By Malta Financial Services Authority – The law on investment services in Malta has undergone a number of significant changes in preparation for the implementation of the Alternative Investment Fund Managers Directive (hereinafter referred to as the “AIFMD”). Among these changes has been the issue of second tier legislation in the form of Regulations issued under the Investment Services Act as well as the publication both of new and of revised third level Investment Services Rules by Malta’s finance industry regulator, the Malta Financial Services Authority (hereinafter referred to as the “MFSA”).
The new regime makes provision for and sets out the rules relative to the issue of new licences within the AIFMD framework as well as to the revision of existing licences in order to render current licence holders compliant with the requirements of the AIFMD. Furthermore, it sets out the rights that will attach to licence holders (particularly the passporting rights relative to management and marketing) and the standard licence conditions to which licence holders will be subject on an on-going basis throughout the term of their operation.
(I) New applications
As from 22 July 2013, a number of new AIFMD-compliant licences will be made available as follows:
• new licences with respect to the provision of investment fund management services to investment funds that are not UCITS in accordance with the revised Investment Services Rules for Investment Services Providers, specifically Part BIII thereof regulating Alternative Investment Fund Managers;
• new licences for alternative investment funds in accordance with the new Investment Services Rules for Alternative Investment Funds;
• new licences for professional investor funds (“PIFs”) under the revised Investment Services Rules for Professional Investor Funds in respect of the following cases:
– PIFs opting to be licensed as de minimis self-managed AIFs;
– PIFs managed by external de minimis AIFMs;
– PIFs managed by external AIFMs that are not de minimis (and that are therefore subject to the full scope of the AIFMD); and
– PIFs managed by non-EU AIFMs in terms of the provisions of the AIFMD allowing for the marketing of AIFs by non-EU AIFMs in the territory of a Member State; and
• new licences for non-UCITS retail schemes under the updated Investment Services Rules for Retail Collective Investment Schemes.
Private collective investment schemes fall outside the scope of the AIFMD and will therefore not require any form of licensing but will continue to be issued with a recognition certificate as is the case under the current regime.
(II) Revision of existing licences
Managers and self-managed funds that were already operating under a valid investment services licence prior to 22 July 2013 have the following options:
• either to apply for their licence to be converted to an AIFMD-compliant licence by that date; or
• to make use of a transitional period for conversion.
Applications for conversion to an AIFMD-compliant licence by 22 July 2013
By means of a Circular dated 10 May 2013, the MFSA has advised that existing licence holders that intended to convert to an AIFM licence immediately upon the coming into force of the AIFMD on 22 July 2013 would be required to have notified the MFSA and to have submitted a Self-Assessment Form for Fund Managers or a Self-Assessment Form for Self-Managed Collective Investment Schemes applying for an AIFM Licence, as applicable, by 10 June 2013. The MFSA is now in the process of reviewing the applications submitted and will have issued a revised AIFM licence to those applicants considered to be AIFMD-compliant by 22 July 2013.
With regards to any Self-Assessment Forms delivered to the MFSA subsequently to 10 June, the MFSA has committed to use its best endeavours to ensure the relevant revised licences are issued at the earliest date possible following the entry into force of the AIFMD.
Transitional period for existing licence-holders
Existing licence holders may avail themselves of a transitional period of one year from 22 July 2013 within which to comply on a “best efforts basis” with the requirements of the AIFMD in order to ensure conversion to a duly licensed AIFM or self-managed AIF, as applicable, by 22 July 2014. In order to be licensed within the year, licence holders will be required to submit their relevant Self-Assessment Forms by 31 March 2014.
Umbrella collective investment schemes (including PIFs) will be allowed to continue to establish new sub-funds under the outgoing regime up until 22 July 2014.
De Minimis managers
The MFSA has adopted a policy of licensing rather than simply registering AIFMs whose assets under management fall below the thresholds stipulated in the AIFMD. A Self-Assessment Form for Fund Managers and Self-Managed Schemes applying as De Minimis Licence Holders is available for these fund managers. In order to ensure conversion by 22 July 2014, the relevant forms should also be submitted to the MFSA by 31 March 2014.
The De Minimis PIF/Non-UCITS Retail Scheme Option
The option is available for de minimis self-managed schemes to continue to operate within a PIF or non-UCITS retail scheme framework under the revised Investment Services Rules for Professional Investor Funds or for Retail Collective Schemes, as applicable. A revised licence would be required and, to this end, a De Minimis Self-Assessment Form would need to be submitted also in respect of these managers by 31 March 2014.
