The Malta Financial Services Authority

The Malta Financial Services Authority (MFSA) has built a solid reputation as a meticulous, yet accessible, supervisory body, ensuring that the local industry is closely monitored and fully compliant.

This unified regulatory structure has enhanced the potential for both local and international financial players and further strengthened the jurisdiction’s reputation, introducing more competitive fees and compliance costs and better standards of quality.

The promising development of Malta as an international financial centre is reflected in the range of financial services available. Malta continues to be positively ranked for its performance in the financial sector, with a financial services industry both diversified and rich in depth.

The MFSA has adopted a pro-business approach in order to further contribute to Malta’s growth, and operates locally, at European level and is also willing to reach globally. The MFSA has a staff of over 234 people, consisting of specialist regulators, lawyers, accountants and support staff facilitating the formulation of policy, decision making and support for both licence holders and consumers, and also houses the International Tax Unit of the Inland Revenue Department and the Registry of Companies.

Professional Investment Funds in Malta

Many hedge fund managers have already chosen Malta as their domicile based on two overriding factors: 

1. The recognition that legislation has been put in place by the country’s lawmakers.
2. The professional expertise and quality of service that Maltese service sector providers offer.

The country's reputation as a well managed and stable jurisdiction has made its own contribution too.

In fact, a number of Professional Investor Funds (PIFs) were licensed by the MFSA with promoters originating from various countries including Canada, UK, Switzerland, Czech Republic, Turkey and the U.S. who have set up a parallel EU operation onshore to continue to market their products to EU investors. And seasoned fund managers from offshore jurisdictions such as the Cayman Islands and Switzerland are now opening offices in Malta.

A more cost competitive fee base

Malta is cost competitive when compared to other EU-based jurisdictions, both in terms of setting-up fees as well as on-going fees. Set-up fees for a PIF that consists of only one sub-fund does not exceed €20,000. 

A standard audit service fee can range from €3,500 to €4,000 per annum with audit services provided by ‘big four’ firms as well as mid-tier audit firms. Custody and safekeeping fees are also very competitive.

More fiscal advantages 

Malta’s strong regulatory framework and a competitive, transparent tax regime are approved by the EU and the Organisation for Economic Co-operation and Development (OECD).

• There is no income tax or capital gains tax in Malta at either the level of the Fund or at the level of non-Maltese resident investors. 
• Malta currently has 70 64 double taxation treaties with EU and non-EU countries. 
• Asset managers registered in Malta can also benefit from a very favourable tax regime.

The regulatory approach adopted by the MFSA on the licensing of Professional Investor Funds (PIFs) is based on key criteria tailored to allow a fast and practical response to applications for the registration in Malta.

Considerable emphasis is placed on Disclosure and the MFSA places heavy reliance on Fit and Proper Status of the PIF's Directors and Service Providers.

The nature of the PIF lays an increased onus on the investor. And the Avoidance of Prescriptive Regulation enables considerable flexibility for promoters. Licensing is rapid, depending on the type of PIF sought. 

Notified Alternative Investment Funds

On 11 February 2016 the Malta Financial Services Authority (“MFSA”) announced the launch of a new fund regime for Alternative Investment Funds (“AIFs”), namely the Notified AIF will not require licensing by MFSA and will not be subject to on-going MFSA supervision. The MFSA will publish a list of Notified AIFs on their website and the new structure will begin from end-May 2016. 

The Notified AIF may be set up in any structure under Maltese law and may target professional investors who meet the requirements of the framework set out by the MFSA. 

Any EU/EEA full-scope AIFMs, licensed by the MFSA or in possession of the management passport under Article 33 of the AIFMD, may request to the MFSA for an AIF to be included on the List of Notified AIFs. The timeframe of 10 business days from the date of filing a duly completed notification pack has been indicated by the MFSA for inclusion of the AIF on to the Notified AIF list. Providing that the AIFs falling within the constraints of the notification criteria are managed by a full-scope AIFM, and jointly with the governing body of the AIF (the Board of Directors in case of a SICAV) will take full responsibility for the Notified AIF. Interestingly, third country AIFMs may also submit requests for a notification of an AIF if passporting rights have been granted to the country where the AIFM has been established. 

