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Malta is not a small island of light touch regulation

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By Adam de Domenico (pictured) – There are many reasons why managers might decide to come to Malta; its favourable tax regime, climate, inexpensive costs and more. In the last few years there’s been a good push from both managers and funds looking to set up in Malta.

And whilst Malta may be considered less expensive when compared to other key fund jurisdictions, this shouldn’t be confused with the idea that its services are sub-standard. The quality of service providers here is at par with mainland Europe with a focus of professional services within the financial services industry.

When it comes to applying for a fund license in Malta, it is also critical to understand what’s needed post-approval. This is not a tiny island with minimum regulation. Indeed, in many ways the MFSA takes a similar stand to the FSA, so managers need to think clearly about how they plan to operate once the license has been obtained.

Promoters considering application for a management company may wish to consult the MFSA website which clearly lists out the regulatory rules on application and post licence. In general, the regulatory compliance requirements of Collective Investment Schemes (“Funds”) are similar to other key European jurisdictions including that the Fund is subject to the investment objectives, policies and restrictions as outlined in its offering memorandum. Furthermore, as one would expect, UCITS Funds are subject to additional specific limitations and investment restrictions from a risk management perspective.

Funds are also required to submit annual audited accounts and half-yearly reports to investors and to the MFSA within four and two months respectively.

The Rules applicable to Investment Managers include general requirements; conduct of business obligations; outsourcing rules; disclosure requirements to clients; financial Resources Requirements, Accounting and Record Keeping. The general rules require the Company to establish relevant functions including: a compliance function; risk management function; operational & Supervisory (Board, Investment Committee); internal audit functions & independent Risk function (if relevant); establish, implement and maintain policy and procedures; have measures in place to effectively monitor outsourced functions; monitor, control and maintain adequate capital resources requirement (eg. 2 BPs on AUM > EUR250Mmin of EUR125K).

The Rules also require the Investment Manager to establish, implement and maintain appropriate policies and procedures, covering various conduct of business obligations such as best execution, conflicts of interest, and staff dealing to name a few.

From a practical perspective, the Company may delegate certain functions to third parties approved by the Board, however outsourced services remain the responsibility of the Board. Critical operational functions may not be outsourced in such a way as to impair materially the quality of its internal control and MFSA’s monitoring abilities and the Company shall have measures in place to effectively monitor outsourced functions.

Once the license has been approved, it’s not a case of sitting on one’s laurels. There’s a lot to think about. Whilst the MFSA are available to meet promoters, they have rules and they stick by them. The essence of the message here is that post-license things are easier said than done.

Zodiac Advisory Services Limited is an investment management advisory firm. The firm has been operating in Malta since 2009. With over 40 years of experience amongst its team, ZAS is able to support its clients in areas of regulatory compliance, accounting, directorships, as well as support services such as helping clients relocating to Malta with recruitment and housing.

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