the supervisory authority of the home state of the company that the said authority, prior to commencing internal investigation, will duly notify the Commission of the investigations conducted at the company s branches in Latvia and will enable the representatives of the Commission to participate in such investigations and, upon completion of the investigation, will without delay submit a report to the Commission on the findings of the investigation; 2) the Commission has informed the supervisory authority of the home state of the company that it is ready to commence the supervision of the company s branch or 60 days have elapsed since the date of receipt by the Commission of the notification referred to in Subparagraph 1 of this Paragraph from the supervisory authority of the home state of the company. (3) A company licensed in a member state is entitled to commence the provision of management services in Latvia without opening a branch if the Commission has received notification from the supervisory authority of the home state of the company including the information referred to in Items a), b) and e) of Subparagraph 1 of Paragraph 2 of this Article. (4) If a company licensed in a member state has commenced the provision of management services in Latvia in accordance with the procedures prescribed by this Article, it is obliged to notify the Commission of any changes planned in the information provided under items a), b) and e) of Subparagraph 1 of Paragraph 2 of this Article at least 30 days prior to implementing the relevant changes. (5) A company licensed in a member state that has commenced the provision of management services in Latvia in accordance with the procedures prescribed by this Article shall prepare and submit to the Commission in accordance with the procedures specified by the Commission the information required for the performance of supervisory functions of the Commission and aggregation of statistical data, and reports on the company s operations in Latvia. (6) (Deleted by the law of 13 October 2011). (7) A branch of a company that is licensed in a member State shall ensure that the annual report of the company of that member state is published not later than within seven months after the end of the reporting year. At least the report disclosing the financial situation at the end of the reporting period and the report about the financial performance during the reporting period as well as the opinion of the certified auditor shall be translated into Latvian. The branch of the company of the member state may make the respective information available on its website or choose another durable medium for making it available to the public. (8) A branch in Latvia of a company licensed in a member state that manages the assets of statefunded pension scheme in accordance with the requirements of the Law on State Funded

74 Pensions shall comply with the requirements set out in Paragraphs 11, 12, 13 and 14 of Article 13 of this Law in respect of performing the critical situation analysis of investment plans. (9) A branch of a company licensed in a member state shall comply with the requirements of Articles 13.1, 13.2, 13.3, 13.4, 14., 14.1 and 54.1 of this Law and also the requirements for establishing an efficient internal control system. When the Commission supervises compliance with the requirements of this Paragraph, it shall cooperate and consult with the supervisory authorities of member states. (As amended by laws of 8 March 2007, 29 May 2008, 11 March 2010 and 13 October 2011 taking effect on 16 November 2011) Article 77 1 Management of an Investment Fund Registered in Latvia on a Cross-Border Basis (1) A company licensed in a member state that has started providing management services in Latvia in due course of Article 77 of this Law by opening a branch or without opening a branch shall be entitled to manage investment funds registered in Latvia provided that it complies with the procedure set out in this Article. (2) When a company licensed in a member state carries out the management of the above mentioned funds on a cross-border basis, it shall comply with the following: 1) the requirements of the company s home state s regulatory enactments regarding arranging the business of a company, including rules for delegating functions, risk management procedures, supervision of compliance with the requirements for the operation of a company, as well as provisions governing drawing up and submission of reports and internal control system rules developed by the company; 2) the requirements of this Law and of the Commission s regulations for the activities of an investment fund; 3) the fund rules and the fund prospectus of the fund in respect of which the approval has been requested. (3) The requirements referred to in Subparagraph 2 of Paragraph 2 of this Article shall refer to the following: 1) establishment and registration of a fund; 2) issue, subscription to, repurchase and redemption of investment certificates; 3) investment policy and limits, also for the calculation of global exposure and liabilities; 4) restrictions in respect of borrowing, lending and uncovered sales; 5) valuation of assets and fund s accounting; 6) calculation of the issue or the repurchase price of investment certificates and errors in the calculation of net asset value and related compensation to investors; 7) the distribution or reinvestment of income; 8) disclosure and reporting requirements regarding the fund, including requirements for the prospectus, the fund rules and key investor information and also periodic reports; 9) the measures related to the marketing of investment certificates; 10) the relationship with fund investors; 11) the reorganisation of the fund; 12) the liquidation of the fund; 13) maintaining a register of unit holders; 14) registration and supervision fees; 15) exercising the voting rights of the unit holders and of other rights relating to Subparagraphs 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12 and 13 of this Paragraph.

75 (4) A company licensed in a member state shall be responsible for ensuring that its operations comply with the requirements of this Article and for taking and implementing organisational decisions. (5) Where a company licensed in a member state wishes to manage a fund registered in Latvia, it shall submit to the Commission an application for managing the fund. It shall also submit the following: 1) written agreement with the custodian bank that complies with the requirements of Paragraphs 4 and 5 of Article 47 of this Law; 2) information about the procedure for delegating the fund s management rights in respect of managing fund investments and administration of the fund. (6) Where a company licensed in a member state already manages an investment fund registered in Latvia, it may not repeatedly submit the documents that it already submitted. Information referred to in this Paragraph shall be indicated in the application for managing the fund. (7) When the Commission assesses the documents referred to in Paragraph 5 of this Article and takes into account information specified in the description contained in item a) of Subparagraph 1 of Paragraph 2 of Article 77 of this Law, it shall, if necessary, request that the supervisory authority of the home state of the respective company provide an opinion whether the type of the fund in respect of which an approval has been requested complies with the scope of the licence granted to the company. (8) The Commission may reject the application by a company licensed in a member states where: 1) the company fails to comply with the requirements of this Articles compliance with which the Commission is competent to supervise; 2) the company has not received the approval of the supervisory authority of its home state for managing the type of the fund for which it has requested approval; 3) the company has failed to submit the documents listed in Paragraph 5 of this Article. (9) Before rejecting the application the Commission shall consult with the supervisory authority of the home state of the company. (10) When a company licensed in a member state carries out the activity referred to in Paragraph 1 of this Article, it shall ensure the following in respect of a fund registered in Latvia: 1) the management company or the custodian bank of the fund is not changed without the Commission s approval ; 2) amendments to the fund prospectus and the fund rules are not made without the Commission s approval; 3) The Commission is notified of all amendments to the documents listed in Paragraph 5 of this Article. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 77 2 Marketing of Investment Certificates of an Investment Fund Registered in Latvia in a Member State (1) A company that wishes to start marketing of investment certificates of an investment fund registered in Latvia in a member state, before the start of that activity shall submit to the Commission the notification letter filled out in accordance with Annex 1 of the Commission Regulation (EU) No 584/2010 of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards the form and content of the standard notification letter and UCITS attestation, the use of electronic communication between