Key points:

The Notified AIF will be available only to full scope EEA AIFMs which will mean a reliance on the EEA AIFM regulatory status rather than regulating the AIF itself. The Notified AIFs governing body and the AIFM will need to declare in a joint declaration that each takes responsibility for the NAIF, including the obligations arising under the AIFMD. There are no separate prudential requirements on the Notified AIF by the MFSA. The objective is to be quicker to get the Notified AIF on to the market and to reduce set up and ongoing running costs. A new regulation/rulebook will be issued under the Investment Services Act as well as specimens of all documents which shall accompany the notification request to the MFSA. The new regime will be applicable to new AIF set up; it will not be possible for licenced AIFs to apply to become a Notified AIF). Notified AIFs may only be promoted to Professional Investors (under MiFID), and Qualifying Investors (€100,000 minimum investment and other eligibility criteria).A Notified AIF is passportable and can be open or closed ended. It will be tax exempt; (the Malta Income Tax Act will be amended towards this end). A Notified AIFs regime is not available to Self-Managed AIFs, Loan Funds, Non-AIFs, AIFs managed by third country (Non-EU) AIFM’s (until/unless passport is extended to incorporate Non-EU), AIFs investing in non-financial assets, such as antiques, works of art, classic cars, real estate, physical commodities and other tangible items. Private Equity funds may however be set up as Notified AIFs. 

Notification process:

The AIFs own governing body will need to approve the compliant prospectus. Following approval it can be dated, and the AIFM will be required to submit the notification to the MFSA within 30 days from this approval date. The AIF will be published on the Notified AIF list within 10 business days. The list will then be available on the MFSA website. The documentation required includes a compliant prospectus pro-forma. It must include a declaration that it has not been reviewed or approved by the MFSA and include all AIFMD disclosure requirements. It must include a resolution by the AIF governing body certifying the compliant prospectus. The AIFM will be required to undertake the responsibility of ongoing management and monitoring of the Notified AIF demonstrating AIFM certification as to competence to manage/monitor. A joint AIFM/AIF governing body declaration must also be included regarding continuing compliance with AIFMD along with an AIFM declaration regarding AIF governing body and service provider due diligence. The latter must include due diligence relating to directors, administrators, all service providers and record keeping requirements. 

AIFM obligations are to ensure that a fit and proper test of the governing body and service providers is carried out before the submission of the notification to the MFSA and update the due diligence records on at least an annual basis. The AIFM must ensure that the Notified AIF appoints an MLRO/may rely on administrator – the AIFM or its administrator must submit to the MFSA a periodic report, at least quarterly, which includes a complete list of unit holders of the Notified AIF, details of subscriptions and redemptions carried out by the unit holders within that period of time and a description of the customer due diligence measures carried out by the Notified AIF or its administrator on the unit holders. It must be in compliance with AIFMD and marketing requirements and the AIFM must also approve any rights over founder shares which typically would have special rights. The MFSA has discretion to remove Notified AIF’s from the list and the AIFM may (and in certain circumstance must) request the MFSA to remove it. If removed from the list, the Notified AIF has to be wound down. 

As Malta is fast becoming the location of choice for many fund managers and entities, with English as the spoken business language, and the regulatory and government bodies actively promoting Malta as a centre of excellence for the asset management industry, it is also an attractive base from a cost and tax efficiency perspective. 

VFS has been active in the market providing a full suite of fund administration services, as well as fund formation solutions on a turnkey basis, for 10 years. VFS has in fact assisted several fund promoters set up their investment vehicles in Malta; our expert knowledge of the regulatory framework enables us discuss and put forward alternative solutions to our client base. VFS has in fact been at the forefront to assist new entrants to the Maltese market, identifying the best suited regulatory fund rule book, as well as provide a holistic fund administration and back office support on an ongoing basis.