Changes in the Available Fund Regimes and Launch of Notified
Fund Regulatory Regime Malta: on 1 April 2016, the Malta Financial Services Authority (the “MFSA”) provided details on a revised way forward in relation to the licensing and notification process for funds in Malta. These amendments are aimed at making the industry as competitive as possible both internationally and locally and are also aimed at maintaining Malta as a frontrunner in the financial services industry. The MFSA will update the current licensing regime for funds while launching a new product of Notified AIFs which will simplify the process of establishing alternative investment funds (the “AIFs”) as defined in article 2 of Directive 2011/61 on alternative investment fund managers (the “AIFM Directive”) in Malta.
Note: This newsletter has been drafted based on the current information as issued by the MFSA. The MFSA is yet to issue updated rulebooks, rules and regulation on the matter and therefore, the information relayed through this newsletter may be subject to further developments and amendments.
Review of the Current Licensing Process Fund Regulatory Regime Malta
The MFSA is currently in the process of formulating the necessary updates to the current licensing of fund regimes in line with its current licensing requirements. The updates are aimed at improving Malta’s competitiveness in the market both internationally as well as locally and also pushing forward Malta’s name as a reputable and professional financial services centre. Moreover, the MFSA wishes to update the current licensing regimes in place for the sake of increasing clarity in the nature and terms of the fund products available in Malta.
As a result of these updates, the MFSA hopes to achieve an increase in the efficiency of its authorization process while simplifying the supervisory process by having less rule books in place.
Current Maltese Fund Regimes
As the rules and regulations stand today, the following products are being offered through the MFSA’s regulatory regime for the structuring of funds in Malta:
- Retail Funds;made available to the general public being UCITS (Undertakings for Collective Investment Schemes in Transferable Securities) funds, retail non-UCITS, overseas based non-UCITS retail funds and retail AIFs.
- Professional Investor Funds (PIFs); which provide a “lighter” regulatory regime and more flexibility than UCITS and which shall not be sold to the general public. The PIF regime is currently divided into funds which can target three (3) different types of investors being experienced investors, qualifying investorsand extraordinary investors.
- Alternative Investor Funds;being funds regulated by the transposition of the AIFM Directive which may be retail AIFs, professional investor AIFs, experienced investor AIFs, qualifying investor AIFs; and extraordinary investor AIFs.
 Investment Services Act, Chapter 370 of the Laws of Malta and the applicable MFSA rulebooks;  Minimum investment EUR / USD 10,000 or the equivalent in another currency;  Minimum investment EUR / USD 75,000 or the equivalent in another currency;  Minimum investment EUR / USD 750,000 or the equivalent in another currency
Proposed Maltese Fund Regimes
The MFSA is proposing updates to the current fund regimes as outlined previously. The changes mainly envisage the removal and/or amalgamation of certain fund regimes as per the below list which shows the new fund regimes which will be applicable:
- Retail Funds: Only the UCITS Fund and the retail AIFs will be retained. Therefore, retail non-UCITS and overseas based non-UCITS retail funds will no longer be available as fund regimes in Malta.
- PIFs:Due to lack of popularity, the experienced investor option will be eliminated and the qualifying and extraordinary investor options will be amalgamated under the heading of a new form of qualifying investor
- AIFs: Again, due to lack of popularity, the experienced investor option will be eliminated and the qualifying and extraordinary investor options will be amalgamated under the heading of a new form of qualifying investor. Retail AIFs and AIFs to professional investors as defined under the MiFID will be retained and the Notified AIF regime will be introduced.
The above-mentioned changes envisaged by the MFSA aim at making the licensing process more efficient and favourable to the promoters taking into account the ever increasing requests for fast tracked licensing process. Therefore, by updating the current licensing regimes under the laws of Malta, efficiency in the licensing process is more likely to be achieved. This will render Malta to be a more competitive jurisdiction in the field.
 Minimum investment EUR / USD 100,000 or the equivalent in another currency;  Minimum investment EUR / USD 100,000 or the equivalent in another currency
- April 2016 – A circular outlining the consolidation of the licensing fund regimes will be issued by the MFSA;
- End of May 2016– Review of the licensing process by the MFSA;
- June 2016 – Cut-Off date for the current regimes; and
- July/September 2016 – Review of the application documentation and rulebook.
The Notified AIFs Regime
The MFSA is launching a new fund product called ‘Notified AIFs’ being collective investment undertakings, including investment compartments thereof, which raise a capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of the investors which do not require the approval of the MFSA. This given that Notified AIFs will not be licensed by the MFSA but will only entail a notification process to be done with the MFSA. The MFSA will act as a supervisory authority rather than as a regulatory authority as far as Notified AIFs are concerned.
Applicability of the Notification Process for AIFs
- Who can make use of this regime?