76 competent authorities for the purpose of notification, and procedures for on-the-spot verifications and investigations and the exchange of information between competent authorities (hereinafter, European Commission Regulation No 584/2010). The notification letter shall be filled out in the language approved by the Commission and it shall be submitted to the Commission by means of electronic data carriers. (2) The notification letter referred to in Paragraph 1 of this Article shall include information about the procedure for marketing fund s investment certificates as established in the member state in which the company intends to market fund s investment certificates, including information about the categories of fund s investment certificates, if envisaged. (3) Where a company that manages a fund registered in Latvia wishes only to market in the respective member state the investment certificates of the investment fund it manages without opening a branch rather than to provide any other service referred to in Article 5 of this Law, in the notification letter the company shall specify that the management company of the fund markets the fund s investment certificates. (4) The following documents shall be appended to the notification letter referred to in Paragraph 1 of this Article: 1) the fund rules; 2) the fund prospectus; 3) key investor information; 4) the latest audited and approved annual report/accounts, and also half-yearly report where it has been approved after the approval of the annual report. (5) The company shall ensure the translation of the documents referred to in Paragraph 4 of this Article in accordance with the regulatory requirements of the member state in which the company intends to start marketing of investment certificates. (6) The Commission shall verify whether the company has submitted all documents referred to in Paragraphs 1 and 4 of this Article and whether they have been prepared in accordance with regulatory requirements. (7) Within 10 business days after the receipt of the documents referred to in Paragraphs 1 and 4 of this Article that have been properly formatted, the Commission shall send them by electronic means to the supervisory authority of the member state in which the company intends to start marketing of the fund s investment certificates. The Commission shall also send to the supervisory authority of that member state the attestation of the registration of a fund prepared in accordance with Annex II of the European Commission Regulation No 584/2010. (8) After sending the documents in accordance with Paragraph 7 of this Article, the Commission shall notify the company to this effect. The company shall be entitled to start marketing of the fund s investment certificates in the respective member state as of the day when the Commission has notified the company of sending the documents in accordance with Paragraph 7 of this Article. (9) (Deleted by the law of 9 July 2013). (10) The fund s management company shall ensure that the documents referred to in Paragraph 4 of this Article and amendments thereto along with the translation of the documents in accordance with the requirements of Paragraph 5 of this Article are available on its website. (11) The fund s management company shall notify the supervisory authority of the host state of the fund of the following: 1) any amendments to the documents referred to in Paragraph 4 of this Article;

77 2) any intended amendments to the procedure for marketing the fund s investment certificates or in the information included in the notification letter referred to in Paragraph 1 of this Article. The company shall send that information to the supervisory authority of the host state of the fund before making the amendments. (12) Where the company wishes to change the procedure for marketing the fund s investment certificates and amend information included in the notification letter referred to in Paragraph 1 of this Article, it shall notify in writing the supervisory authority of the host state of the fund of the intended amendments before making these amendments. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 77 3 Marketing of Investment Certificates of Investment Funds Registered in a Member State in Latvia (1) Investment certificates of investment funds registered in a member state or securities equivalent to such investment certificates (hereinafter, investment certificates of a fund of a member state) may be marketed in Latvia only by the following commercial companies: 1) credit institutions that are entitled to provide investment services in Latvia; 2) investment management companies that are entitled to provide management services in Latvia or companies licensed in a member state that wish to market in Latvia investment certificates of investment funds they manage; 3) investment brokerage firms entitled to provide investment services in Latvia. (2) The commercial companies referred to in Paragraph 1 of this Article shall ensure marketing, repurchase and redemption and settlement in Latvia in respect of the investment certificates of a fund of a member state. (3) A company licensed in a member state that wishes to market in Latvia investment certificates of investment funds it manages without opening a branch rather than to provide any other service referred to in Article 5 of this Law shall comply only with the procedure set out in this Article. (4) Marketing in Latvia of investment certificates of a fund of a member state may be started as of the day when the following documents, appropriately formatted, have been submitted to the Commission: 1) attestation by the supervisory authority of the home state of the fund about the registration of the fund in accordance with Annex 2 of the European Commission Regulation No 584/2010; 2) the notification by the fund s management company that complies with Annex 1 of the European Commission Regulation No 584/2010 and includes information about the procedure for marketing in Latvia the investment certificates of the respective fund; 3) the fund rules or a document equivalent to fund rules, the fund prospectus, key investor information and the latest audited and approved annual report/accounts of the fund as well as the half-yearly report where it has been approved after the approval of the annual report/accounts. (5) The documents referred to in Paragraphs 1 and 2 of this Article shall be submitted to the Commission in the language approved by the Commission. (6) The documents referred to in Subparagraph 3 of Paragraph 4 of this Article shall be submitted to the Commission in line with the following requirements: 1) key investor information prepared in a foreign language shall be accompanied by its translation into the Latvian language; 2) the fund prospectus, the fund rules or a document equivalent to fund rules and other documents to be submitted to the Commission that have been prepared in a foreign language

78 shall be accompanied by their translation into the Latvian language or in another language approved by the Commission. (7) A person who is entitled to take decision on behalf of the fund shall certify that the translation faithfully reflects the content of the original documents. The requirements of Paragraph 6 of this Article shall also apply to amendments of these documents. (8) The Commission shall register and keep all notifications made by supervisory authorities of member states. (9) When the fund management company markets investment certificates of the fund in Latvia, it shall comply with and fulfil the following requirements: 1) it shall ensure that investors in Latvia have the same access to information and documents as in the home state of the fund; 2) it shall ensure that investors in Latvia are notified, in a timely manner, about changes in the operation of the fund and of the company, amendments to the fund prospectus, key investor information and the fund rules in line with the procedure set out in the fund rules or a document equivalent to fund rules; 3) it shall ensure that, upon request, investors are provided without a charge with a paper copy of the fund prospectus, key investor information, the fund rules or a document equivalent to fund rules, the fund s annual and half-yearly reports; 4) it shall ensure that investors in Latvia can access the procedure for dealing with applications and complaints (disputes) by investors, as developed by the company, and they can submit complaints about the services provided by the company in the Latvian language; 5) it shall ensure that the Commission is notified, in a timely manner, of amendments to key investor information, the fund prospectus, the fund rules or a document equivalent to fund rules and indicate where the electronic documents are available; 6) it shall comply with the regulatory requirements of the home state of the fund about publishing the procedure for issuing, subscription to, repurchase and redemption of investment certificates; 7) it shall ensure that the documents referred to in Subparagraph 3 of Paragraph 4 of this Article and any amendments thereto as well as their translations are available electronically on the website of the person marketing investment certificates, the fund s management company or the fund itself; 8) it shall ensure that the content of the fund s documents that are not translated into the Latvian language is explained to investors. (10) Where the company wishes to change the procedure for marketing the fund s investment certificates or amend information contained in the notification referred to in Subparagraph 2 of Paragraph 4 of this Article, it shall notify the Commission in writing about the intended changes or amendments before making the changes or amendments. (11) Where the company wishes to discontinue marketing of the fund s investment certificates in Latvia or the fund is liquidated, the company shall notify the Commission of the planned activity and shall ensure that before the start of the planned activity or the liquidation liabilities to investors in Latvia are met in accordance with the fund prospectus un the fund rules or a document equivalent to fund rules. (12) The Commission shall be entitled to suspend marketing of the fund s investment certificates in Latvia in any of the following cases: 1) the Commission receives a notification from the supervisory authority of the fund s home state that the licence of the fund s management company is annulled or its activity is suspended;

