Interview with Joseph Saliba – In May this year, two draft versions of the Directive’s Level II measures came into circulation, with the European Commission’s draft differing in several areas compared to ESMA’s advice to the Commission. This is not helping managers, who are increasingly looking for clarity from their service providers.
Joseph Saliba (pictured) is a partner at Malta-based law firm Mamo TCV Advocates. Whilst a lot of the firm’s clients (managers) are based in the EU and will be required under their domestic laws to align themselves to the Directive, other clients are established in Switzerland, and these are keen to understand its scope.
Swiss investment managers are facing the prospect of equally tough regulation at home and the Directive will eventually reach and hit those who manage or market funds in the EU. What might sway their decision on whether to restructure their operations in jurisdictions like Malta will inevitably hinge on whether the EU grants Swiss managers the right to market their funds with a passport akin to the Directive’s; a prospect of which Swiss clients seem to keep high hopes, says Saliba.
As for how the Directive will likely impact Malta’s existing regime, Saliba says: “There are no official pronouncements yet from the MFSA on changes to the island’s regime. The first round of consultations is expected to start after summer, when we’ll have more clarity of MFSA’s intentions.”
Saliba estimates that a material number of foreign managers of existing Maltese non-retail funds “will likely fall below the minimum thresholds (EUR100million increased to EUR500milliion for unleveraged funds)”.
Going forward, Saliba thinks the MFSA will need to consider whether to have two separate regimes running in parallel. Namely:
• A full version of the Directive for bigger managers and their funds.
• A similar version of the existing regime for managers falling below the threshold.
Another fundamental decision for the MFSA to consider will be whether to strictly follow the Directive’s approach of seeking merely service (manager) regulation without directly regulating funds or retain the existing product (fund) regulation.
“My suspicion is that regardless of whether the manager falls under the Directive or not, funds established in Malta will still require a license from the MFSA,” says Saliba “which seems a sensible approach, provided we manage to strike the right balance between adequate regulation and flexibility.”
Currently, managers have a choice to make in response to Europe’s shifting regulatory sands: staying out, fully in or partially in the EU. The Directive will allow them to continue to market their funds under national private placement regimes until 2018, with the potential danger, however, that some individual EU Member States (like France) might simply choose to close down these regimes before 2018.
Non-EU managers or managers running non-EU AIFs, will also be able to passport their funds into Europe possibly from 2015 onwards by getting authorised and fully complying with the Directive, but also subject to the satisfaction of additional conditions such as the establishment of cooperation and tax sharing agreements with the targeted Member State/s of distribution.
Saliba says that managers for whom European distribution is core business, the best solution will probably be to establish themselves an EU presence, and to concentrate their operations in one European domicile: “This will enable them to take full advantage of the fund passport without having to adhere to additional conditions. Malta should be an ideal candidate jurisdiction for these managers, given the tax, cost and other advantages it has to offer.”