(III) Delegation of management functions
The delegation of management functions is permitted within the AIMFD framework. This is subject to the condition that the entire delegation structure may be objectively justified and that it meets certain other requirements as stipulated under the AIFMD and transposed in Part BIII of the Investment Services Rules for Investment Services Providers, such as the requirement that the AIFM retain the expertise and the resources to effectively supervise the delegated tasks and manage the associated risks. Notification of the intention to delegate must be provided to the MFSA, which will permit delegation as long as it is satisfied that all relevant conditions have been met. The AIFMD provides that delegation may be of either the portfolio management or of the risk management function. However, it is the MFSA’s policy to allow the delegation of both functions simultaneously in cases where the delegation of each function is partial rather than total.
The liability of the AIFM will in no way be affected by any delegation of its functions.
(IV) Remuneration policy
The approach adopted by the MFSA is that remuneration policies and practices will be applicable at the level of the AIFM with regards to certain categories of staff (“including senior management, risk takers, control functions, and any employees receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers, whose professional activities have a material impact on the risk profiles of the AIFMs or of the AIFs they manage”).
Any entities to which management functions have been delegated will not, however, be subject to the same remuneration policies as are applicable to AIFMs.
(V) The depositary
The MFSA has negotiated a derogation at EU level from the requirement that the depositary of the AIF assets under management be established within the territory of the licensing state. This derogation has been incorporated within the AIFMD at article 61(5) and effectively allows for the appointment of a depositary (or “custodian”, as the function is referred to in the implementing Maltese laws) that is established in a Member State other than the licensing state. The derogation is effective until 22 July 2017, after which date a Maltese AIFM would be required to employ the services of a Malta-registered depositary.
The delegation by a depositary to a prime broker of any of its custody functions is permitted subject, however, to the conditions contained in Part BIV of the Investment Services Rules for Investment Services Providers. The discharge of depositary liability in any such delegation arrangement is also allowed subject to certain conditions, including the condition that the liability discharge be objectively justified and that it be expressly stipulated within a written agreement.
The MFSA acknowledges that different business models will favour different depositary/prime brokerage structures. In light of this, it is open to considering the appropriateness or otherwise of any models that an applicant may put forward for consideration and has already issued guidance on certain structures which it will consider acceptable.
In accordance with the provisions of the AIFMD, funds that have no redemption rights exercisable within the five-year period following the date of the initial investment in the fund and which generally do not invest in assets that need to be held in custody may appoint, as depositary, any registered professional as approved by the MFSA and providing sufficient financial and professional guarantees.
This depositary “lite” regime will also apply to EU AIFMs managing non-EU AIFs marketed in the EU (at least until July 2015).
Malta has transposed the AIFMD’s passporting and third country provisions by means of dedicated sets of Regulations.
Management and marketing passports
EU fund managers may passport their management services (whether directly or through the establishment of a branch) by means of the Investment Services Act (Alternative Investment Fund Manager) (Passport) Regulations, 2013. Furthermore, such fund managers may market the units or shares of the AIFs under their management in accordance with the Investment Services Act (Marketing of Alternative Investment Funds) Regulations, 2013.
Portfolio investment services
AIFMs are allowed to offer ancillary MiFID services (discretionary portfolio management as well as certain non-core services). The MFSA’s policy is to include an indication of these services in the passport notification provided to host Member States. However, since the EU Commission has stated its position that these services should not in fact be incorporated within the scope of the AIFM passport, managers should be aware that certain Member States may refuse to recognise a right to passport these services.
Third country regime
The transitional third country framework incorporated within the AIFMD has been catered for by the issue of the Investment Services Act (Alternative Investment Fund Manager) (Third Country) Regulations, 2013. Under these Regulations, it will be possible for AIFMs to continue to manage/market (without a passport) non-EU AIFs on a private placement basis within the EU until July 2015. The EU passport may become available after this date in the event that this is recommended by ESMA and subsequently acted upon by the EU Commission by means of delegated acts.
(VII) Co-operation with non-EU jurisdictions
The MFSA has signed co-operation agreements with 34 regulators based in non-EU states having responsibility over the supervision of AIFs. These agreements were negotiated by ESMA on behalf of all 27 EU Member States. The agreements will apply as from 22 July 2013 and will facilitate the exchange of information, crossborder on-site visits and mutual assistance necessary for the effective implementation of the AIFMD.
(VIII) Information on the MFSA website
Information related to the implementation of the AIFMD in Malta may be accessed through a dedicated section on the MFSA website containing all of the updated Investment Services Rules, the applicable EU and Maltese legislation, the licensing application forms, information guides, a detailed Q&A and other relevant information.