By Roger Buckley (pictured) – As an emerging funds jurisdiction Malta is in a strong and perhaps enviable position to mould its future as a domicile and fund administration centre with enhanced corporate governance standards. Together with compliance and risk management, decent corporate governance is a crucial pillar of fundamental importance in the investment funds industry.
Moreover, shortcomings in corporate governance have been a main contributor to the majority of the recent high profile international fund scandals. The appointment of independent non-executive directors and an independent administrator strengthens and improves governance, which is of paramount importance to the integrity of an investment fund and maintenance of investor confidence.
To date, the Malta Financial Services Authority (“MFSA”) has adopted a cautious hands-on approach to the establishment and authorisation process for both funds and regulated service providers. Face-to-face meetings with potential new entrants is encouraged, this fulfils a dual role for the MFSA of safely gatekeeping the industry and welcoming new business. So far, the MFSA has avoided any stringent specific rules or guidelines on corporate governance, such as directorship limitations or service provider requirements, thereby allowing a great deal of flexibility in the structuring of new funds.
For funds that choose to domicile in Malta, with the exception of certain circumstances there are no local resident director or local service provider requirements. When this is the case, the minimum requirement of a fund is the appointment of a “local representative”. This light-touch approach has fared well in attracting funds to Malta, particularly in the small to medium size range. However, the continued long term success of Malta as a jurisdiction will rest with a quality over quantity approach.
Accordingly, change may be on the horizon and having now established Malta as a jurisdiction of merit, the MFSA has signalled that it’s exploring ways to further enhance corporate governance, which ultimately should lead to increased transparency and market confidence.
Many other fund jurisdictions have already established regulations and best practice guidelines in corporate governance, especially in relation to the appointment of independent service providers and non-executive directors. For example, all Irish investment funds are required by law to appoint an independent Irish based fund administrator and more recently the Irish Funds Industry Association (“IFIA”) under the supervision of the Irish Central bank, introduced a voluntary “corporate governance code” for funds. Similarly Luxembourg has established a “conduct for investment funds” and Jersey a “fund governance regime”.
Castlegate Fund Services Ltd. (“Castlegate”) specialises in fund administration and the provision of independent directors for funds domiciled in Malta and elsewhere. Industry leading fund administration software married with a management team with over four decades of multi-jurisdictional fund experience gives Castlegate unique competencies. Castlegate has a strong focus on compliance and risk management, which ensures that all aspects of a funds operation are individually examined in detail and attended to with a high level of thought and care.
With the advent of these changes, now is an ideal time for investment managers and promoters to examine the corporate governance of their funds, specifically with regard to the level of transparency and independence. Ultimately the cost of an independent administrator and director will be offset by risk reduction and enhanced reputational benefits.