79 2) the Commission receives a notification from the supervisory authority of the fund s home state about restricting or suspending the operations of the fund; 3) the fund, its management company or the person marketing the fund s investment certificates violates the fund prospectus or the fund rules or the provisions of a document equivalent to fund rules; 4) the fund, its management company or the person marketing the fund s investment certificates violates the requirements of the Latvian regulatory enactments, including regulatory requirements for the protection of investor interests. (13) The Commission shall ensure that information about the regulatory requirements for the protection of investor interests is disclosed on its website as these requirements shall be followed when marketing investment certificates of a fund of a member state in Latvia. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013) Article 77 4 Marketing of Investment Certificates of Other Investment Funds in Latvia (Deleted by the law of 9 July 2013) Chapter IX Supervision (Chapter in the wording of the law of 18 March 2004 taking effect on 1 May 2004) Article 78 General Provisions (1) The Commission shall be responsible for the supervision of companies licensed by it and of its registered funds and supervise the operation of the custodian bank in accordance with this Law, the Credit Institution Law, the Law on the Financial and Capital Market Commission and regulatory enactments governing the financial instrument market. (2) The purpose of supervision is to ensure the compliance of the establishment and operation of funds and companies with this Law and other regulatory enactments issued pursuant to this Law and to protect the interests of investors. (3) In cases provided by this Law, the Commission shall issue administrative acts. The procedure as to how administrative acts are issued by the Commission shall be determined by relevant regulatory enactments. (4) An administrative act issued by the Financial and Capital Market Commission in accordance with this Law may be appealed to the Administrative Regional Court. The Court shall hear the case as the court of first instance. The case shall be heard by a court composed of three judges. The judgment of the Administrative Regional Court may be appealed to a court of cassation. (5) Appeal in court of the administrative act issued by the Commission shall not suspend the execution of that provision where that administrative act is a decision about the following: 1) to restrict the operation of the company or of the custodian bank; 2) to prohibit the company s official from performing his/her duties; 3) to prohibit from acquiring or increasing a qualifying holding in the company; 4) to prohibit from exercising voting rights; 5) to prohibit from delegating fund management services; 6) to prohibit from transferring to another company the rights to manage the fund; 7) to cancel the licence issued to the company for the provision of management services; 8) to start the liquidation of an investment fund.

80 (6) To ensure supervision of the provision of management services, the Commission shall be entitled, within its competence and directly or in cooperation with other institutions in due course of law and in addition to its rights set out in this Law and in the Law on the Financial and Capital Market Commission, to the following: 1) to request from any person information about its activities in the financial and capital market and to summon the respective person to the Commission for disclosing information; 2) to request and receive from financial market participants telephone and data traffic records; 3) to request discontinuation of any activity contradicting the requirements of this Law; 4) to request freezing of assets of the company and of the funds or to restrict the rights to use these assets; 5) to restrict the company s rights to provide management services; 6) where necessary for the protection of investor interests, to request suspending of issuing, subscription to, repurchase and redemption of investment certificates; 7) to submit to law enforcement bodies information about activities on the financial and capital market that contradict the requirements of this Law; 8) to cancel the licence issued to the company or to the custodian bank, and to take a decision to start the liquidation of the fund; 9) to take the necessary legal measures to ensure that the company and the custodian bank continue to comply with the requirements of this Law and of the Commission s regulations. (As amended by laws of 23 October 2008, 11 March 2010 and 13 October 2011 taking effect on 16 November 2011) Article 78 1 Financing to Ensure the Supervisory Function of the Commission (1) The company shall pay to the Commission for the supervision of its activities in the following amount and according to the following procedure: 1) up to percent of the average amount of assets of the investment funds it manages a quarter, but no less than 3557 euros a year; 2) where the company provides the investment service referred to in Paragraph 2 or 3 of Article 5 of this Law, up to one percent of the gross income of the company from the services provided a quarter, but no less than 711 euros a year. (2) A company licensed in another member state that has registered an investment fund in Latvia shall pay to the Commission for the supervision of the investment fund registered in Latvia up to percent of the average amount of assets of those investment funds a quarter, but no less than 1422 euros a year. (3) In addition to the payments referred to in Paragraphs 1 and 2 of this Article, the company and a company licensed in a member state shall pay to the Commission the following: 1) 1422 euros for examining documentation submitted for the registration of an investment fund; 2) 426 euros for examining amendments to the fund prospectus or fund rules of an investment fund submitted for the registration. (4) A branch of a company licensed in a member state that is registered in Latvia shall pay to the Commission for the supervision of the branch according to the following procedure: 1) up to one percent of the gross income from the fund management services provided by the branch in Latvia a quarter, but no less than 2134 euros a year; 2) up to one percent of the gross income from investment services referred to in Paragraphs 2 and 3 of Article 5 of this Law provided by the branch a quarter, but no less than 711 euros a year.

81 (5) The Commission shall develop regulations for calculating and reporting the payments referred to in Paragraphs 1, 2, 4 and 11 of this Article. (6) The payments referred to in Paragraphs 1, 2, 4 and 11 of this Article shall be made by the 30th day of the month following the quarter. (7) The company and the company licensed in a member state shall submit to the Commission the documents evidencing the payment referred to in Paragraph 3 of this Article together with the documents for the registration of the fund or for the registration of amendments to the investment fund prospectus or the fund rules. (8) For a delayed or incomplete payment a fine of 0.05 percent of the outstanding amount shall be calculated for each delayed payment day. (9) The payments referred to in this Article shall be made to the Commission s account with the Bank of Latvia. (10) In respect of the amendments made in line with Paragraph 8 of Article 28 and Paragraph 7 of Article 56 of this Law the payment referred to in Subparagraph 2 of Paragraph 3 of this Article shall not apply. (11) Where an investment management company performs management of investment funds and alternative investment funds it shall pay to the Commission up to percent of average amount of assets of investment funds and alternative investment funds it manages a quarter, but no less than 3557 euros a year. (As amended by laws of 23 October 2008, 11 March 2010, 13 October 2011 taking effect on 16 November 2011 and of 9 July 2013; and of 19 September 2013) Article 79 Internal Investigations in Companies (1) The Commission has the right to perform an internal investigation in a company. (2) A company has a duty to permit persons authorised by the Commission who perform the internal investigation of the company to have free access to all documents and information relating to the operation of the company and management of the fund. (3) The Commission has the right to perform an internal investigation of the custodian bank in respect of the operations related to the fund. (4) If during the investigation the person performing the investigation determines violations in the operations of the company, he/she has the right to temporarily withdraw the relevant documents, drawing up a statement regarding this. (5) The person performing the investigation has the right to take extracts from documents, request copies of documents, certified copies or true copies of documents at the expense of the company. (6) The Commission shall draw up a report on the investigation results and acquaint the board of directors of the company therewith. (7) Where the company disagrees with the report prepared by the Commission on the investigation results, it shall be entitled to submit a complaint to the Board of the Commission. The Board of the Commission shall be entitled to determine that a new investigation shall be carried out or take a decision on amending the report on investigation results, or reject the complaint. (As amended by the law of 13 October 2011 taking effect on 16 November 2011) Article 80 Right of the Commission to Obtain Information The Commission has the right:

82 1) to request and receive in writing the information regarding the operation of the company and the fund from the company, the custodian bank, the Bank of Latvia, a commercial register institution, officials of the company, but in case of bankruptcy of the company also from liquidators or administrators; and 2) to request in writing that the persons referred to in Subparagraph 1 of this Article present the documents at their disposal regarding the company and the fund. Article 81 Right of the Commission to Request Convening of a Meeting of Management Bodies The Commission has the right: 1) to request convening of a meeting of the board of directors, the supervisory board of the company or a meeting of shareholders, indicating the agenda in advance; and 2) to send its representative who has the right to express his/her opinion and submit proposals to a meeting of the board of directors or the supervisory board of the company or a meeting of shareholders which has been convened in accordance with Subparagraph 1 of this Article. (As amended by the law of 9 July 2013) Article 82 Restrictions in Respect of the Rights to Deal with the Assets of the Company and of the Fund (1) Where the provisions of regulatory enactments, of the fund rules, of the fund prospectus or of the custodian bank agreement are violated, the Commission shall be entitled to obtain information from credit institutions and investment brokerage firms about the cash flow and the balance of settlement accounts of the company or of the fund (sub-funds) and to temporarily restrict the rights of the company to deal with the assets of the company or the fund (sub-funds). (2) The Commission s decision about establishing the restrictions referred to in Paragraph 1 of this Article shall be implemented immediately after its receipt. (3) During the validity of the decision payments from the accounts to which the Commission s decision to restrict the rights of the company applies may be made only with the permission of the Commission. (In the wording of the Law of 13 October 2011 taking effect on 16 November 2011) Article 83 Re-registration of a Licence and Issue of a Duplicate Licence (1) If the firm name of a company is being changed, the Commission shall re-register the company licence. (2) The company shall submit to the Commission an application for re-registration of the licence at least within a seven-day period after the re-registration of the firm in the commercial register. (3) The Commission shall re-register the licence at least within a seven-day period after the receipt of the relevant application. (4) If the licence is lost, the company shall without delay submit to the Commission an application for the receipt of a duplicate licence. (5) The Commission shall issue a duplicate licence at least within a seven-day period after the receipt of a relevant application. Article 84 Cancelling a Licence (1) The Commission may by a motivated decision cancel a licence issued to a company in cases where: 1) the company has provided to the Commission or publicly disseminated false information;

83 2) the company has not submitted amendments to the documents submitted to the Commission; 3) the company, its shareholders, supervisory board members and officials do not meet the requirements of the law; 4) the capital of the company does not comply with the requirements of this Law; 5) the company fails to comply with the requirements of this Law and of other regulatory enactments or systematically violates the provisions of the fund prospectus or the fund rules; 6) the operation of the company prejudices the interests of fund investors; 7) the company, within a 12-month period after receipt of the licence, has not commenced the operations permitted by this Law; 8) the operation of the company has been terminated by a court adjudication; 9) the company is declared insolvent; 10) the company submits an application regarding the cancelling of the licence; 11) the company is reorganised or liquidated. (2) If the Commission detects the violations referred to in Subparagraphs 1, 2, 3, 4, 5, 6 or 7 of Paragraph 1 of this Article, it shall warn the company in writing of its violations and impose the penalty provided for in Article 87 of this Law and set the time limit within which the company must eliminate the detected violation. After expiration of such time limit, the company has a duty to submit to the Commission a report on the measures taken and their results. (3) If the company has not eliminated the violations detected by the Commission within the specified time limit, the Commission shall take a decision regarding cancelling of the licence issued to the company. (4) The Commission shall notify the company in writing of the decision regarding cancelling of the licence or issuing a warning to the company or imposing a penalty and setting a time limit for elimination of violations within a three-day period as from the day the decision was taken. (5) The Commission shall without delay inform of cancelling the licence of a company licensed in Latvia, the branch of which operates in a member state or which provides management services in a member state without opening a branch, the supervisory authority of the relevant member state. Where a company licensed in Latvia manages an investment fund registered in a member state, the Commission shall send information referred to in this Paragraph also to the supervisory authority of the home state of that fund. (6) The Commission shall conduct the supervision of the company until the full settlement of the company s liabilities against fund investors and other its clients. (7) The Commission shall notify the European Securities and Markets Authority of cancelling the licence issued to a company. (As amended by laws of 11 March 2010 and 13 October 2011 taking effect on 16 November 2011) Article 85 Supervision of a Company Licensed in Latvia Providing Management Services in a member state (1) Prior to commencing an internal investigation in a branch of a company licensed in Latvia that provides management services in the territory of a member state, the Commission shall inform the supervisory authority of the relevant member state. (2) The supervisory authority of a member state, upon its own initiative or at the Commission s request, is entitled to conduct an internal investigation in a company licensed in Latvia that operates in the territory of the relevant member state.

84 (3) The Commission shall supervise compliance with the requirements set out in Paragraphs 10 and 11 of Article 76 of this Law. (4) The Commission shall supervise compliance of the company s operations with the regulatory requirements to enable the company that provides fund management services in another member state to ensure compliance with the regulatory requirements regarding the structure and activities of the fund it manages. (As amended by the law of 13 October 2011 taking effect on 16 November 2011) Article 86 Supervision of a Company Licensed in a Member State That Provides Management Services in Latvia (1) The Commission shall supervise whether a branch of a company licensed in a member state that operates in Latvia complies with the requirements of Paragraph 9 of Article 77 of this Law. The Commission shall be entitled to inspect the measures taken by the branch to ensure compliance with these requirements. (2) The Commission shall supervise whether the activity of a company that is licensed in another member state and that, in line with the provisions of this Law, has started providing management services of a fund registered in Latvia on a cross-border basis complies with the requirements of Subparagraphs 2 and 3 of Paragraph 2 of Article 77.1 of this Law. (3) If the Commission uncovers that a company, which is licensed in a member state and which in accordance with the provisions of this Law has opened a branch or has commenced the provision of management services in Latvia, fails to comply with or violates this Law and the regulatory enactments issued under this Law, it shall request that the relevant company rectify the violations detected and notify to this effect the supervisory authority of the home state of the company. (4) Where, in the case referred to in Paragraph 3 of this Article, the company licensed in a member state does not comply with the instructions of the Commission, the Commission shall notify the supervisory authority of the home state of the company of the detected violations and request that the company take the necessary measures to ensure elimination of the detected violations as well as that it be informed of the measures taken by the supervisory authority of the home state of the company. (5) If, despite the measures specified in Paragraphs 3 and 4 of this Article, the company licensed in a member state continues to violate this Law and the regulatory enactments issued pursuant to this Law, the Commission, upon informing the supervisory authority of the home state of the company, may take the measures that are provided for in this Law for ensuring supervision in order to prevent the respective company from further violations or may apply penalties provided for in this Law. The Commission shall be entitled to prohibit the respective company from performing any operations in Latvia henceforth. The Commission has such rights also where the supervisory authority of the home state of the company cannot take the measures specified in Paragraph 4 of this Article due to objective reasons or the implementation of such measures in Latvia is impossible. (6) The requirements specified in Paragraphs 3, 4 and 5 of this Article shall not prevent the Commission from taking measures to eliminate violations of the regulatory enactments protecting the legitimate interests of investors which are applicable in Latvia. Within the framework of such measures, the Commission shall be entitled to prohibit the respective company from continuing the provision of management services in Latvia until the violations are eliminated.

