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The AIFMD transition in Malta

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By Robert Higgans (pictured) & Clare Farrugia, MFSA – Since the end of the transition period applicable to Alternative Investment Fund Managers (AIFMs) that were undertaking activities before the coming into force of the AIFM Directive on 22 July 2013, a clearer picture is emerging on the preparedness of operators to conduct activities under AIFMD – a Directive which has attracted mixed reactions from various sectors, with some advocating the added advantages of increased investor protection and the passporting opportunities whilst others are highlighting the increased compliance costs, uncertainty and complexities that it has brought about.

Whilst AIFMD has posed various challenges to industry operators and regulators alike, Malta was at the forefront of implementation, ensuring a timely transposition. This transposition entailed amendments to the Investment Services Act, 1994 with the primary law being supplemented by four legal notices and changes to the MFSA’s Rulebooks.
 
With respect to the transitional period, the MFSA received around 100 applications from existing local fund managers and internally managed schemes, which were in operation before 22 July 2013. Such licence holders were required to undertake a gap analysis and identify those areas that required changes to ensure compliance with AIFMD. Whilst many applicants already had certain structures and procedures in place in line with AIFMD, one of the areas they needed to tackle was the separation of the portfolio and risk management function and the addition of staff to ensure a more robust risk and compliance infrastructure.
 
The practical implementation of the Directive has proven to be a challenging task particularly in view of the uncertainty in the interpretation of certain requirements. One such area concerned the delegation requirements of AIFMs. The lack of clarity on the requirements on delegation and the application of the quantitative and qualitative criteria set out in the Commission Delegated Regulation, created certain uncertainty for some applicants. The MFSA sought to address this through the exchange of views and discussions with the industry. Where certain elements of the portfolio management function were delegated increasing focus was made on the need to have a fully operational and independent risk management function undertaken by competent people in Malta.
 
As part of the MFSA’s pragmatic approach to the implementation of the AIFMD it took the initiative of introducing an Alternative Investment Fund regime by way of a new Rulebook. This new regime provides Maltese/EU AIFMs with a regulatory framework that allows them to establish AIFMD-compliant funds for marketing to professional investors in Malta or across the EU.
 
With reference to de minimis AIFMs that qualify for the exemption available under Article 3 of the AIFMD, Malta introduced a specific regulatory framework as it opted to regulate such entities. De minimis AIFMs are required to be licensed rather than merely registered.
 
The transition and application of the AIFMD has been facilitated by the MFSA through the provision of guidance to the industry not only through ongoing discussions with industry representatives but also the issue of circulars, brochures, guidance notes and feedback statements including frequently asked questions.
 
Whilst challenges and scope for greater clarity on aspects of the Directive remain, much progress has been made resulting in increasing interest and confidence of fund managers and internally-managed schemes to operate under the AIFMD. 

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