Dominique Lecocq, partner, Lecocqassociate

Seeking an asset management license

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By Dominique Lecocq (pictured) & Dr Caroline Pace, partner and senior associate, respectively, Lecocqassociate – In order to get a regulatory license, an asset management company must guarantee a fit and proper organisation. Most recognised jurisdictions have set similar standards, including (i) a level of independence between shareholders and board members; (ii) a level of ‘chinese wall’ between operations, risk management and compliance; (iii) dual control and four eyes principles; (iv) good monitoring of conflict of interests.

The Malta Financial Service Authority (‘MFSA’) controls the issuing of licenses and supervising asset managers and advisors operating in or from Malta. While the 1994 Investment Service Act sets core legal conditions required to get a license, the MFSA has also implemented specific requirements which are not necessarily available in writing, summarised below:

Shareholders: An asset management company cannot be established as a single member company and thus must have at least two founding shareholders at all times.

Directors: The MFSA stresses the principle of ‘Dual Control’ and the ‘Four Eyes Principle’, thus requiring a minimum of two directors. In order to establish and maintain jurisdiction in Malta, at least one of the directors must be a Maltese resident.

Investment committee members: A minimum of three investment committee members are to be appointed yet not necessarily as employees of the entity. At least one member must be a local resident. The investment committee must meet physically in Malta at least once every quarter. Where the entity prefers not to employ a local IC member before the license is issued, the MFSA allows that the Business Plan be submitted containing a detailed description of the position to be held by a local person. Once the license is granted, the founders may start looking for a proper employee and present their credentials to the MFSA for review and approval.

Business conduct and risk management requirement: A Code of Business Conduct and a Risk Management Policy must be established and maintained. Proper documentation must be available and be aligned to the manager’s activity. The MFSA reviews in detail the risk management policy. Exemption: A request may be made to the MFSA to be exempt from having an independent risk management function on the basis that it is not proportionate in view of the nature, volume and complexity of the business, and the range of investment services and activities undertaken by the management company.

Internal audit function: An internal audit function independent from the other responsibilities of the asset manager is to be established. Exemption: Derogation may be requested where the nature, scale and transaction volumes of the entity justify it.

Minimum number of employee required: If all exemptions are granted, a start-up manager may start with one employee only.

Due diligence process: This is a crucial stage in the licensing process whereby the MFSA, following an assessment of all the documentation provided, determines whether a person is fit and proper. This requisite is to be fulfilled by every qualifying shareholder (i.e. direct or indirect holder of ten percent or more of the capital or voting rights of the entity); director, IC members and any other person proposed to hold a key position within the applicant entity.

Business plan: The MFSA necessitates a detailed Business Plan of the asset management company’s business, contemplated scope of activities, future goals and the manner in which these goals will be achieved, three years of forward-looking financial statements, and any other relevant details.

With a well-prepared application, an in-principle approval should be expected within three months of submission.
 

Further reading


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