85 (7) If the Commission exercises the rights set out in Paragraphs 3, 4 and 5 of this Article and takes measures for applying a penalty to a company licensed in a member state or for restricting its operations in Latvia, the Commission shall motivate the necessity for such measures and immediately notify the respective company thereof. The company shall have the right to appeal the decision taken by the Commission in accordance with the procedures prescribed by the regulatory enactments applicable in Latvia. (8) In extraordinary circumstances, notwithstanding the procedures specified in Paragraphs 3, 4 and 5 of this Article, the Commission shall be entitled to immediately take precautionary measures against the company or the investment fund to protect the legitimate interests of investors and of other recipients of management services. The Commission shall immediately notify the European Commission, the European Securities and Markets Authority and the supervisory authority of the home state of the company of taking such measures. (9) The Commission, on its own initiative or on request by the supervisory authority of the home state of the company, shall be entitled to carry out internal investigations in a branch of a company registered in another member state that operates in Latvia. The supervisory authority of the home state of the company shall be entitled to carry out the internal investigations in the company s branch in Latvia itself or it may authorise another person for carrying out that investigation but it shall notify the Commission to this effect in advance. (10) By taking a motivated decision, the Commission shall be entitled to reject the request by a supervisory authority of another member state to carry out internal investigation in the territory of Latvia and also to deny participation of authorised representatives of the supervisory authority of another member state in the investigation where: 1) that investigation or participation therein by authorised representatives of a supervisory authority of another member state would adversely affect the sovereignty, security or policy of the Latvian state; 2) judicial proceedings have already been initiated in Latvia in respect of the same actions and the same persons; 3) a court judgment in respect of the same actions and the same persons has already been delivered. (11) Where the Commission carries out an investigation in a Latvian branch of a company registered in another member state upon a request by the supervisory authority of that member state, the said supervisory authority shall be entitled to participate in the investigation by following the Commission s instructions. (12) Where the supervisory authority of the member state in which a company is registered carries out an investigation in a Latvian branch of that company, the Commission shall be entitled to participate in the investigation. (13) By notifying the Commission in advance, the supervisory authority of the home state of the company may itself verify information referred to in Paragraph 3 of Article 88 of this Law in a branch of a company registered in that member state that operates in Latvia, or it may authorise a person to carry out that verification. This provision shall not restrict the Commission s rights to carry out internal investigations in due course of this Article in a branch of a company registered in another member state that operates in Latvia. (14) The Commission shall prohibit a branch of a company registered in another member state that operates in Latvia or a company registered in another member state that provides management services in Latvia without opening a branch from continuing the provision of management services in Latvia where the Commission has received a notification from the

86 supervisory authority of the home state about restricting or cancelling the licence issued to that company. These measures may include decisions whereby the respective company is prohibited from carrying out any further activity in Latvia. (15) Where the Commission considers that the measures referred to in Paragraph 4 of this Article that are taken by the supervisory authority of the home state to ensure that the respective company eliminates the detected violations are not commensurate with the violations, the Commission shall notify the European Securities and Markets Authority to this effect. (16) Information exchange for the purposes of this Article shall be undertaken by the Commission in line with the requirements of European Commission Regulation No 584/2010. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011) Article 87 Liability (1) The Commission has the right to impose a penalty on the company and the custodian bank in the amount up to 400 minimum monthly salaries for the following violations: 1) for the failure to submit to the Commission the documents and information provided for in this Law and Commission regulations issued on the basis of this Law, as well as amendments thereto within the time limits specified; 2) for submission of false information to the Commission or public dissemination of such information; 3) for activities by which the provisions of this Law in respect of publishing of information have been violated; 4) for violation of the fund property recording and keeping provisions; 5) for violation of investment certificate issue, repurchase and redemption provisions; 6) for making of payments from the fund property which are not provided for in the fund prospectus; 7) for violation of the company or fund liquidation procedures; 8) for the failure to inform when violations of the provisions of this Law, the fund prospectus or the fund rules are determined; 9) for the failure to ensure the possibility provided for in the law to become acquainted with the fund prospectus, key investor information and the fund rules and annual and half-yearly reports; 10) for the exceeding of investment limits, except for the cases when this Law allows such exceeding; 11) for violations the requirements of this Law and of the European Commission Regulation No 583/2010 regarding the preparation of key investor information. (1 1 ) The Commission shall be entitled to apply a fine of up to euros to a person where that person has acquired or increased a qualifying holding before the submission to the Commission of the notification referred to in Paragraph 2 or 4 of Article 7.1 of this Law or during the scrutiny of that notification. (1 2 ) For any activities resulting in a violation of the regulatory requirements for preventing money laundering and terrorist financing the Commission shall apply a fine of 7100 euros to euros to the company. (2) The payment of penalty shall not release from other liabilities provided for in the law. (As amended by laws of 8 March 2007 and 13 October 2011 taking effect on 16 November 2011; and of 19 September 2013) Chapter X

87 Exchange of Information (Chapter in the wording of the law of 18 March 2004 taking effect on 1 May 2004) Article 88 Cooperation of the Commission with Supervisory Authorities of member states and Other States (1) The Commission shall be responsible for cooperation with supervisory authorities of member states to ensure the supervision of provision of management services in the whole territory of member states. (2) Based on a relevant motivated request, the Commission shall submit to supervisory authorities of member states information regarding companies licensed in Latvia that provide management services in the territory of the relevant member state and that have close links with any company licensed or to be licensed in the member state, or with a member of its supervisory board or board of directors, or its owner. The Commission shall be entitled to indicate that the relevant information may be disclosed to third persons that need it for the performance of their functions set out in law only upon a prior written approval of the Commission. (3) The Commission shall notify the supervisory authority of the respective member state of the following activities it has taken: 1) of any sanctions or restrictions on operations it has applied to a company licensed in Latvia that provides management services in that member state. Where a company licensed in Latvia manages an investment fund registered in another member state, the Commission shall send the information referred to in this Subparagraph also to the supervisory authority of the fund s home state; 2) of any sanctions and restrictions on operations, including suspending the issuing, repurchase or redemption of the fund s investment certificates, it has applied to an investment fund registered in Latvia whose investment certificates are marketed in the territory of that member state. Where an investment fund registered in Latvia is managed by a company registered in another member state, the Commission shall send the information referred to in this Subparagraph also to the supervisory authority of the home state of that company; 3) of any sanctions or restrictions on activity it has applied in accordance with Paragraph 5 of Article 86 of this Law to a company licensed in a member state that, in line with the provisions of this Law, has opened a branch or started providing management services in Latvia. (4) For the purpose of performing supervisory functions, the Commission, upon entering into a memorandum of understanding, may exchange information with supervisory authorities of other member states if the provisions of Article 89 of this Law have been complied with. (5) Where the Commission has information that a commercial company, which is not subject to its supervision, carries out activities in another member state that contradict the regulatory enactments of the European Union in the area of management services, the Commission shall notify the supervisory authority of the respective member state to this effect. (6) Where the Commission has information that an operation of an investment fund registered in a member state, which is not subject to its supervision and whose investment certificates are marketed in Latvia, fails to comply with the requirements established in the European Union for the activities of investment funds, the Commission shall notify the supervisory authority of the respective member state to this effect. (7) Where, despite the measures referred to in Paragraph 6 of this Article that are taken by the supervisory authority of the fund s home state, an investment fund registered in a member state continues its operations thus damaging the legitimate interests of Latvian investors, the