The process of notification of funds shall apply only to AIFs which are promoted to professional investors or qualifying investors.
Moreover, the ‘traditional’ definition of a qualifying investor is being revamped by the MFSA and a qualifying investor shall now be amalgamated with the extraordinary investor and will be required to satisfy the below criteria:
- Invest a minimum of EUR 100,000 or its currency equivalent to the AIF (which investment may not be reduced below this amount at any time by way of a partial redemption);
- Declare in writing to the alternative investment fund manager (the “AIFM”) and the AIF that they are aware of and accept the risks associated with the proposed investment; and
- Satisfy at least one of the following criteria;
- A body corporate which has net assets in excess of EUR 750,000 or which is part of a group which has net assets in excess of EUR 750,000 or, in each case, the currency equivalent thereof;
- An unincorporated body of persons or association which has net assets in excess of EUR 750,000 or the currency equivalent;
- A trust where the net value of the trust’s assets is in excess of EUR 750,000 or the currency equivalent; or
- An individual whose net worth or joint net worth with that of the person’s spouse, exceed EUR 750,000 of the currency equivalent; or
- A senior employee of director of service providers to the Notified AIF.
An AIF falling within the scope of the Notified AIF regime should be managed by a full-scope AIFM authorized and regulated under Directive 2011/61/EU.
The Notified AIF can be established as an open-ended fund or as a close-ended fund.
- Who cannot make use of this regime?
The notification process cannot be requested for the following collective investment schemes;
- Self-Managed AIFs;
- AIFs which are not marketed/sold to Professional or Qualifying Investors;
- Loan Funds; and
- AIFs that invest in non-financial assets (: antiques and works of art).
 As defined in line with Annex II of the Directive 2016/65 on markets in financial instruments (the “MIFID”)
The legal structure of a Notified AIF can be either one of the following:
- Investment Company with Variable Share Capital (SICAV);
- Investment Company with Fixed Share Capital (INVCO);
- Incorporated Cell Company;
- Recognized Incorporated Cell Company;
- Limited Partnership;
- Unit Trust; or
- Contractual Fund.
Process for Notification
- The Role of the AIFM
The AIFM shall carry out the necessary due diligence exercise for the Notified AIF to ensure that the service providers and the governing body of the Notified AIF are ‘fit and proper’. It shall be the duty of the AIFM to submit the relevant notification pack to the MFSA and also to adhere to the relevant AML Obligations imposed on it as part of this new regime with respect to the Notified AIF.
The AIFM shall resign if it is not satisfied, on reasonable grounds, that a member of the Notified AIF’s governing body, comply with high standard of fitness and probity.
All rights (except for rights to income/capital) such as voting rights, pertaining to the founder shareholders will be transferred to the AIFM once a Notified AIF is included in the List of Notified AIFs.
The MFSA may remove a Notified AIF from the List of Notified AIFs at its sole discretion on notice of the AIFM. The AIFM may request the removal of a Notified AIF at any time and in line with the rules and regulations on the matter.
Documents Required for Notification
A number of documents have to be submitted by the AIFM to the MFSA as part of the notification request to the MFSA a Notified AIF. Such documents will be under the responsibility of the AIFM. Such notification shall include, but shall not be limited to the relevant prospectus, a resolution of the governing body of the Notified AIF, a self-certification by the AIFM that, having regard to any delegate manager(s) or advisers it has in place, it has the necessary competence and experience to manage the Notified AIF and/or monitor effectively any delegate in respect of the applicable investment strategy, a joint declaration by the AIFM and the governing body of the Notified AIF by which each undertakes responsibility for the Notified AIF, and a declaration by the AIFM confirming that it has carried out the necessary due diligence.
The notification pack is to be submitted by the AIFM to the MFSA within thirty (30) calendar days from the date of the resolution of the governing body of the Notified AIF approving the prospectus and prior to the effective date of the prospectus.
Within ten (10) days from the date of filing of a duly completed notification pack, the MFSA will proceed to include the Notified AIF in the List of Notified AIFs.
The inclusion of a Notified AIF in the List of Notified AIFs will not imply that the AIF is authorized or licensed or in any way approved by the MFSA.
Notified AIFs will not be subject to ongoing supervision by the MFSA and the MFSA has discretion to conduct spot checks and controls on the AIFM to make sure that all is carried out properly.
As a way forward both the licensing process and the Notified AIFs process will co-exist with each other.
A client wishing to launch an AIF in Malta, subject to the adherence of all the respective requirements, either of the licensing regime or of the Notified AIFs, is capable of choosing the process to follow, that is, either go for a full licensing process having the authorization by the MFSA and being fully regulated by the MFSA or else go for the notification regime whereby the AIF will not be authorized and regulated by the MFSA leading to a much quicker and simplified process.
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