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Key developments in a growing reputation

Key Developments and a growing reputation in the Funds Industry.

A Complimentary Jurisdiction

Malta is now officially viewed as a complementary jurisdiction to other major centres such as Luxembourg and Ireland. However, the Maltese domicile carries additional advantages such as being more cost efficient and having a sole regulator with a committed pro-business approach and stalwart attitude.

A Specialised Regime for PIFs

The area of alternative funds is that in which Malta continues to experience strong growth; partially due to the country being one of the first European jurisdictions to introduce a specialised regime for Professional Investor Funds (PIFs), in line with both the EU AIFMD and UCITS V Directive.

NAIFs

At the end of May 2016, The Malta Financial Services Authority (MFSA) will be introducing a new regime for Alternative Investment Funds (AIFs): the Notified AIF. NAIFs will not require a licence and will not be subject to MFSA supervision, but rather the onus will fall onto the AIF Manager (AIFM).

This NAIF regime reduces setup and ongoing costs, minimise time-to-market, and is also tax exempt and passportable; providing yet another attractive benefit in opting for the Maltese domicile, already well-known and recognised for its pro-business attitude and cost efficiency, among many other appealing traits.

UCITS

The UCITS V Directive was published in the Official Journal of the European Union on 28 August 2014 and became effective as of 17 September 2014. Member states were given 18 months to implement the Directive which came into force on 18 March 2016, however there is a further grandfathering period of 24 months being implemented for those UCITS whose depository was not compliant as at 18 March 2016 and such UCITS will therefore not need to be fully compliant until 18 March 2018. The UCITS V provisions seek to address certain perceived weaknesses in the UCITS regime, particularly following the Madoff fraud and the default of Lehman Brothers. In addition, certain provisions of UCITS V seek to align the UCITS regime with the Alternative Investment Fund Managers Directive, and to harmonise regulation across the EU. The key aspects addressed by UCITS V relate to the depository function, remuneration of personnel and regulatory sanctions.

Notified Alternative Investment Funds

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.

The key points are:

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.

The notification process is set out as follows:

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.

For more information on Notified AIFs or any other area within our expertise please contact us on [email protected] or call us on +356 2275 5599.

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BOV Fund Services Limited
TG Complex
Suite 2, Level 3
Triq il-Birrerija
L-Imriehel, Birkirkara BKR 3000
Malta

Telephone: (00356) 2122 7148

Fax: (00356) 2123 4565

[email protected]

Registration Number: C39623

VAT Registration Number: MT 1839 0214

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