88 Commission, after notifying the supervisory authority of the fund s home state, shall be entitled to the following: 1) to take the measures set out in this Law to protect the interests of investors in Latvia, including to suspend marketing of investment certificates in Latvia; 2) to notify the European Securities and Markets Authority of the violation. (8) Where the Commission receives information referred to in Paragraph 5 or 6 of this Article from a supervisory authority of another member state, the Commission, within its competence, shall take the necessary actions to eliminate the detected violations and it shall notify the supervisory authority that submitted information to this effect. (9) Information exchange for the purposes stated in this Article shall be carried out in accordance with the requirements of European Commission Regulation No 584/2010. (As amended by the laws of 13 October 2011 taking effect on 16 November 2011 and of 9July 2013) Article 89 Restricted Access Information (1) Information received by the Commission from supervisory authorities of member states or foreign states for the purpose of performing supervisory functions shall be deemed to be restricted access information. (2) The information set out in Paragraph 1 of this Article may be disclosed to third persons who require such information for performing the functions specified by the law only with the prior written consent of the supervisory authority of the relevant member state or the foreign state and only for the purpose to which the relevant supervisory authority has given its consent. (3) The Commission is entitled to use restricted access information received from the supervisory authority of a member state or a foreign state in cases as follows: 1) to verify the information provided by the company to obtain a licence; 2) to ascertain the compliance of the custodian bank or the company with the requirements of regulatory enactments; 3) to apply the norms specified by this Law; 4) in legal proceedings whereby administrative acts issued by, or actual actions of, the Commission are contested. (4) The restrictions set out in Paragraphs 2 and 3 of this Article shall not prevent the Commission from providing restricted access information to: 1) authorities responsible for the State supervision of credit institutions, companies, investment funds or collective investment undertakings equivalent to investment funds, insurance companies, other financial institutions and the financial market; 2) persons responsible for the liquidation or insolvency procedures of companies, investment funds or collective investment undertakings equivalent to investment funds or persons involved in providing management services; 3) persons who in accordance with the authorisation granted by the supervisory authority conduct internal investigation or audits of companies, investment funds or collective investment undertakings equivalent to investment funds, credit institutions, insurance companies and other financial institutions; 4) institutions managing the compensation schemes for investors and depositors if the relevant authorities require such information for the performance of their functions;

89 5) the European Securities and Markets Authority, the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Systemic Risk Council. (5) The provision of this Article shall not prevent the Commission from providing restricted access information to the Bank of Latvia or central banks of member states or other institutions responsible for overseeing the payment system if the said authorities require such information for the performance of the functions specified by the law. (6) The provisions of this Article shall not prevent the Commission from providing restricted access information to the regulated market organiser, the Latvian Central Depository or institutions which ensure clearing and settlements for transactions in financial instruments in a member state, provided it considers that the provision of such information is required for ensuring the relevant action of said institutions if settlement or clearing system participants do not fulfil their liabilities or there are grounds for considering that they will not fulfil their liabilities. (As amended by the law of 9July 2013) Article 90 The Commission s Cooperation with the European Commission and the European Securities and Markets Authority (1) The Commission shall notify the European Commission about the following: 1) issuing of a licence for the provision of management services to a company that is a subsidiary of a company registered in a foreign state; 2) cases when after an acquisition of a qualifying holding a company that is registered in Latvia becomes a subsidiary of a company registered in a foreign state; 3) classes of issuers and of their issued debt securities that comply with the requirements of Paragraph four of Article 66 of this Law. This information shall be accompanied by a report certifying the status of the liabilities attached to debt securities; 4) activities carried out in accordance with Subparagraph 1 of Paragraph 7 of Article 88 of this Law; 5) activities carried out in accordance with Articles 77 and 77.1 and Paragraph 5 of Article 86 of this Law and after that a company licensed in a member state is denied the commencement of provision of management or other services or prohibited from further provision of management services in Latvia. (11) The Commission shall send the information referred to Subparagraphs 3, 4 and 5 of Paragraph 1 of this Article also to the European Securities and Markets Authority. (2) In the case referred to in Subparagraph 1 of Paragraph 1 of this Article, the Commission shall send to the European Commission also the information about the structure of the group where the company in included. (3) The Commission shall notify the European Commission and the European Securities and Markets Authority about the difficulties of a general nature that a company that has received a licence for providing management services faces when providing management services or when starting to provide management services in foreign countries. (4) The Commission may notify the European Securities and Markets Authority about cases when a supervisory authority of another member state does not provide information upon a motivated request by the Commission or fails to provide information within appropriate (reasonable) time, when it rejects the Commission s request to carry out internal investigation in the territory of that member state or refuses participation of the authorised representative of the

90 Commission in internal investigation or fails to respond to such request within appropriate (reasonable) time. (As amended by laws of 19 June 2008 and 13 October 2011 taking effect on 16 November 2011) Transitional Provisions 1. Until the day when a special law which regulates issues related to reorganisation of undertakings comes into force, within the meaning of this Law the term: 1) "acquisition" is defined as a reorganisation process of an undertaking (company) during which the acquired undertaking (company) is acquired by another already existing undertaking (company). As a result of the acquisition, the acquired undertaking (company) shall cease to exist without liquidation procedures; 2) "consolidation" is defined as a reorganisation process of an undertaking (company) during which the undertaking (company) becomes consolidated with another undertaking (company), setting up a new undertaking (company). As a result of consolidation, the consolidated undertakings (companies) which have fully become part of the new undertaking (company) shall cease to exist without liquidation procedures; 3) "division" is defined as a reorganisation process of an undertaking (company) during which the dividing undertaking (company) transfers its property to the acquiring undertaking (company) through splitting up or divestiture. The acquiring undertaking (company) may be either an already existing undertaking (company) or an undertaking (company) to be newly established: a) in the case of splitting up, the dividing undertaking (company) ceases to exist and transfers all of its property to acquiring undertakings (companies), and b) in the case of divestiture, the dividing undertaking (company) transfers part of its property to one acquiring undertaking (company) or more acquiring undertakings (companies) but the dividing company itself continues to exist. 2. Public joint stock companies which at the moment of coming into force of this Law are performing the activities specified in Article 3 of this Law shall terminate such activity, shall liquidate themselves, shall transform themselves into a closed joint stock company or reorganise themselves in accordance with the procedures set out in this Paragraph. Such reorganisation shall meet the following provisions: 1) a public joint stock company (hereinafter merging company) may reorganise itself only by being merged with an investment company (hereinafter receiving company) which on the basis of the assets or a part thereof of the merging company shall create a closed-end fund; 2) merging shall take place on the basis of an agreement; 3) the agreement shall provide that the parties upon entering into the agreement approve the fund prospectus and the fund rules which shall be attached to the draft agreement; 4) the agreement shall be entered into by the executive bodies of both companies after the draft agreement has been approved in the general meetings of both companies by the majority provided for by the articles of association of the relevant company for taking a decision regarding reorganisation of such company; 5) the agreement, the fund prospectus and the fund rules shall come into effect after their approval by the Commission but no earlier than three months after an announcement regarding acquiring and establishment of a closed-end fund is published in the newspaper Latvijas Vēstnesis unless the agreement provides for a later time period for coming into effect;

91 6) if the Commission, motivating its decision, does not approve the agreement, the fund prospectus and the fund rules, the parties to the agreement shall convene a repeated general meeting to amend the agreement, the fund prospectus or the fund rules; the amended documents shall be submitted to the Commission for approval; 7) upon coming into effect of the agreement all rights and liabilities of the merging company shall be transferred to the receiving company; 8) coming into effect of the agreement shall constitute the basis for exclusion of the merging company from the Enterprise Register of the Republic of Latvia; 9) the custodian bank agreement shall be approved by the Commission; 10) after coming into effect of the agreement, the receiving company shall establish a closed-end fund, separating the assets of the merging company or a part thereof, which upon the day of establishment of the fund shall become the property of the fund in accordance with the agreement; 11) the receiving company shall notify the Commission of the establishment of a fund, at the same time submitting a report on the investment structure of the fund on the day of establishment of the fund; 12) the Commission shall register the fund without the issue of an issue permit if it has registered the fund prospectus, the fund rules and the custodian bank agreement; 13) the receiving company may deal with the property of the established fund after its registration; 14) all shareholders of the merging company shall have the shares of the merging company owned by them proportionally exchanged for fund investment certificates; and 15) the receiving company shall within six months after coming into effect of the fund prospectus take the necessary actions in conformity with the requirements of this Law in order to achieve the compliance of the fund with the provisions of this Law and the fund prospectus. 3. Reorganisation of public joint stock companies provided for in transitional provisions of this Law shall not be levied with taxes and fees provided for in Latvia. (As amended by the law of 18 March 2004 taking effect on 1 May 2004) 4. If fund investments do not meet the provisions of this Law and the fund prospectus, the company which has been established by the day of coming into force of this Law shall be prohibited from performing new issues. 5. Persons who are not referred to in Paragraphs 2 and 6 of the Transitional Provisions of this Law and who upon coming into force of this Law are performing the activity regulated by this Law shall terminate such activity or adjust it to this Law. (As amended by the law of 24 October 2002 taking effect on 27 November 2002) 6. Public joint stock companies which have received licences for the operation of a collective investment company shall register such licences and the licences of the established funds with the Commission within a three-month period as from coming into force of this Law. In such case the licences shall remain valid. 7. Within a six-month period after the registration with the Commission, the companies referred to in Paragraph 6 of these Transitional Provisions shall: 1) acquire the legal status conforming to the requirements of this Law, set up a managerial body and the share capital; and 2) in conformity with the provisions of this Law and the Law on Privatisation Certificates make the relevant amendments to the structure of investments acquired at the expense of fund investors and provisions of the fund prospectus, as well as draft other documents.

92 8. In accordance with Paragraph 7 of these Transitional Provisions the amendments made to the fund prospectus shall come into effect also without consent of fund investors after three months from the day when such amendments were published in the newspaper Latvijas Vēstnesis. 9. Each fund investor, irrespective of the initial provisions of the agreement (prospectus), may, within a three-month period as from the publishing of the amendments to the agreement (prospectus) in the newspaper Latvijas Vēstnesis, request that the companies referred to in Paragraph 6 of these Transitional provisions repay his/her investment. Claims regarding repayment shall be satisfied in accordance with the initial provisions of the agreement (prospectus). 10. If the agreement initially entered into by the company referred to in Paragraph 6 of these Transitional Provisions provides for liability of investors regarding liabilities and transactions of the company which are performed at the joint expense of fund investors or recovery of the relevant claims from the property which has been acquired at the joint expense of fund investors, such claims shall remain valid. 11. After coming into force of this Law, the name of the company specified in Article 9 of this Law shall be permitted to be used only by those investment companies which have been set up or re-registered in accordance with this Law. 12. (Deleted by the law of 1 June 2000 taking effect on 4 July 2000). 13. Within a three-month period of the proclamation of this Law, the Commission shall approve and publish procedures for licensing of investment companies and funds. If the Commission has not approved such procedures, the relevant Cabinet Regulations shall apply. 14. Until the moment of coming into force of relevant regulatory enactments, the monetary assets in the fund shall be kept in the custodian bank in conformity with the acts issued by the Bank of Latvia regarding the trust operations. 15. Amendments to Paragraph 3 of Article 6, Paragraph 2 Article 40, Paragraph 1 of Article 76 and Paragraph 2 of Article 77 (in respect of the change of the name of the Securities Market Commission) shall come into force on 1 July (In the wording of the law of 1 June 2000 taking effect on 4 July 2000) 16. Until 1 January 2004, transactions in financial derivative instruments at the expense of the fund may only be made in order to secure oneself against the risk which occurs due to fluctuations in the value of fund assets. (In the wording of the law of 24 October 2002 as amended by the law of 18 March 2004 taking effect on 1 May 2004) 17. Investment companies which have obtained an investment company operating licence until 30 April 2004 (inclusive) shall re-register the license with the Commission by 31 December An application for re-registration shall include the management services the company intends to provide. The application shall be accompanied by the documents specified in Paragraph 5 of Article 10 of this Law or amendments thereof if such documents have been submitted to the Commission in accordance with other regulatory enactments and making of amendments is required by considering future activities planned by the company. In reregistering the licence as set out in this Paragraph, the State duty shall not be paid. (In the wording of the Law of 18 March 2004 taking effect on 1 May 2004) 18. If an investment company managing pension plan assets of private pension funds intends to continue the management of said assets after 30 April 2004, it shall, when submitting documents for re-registration of the licence, indicate individual management of investor financial instruments as one of its management services.

93 (In the wording of the Law of 18 March 2004 taking effect on 1 May 2004) 19. If an investment company managing state-funded pension scheme assets intends to continue the management of said assets after 30 April 2004, it shall, by 31 December 2004, take measures necessary to ensure the compliance of the company and its operations with the requirements of this Law and the Law on State Funded Pensions. (In the wording of the Law of 18 March 2004 taking effect on 1 May 2004) 20. Investment companies which have got started managing open-end investment funds until 30 April 2004 (inclusive), shall, by 31 December 2004, prepare and submit to the Commission simplified prospectus of the open-end investment funds under their management. Investment companies may offer the simplified fund prospectus to fund investors if the Commission has not raised objections to its compliance with the requirements of this Law within a 20-day period after the receipt of this document. (In the wording of the Law of 18 March 2004 taking effect on 1 May 2004) 21. Investment companies which have got started managing investment funds until 30 April 2004 (inclusive) and plan to make amendments to the prospectus of the fund under their management after the said date, since the information provided by the prospectus has changed, shall formulate and submit to the Commission the new wording of the prospectus prepared in compliance with the provisions of Article 57 of this Law regarding the full version of an investment fund prospectus. (In the wording of the Law of 18 March 2004 taking effect on 1 May 2004) 22. Until the day when relevant amendments to the regulatory enactments governing the securities market come into effect, within the meaning of this Law the term investment brokerage firm is defined as a brokerage firm, while the term investment services, as intermediary activity. (In the wording of the Law of 18 March 2004 taking effect on 1 May 2004) 23. By 1 May 2004, the Commission shall formulate and approve all sample applications and notifications, publish them in the newspaper Latvijas Vēstnesis, as well as place them on the website of the Commission. (In the wording of the Law of 18 March 2004 taking effect on 1 May 2004) 24. Investment companies shall prepare an annual report for 2004 in compliance with the requirements of the Law on Annual Reports of Undertakings. (In the wording of the Law of 18 March 2004 taking effect on 1 May 2004) 25. Subparagraph 6 of Paragraph 2 of Article 13 of this Law takes effect on 1 November (In the wording of the Law of 18 March 2004 taking effect on 10 April 2004) 26. Amendments to Article 752 of this Law shall apply to the report/accounts that are submitted to the State Revenue Service by 1 July 2008 or on a later date. (In the wording of the law of 29 May 2008 taking effect on 1 July 2008) 27. Paragraphs 16 and 17 of Article 33, Paragraph 6 of Article 61, Paragraph 2 of Article 62 and Paragraph 1 of Article 65 of this Law shall take effect in the new wording on 23 July (In the wording of the law of 19 June 2008 taking effect on 23 July 2008) 28. Where an application about an administrative act of the Financial and Capital Market Commission was filed to the Administrative Regional Court by 1 January 2009, the decision about the application filed shall be taken, the instituted administrative case reviewed and the judgment in the case taken and appealed in accordance with the provisions of the Law on Administrative Proceedings.

94 (In the wording of the law of 23 October 2008 taking effect on 1 January 2009) 29. Companies that have entered into agreements for delegating fund management services by the day when amendments to Article 15 of this Law (amending Paragraphs 4, 5, 6, 7, 8 and 9 and supplementing Article with Paragraphs 10, 11, 12, 13, 14 and 15) take effect shall take the necessary measures to ensure that as from 1 October 2010 receiving of the delegated fund management service shall be ensured in accordance with the agreements and the procedures that comply with the requirements of this Law. (In the wording of the law of 11 March 2010 taking effect on 14 April 2010) 30. As of 1 July 2012, the requirements of this Law shall apply to key investor information in respect of open-end investment funds that were registered before 15 November (In the wording of the law of 13 October 2011 taking effect on 16 November 2011) 31. Article 78.1 of this Law shall take effect on 1 January (In the wording of the law of 13 October 2011 taking effect on 16 November Article 78.1 is included in the wording of the law of 1 January 2012) 32. Not later than two months after amendments to Articles 13, 13.1, 13.2, 13.3, 13.4, 13.5 and 14 take effect, an investment management company shall submit to the Commission a written statement that the internal control system of the company complies with the requirements of this Law. (In the wording of the law of 13 October 2011 taking effect on 16 November 2011) 33. A company, which has registered closed-end investment funds in accordance with the provisions of Law hereof, as of the day of coming into force of the Law on Alternative Investment Funds and Their Managers shall have to comply with the provisions laid down in above Law in respect of managers of alternative investment funds and the provisions in respect of transforming a closed-end investment fund into an alternative investment fund. (In the wording of the law of 9 July 2013) 34. Amendments to Paragraph 2 of Article 8 hereof in respect of establishing initial capital shall come into force on 1 January Until 31 December 2013 the term "initial capital" shall be capital which comprises: 1) paid-up share capital which is reduced by the value of cumulative preferential shares; 2) the stock or share premium account; 3) the reserve capital (with the exception of revaluation reserves); 4) the retained profit/loss of previous years brought forward; 5) profit of the current business year if there is a report by a certified auditor of the existence of the profit and it is calculated considering the accumulations required for decreasing the asset value, estimated tax payments and dividends and the Commission has agreed to the inclusion of the profit of the current business year in the initial capital. (In the wording of the law of 9 July 2013) 35. Amendments to Paragraph 9 of Article 8 hereof in respect of establishing own funds and procedures for calculation thereto shall take effect on 1 January Until 31 December 2013 the term "own funds" shall be the elements of capital, reserves and liabilities presented in the financial statements audited by a manager, which are freely available to a manager for covering losses associated with operational risks, but not yet identified, and the procedure whereby own funds are calculated shall be established by the Commission. (In the wording of the law of 9 July 2013) Informative Reference to European Union Directives

95 (In the wording of the law of 8 March 2007 as amended by laws of 29 May 2008, 19 June 2008 and 13 October 2011 taking effect on 16 November 2011) This Law contains provisions deriving from the following: 1) Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS); 2) Council Directive 88/220/EEC of 22 March 1988 amending, as regards the investment policies of certain UCITS, Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investments in transferable securities (UCITS); 3) European Parliament and Council Directive 95/26/EC of 29 June 1995 amending Directives 77/780/EEC and 89/646/EEC in the field of credit institutions, Directives 73/239/EEC and 92/49/EEC in the field of non- life insurance, Directives 79/267/EEC and 92/96/EEC in the field of life assurance, Directive 93/22/EEC in the field of investment firms and Directive 85/611/EEC in the field of undertakings for collective investment in transferable securities (UCITS), with a view to reinforcing prudential supervision; 4) Directive 2000/64/EC of the European Parliament and of the Council of 7 November 2000 amending Council Directives 85/611/EEC, 92/49/EEC, 92/96/EEC and 93/22/EEC as regards exchange of information with third countries; 5) Directive 2001/107/EC of the European Parliament and of the Council of 21 January 2002 amending Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) with a view to regulating management companies and simplified prospectuses; 6) Directive 2001/108/EC of the European Parliament and of the Council of 21 January 2002 amending Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), with regard to investments of UCITS; 7) Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC; 8) First Council Directive 68/151/EEC of 9 March 1968 on co-ordination of safeguards which, for the protection of the interests of members and others, are required by member states of companies within the meaning of the second paragraph of Article 58 of the Treaty, with a view to making such safeguards equivalent throughout the Community; 9) Directive 2003/58/EC of the European Parliament and of the Council of 15 July 2003 amending Council Directive 68/151/EEC, as regards disclosure requirements in respect of certain types of companies; 10) Commission Directive 2007/16/EC of 19 March 2007 implementing Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards the clarification of certain definitions; 11) Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS);

96 12) Commission Directive 2010/42/EU of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards certain provisions concerning fund mergers, master-feeder structures and notification procedure; 13) Commission Directive 2010/43/EU of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards organisational requirements, conflicts of interest, conduct of business, risk management and content of the agreement between a depositary and a management company; 14) Directive 2010/78/EU of the European Parliament and of the Council of 24 November 2010 amending Directives 98/26/EC, 2002/87/EC, 2003/6/EC, 2003/41/EC, 2003/71/EC, 2004/39/EC, 2004/109/EC, 2005/60/EC, 2006/48/EC, 2006/49/EC and 2009/65/EC in respect of the powers of the European Supervisory Authority (European Banking Authority), the European Supervisory Authority (European Insurance and Occupational Pensions Authority) and the European Supervisory Authority (European Securities and Markets Authority). This Law shall come into force on 1 July This Law has been adopted by the Saeima on 18 December President G. Ulmanis Riga, 30 December 1997