Q&A with Joseph Camilleri, Executive Head, Business Development & Corporate Services at BOV Fund Services Ltd
Within the context of a highly regulated fund industry, how is Malta coping to ensure it keeps pace with bigger fund domiciles?
Most people would agree that the fund industry is increasingly becoming overcrowded with regulation, well intended as that may be. This poses challenges to all stakeholders; be they investors, investment managers, service providers, or fund domiciles.
Malta is in no way an exception to thisº The challenges may seem somewhat bigger and more difficult to address if the domicile is a relatively new and upcoming one; particularly if the domicile has built its fund and fund management industry on small and medium sized funds and fund managers, as is the case for Malta, which by the very nature of their size, are impacted to a larger extent by the over-regulation in the industry.
Notwithstanding the above statements hold true, Malta has in my view, weathered the storm in a convincing manner. The key word here is “adopting” rather than “adapting” to new regulation, and ensuring that its pre-emptive stance pays dividends. The island’s positioning as a fund domicile has seen it consolidating its strengths in particular niche areas, which it has continued to develop over the past few years. All of this is further underpinned by the pro-active mind-set of stakeholders (service providers in particular) in ensuring compliance to new regulations through the timely provision of additional services to the industry.
Malta’s fund industry has established itself as a domicile of choice to many start-up hedge fund managers. The pro-business approach and accessibility of Malta’s regulator, the robust yet flexible regulatory framework for de minimis funds (in terms of the AIFMD), the efficient process for licensing, as well as the presence of several service providers on the island, are attracting several investment managers to our shores.
Within the AIFMD realm, Malta too has identified its own niche segments. The past couple of years have been characterised by full scope AIFMs (based in Malta or other EU member states) structuring fully compliant AIFs across numerous and diverse strategies. Most notable, we have seen a growing number of AIFs being set up to invest in real estate and other real assets; private equity funds, loan funds and other asset classes. Thus, AIFs that require `depo-lite’ services, as opposed to fully-fledged depositary services, have been very conspicuous in Malta’s development of its fund industry.
The recently introduced Notified Alternative Investment Fund (NAIF) has been an innovative and positive contributor to the growth of the industry in the AIFMD space. Full scope AIFMs across the EU can now have their fund structures, SICAVs, Contractual Funds, Limited Partnerships, or Unit Trust Funds up and running within 10 business days of notifying the regulator.
How do you see the Brexit realities impacting Malta’s fund and fund management industry?
It is difficult to tell, given that Brexit realities remain unknown. Having said that, we’re already seeing major cities within the EU taking rather aggressive approaches, in an attempt to attract London based businesses their way, particularly if there is a hard Brexit.
I tend to think that such attempts at unseating London as Europe’s main financial services centre are rather delusional. There is likely to be a repositioning, of course, yet London is London and will remain a major player, just as it is today.
The way Malta is looking at Brexit is quite different. Rather than adopting a vulture mind-set, Malta’s approach is softer; one that aims to further strengthen the legacy relationship between the UK and its former colony Malta.
Indeed, Malta is in an ideal position to act as a bridgehead for UK-based businesses (and not limitedly to financial services businesses at that) to access the wider EU market.
There are various reasons why Malta sees itself differently. Apart from the legacy relationship mentioned above, there are other realities that are worth mentioning that render the relationship one based on mutual respect and understanding:
- English is the official language of Malta;
- The island’s membership and active participation in the Commonwealth;
- The British business ethics are deeply rooted in Malta’s own conduct of business;
- Similarities in the socio-political make-up of the two countries.
It is therefore no surprise that we are seeing London-based operators teaming up with ManCo and Super ManCo platforms here in Malta to explore alternative solutions for different Brexit scenarios that would allow them access to the EU market. Others are setting up their own “lean” fund management operations in Malta, as UCITS managers or AIFMs, to carry out the risk management function for their fund vehicles, whereas the day-to-day portfolio management activities are outsourced back to base, in London.
Malta’s way of looking at the opportunities arising from Brexit is of the `win-win’ sortºand it is precisely this that is elevating Malta’s stature in the eyes of UK-based operators.
What are the major challenges for a company like BOV Fund Services vis-Ã -vis on-going regulatory developments?
Some see regulation as a safeguard to investors, whereas others see it as overkill and an unnecessary money drain.
Whichever line one might take, it is indisputable that regulation presents both challenges and opportunities for service providers, particularly fund administration companies like BOV Fund Services. Regulation has predominantly meant additional and extensive reporting. In view that most fund data is held by fund administrators, it follows that they are best placed to provide additional services to funds and their fund managers, thereby enabling them to comply with newly introduced obligations.
This has been true for AIFM Annex IV reporting, FATCA, Common Reporting Standards and others.
So has regulation impacted all fund administrators in the same manner?
The short answer to this question is `No’. There have been winners and losers. The winners were those service providers that ensured a level of preparedness in good time. Those who have lost out, on the other hand, have been the laggards. Those who considered the aforementioned regulations as lying at the feet of fund managers and their funds.
Fund administrators who evaluated the regulations as their draft versions were published, who understood the implications, and who geared themselves up to provide timely solutions in a cost competitive environment, not only ensured that their clients were compliant from day one, but they also consolidated loyalty from their client base, as well as created new revenue streams for themselves.
In that respect, BOV Fund Services has been one of the winners. It sought to be ahead of the curve, in terms of assessing the likely requirements of its client base emanating from new regulation. It invested heavily in its IT infrastructure and entered into agreements with system providers to automate reporting.
This has ensured that the company further consolidated its market leadership in Malta as the island’s number one fund administration firm (in terms of Assets Under Administration, as well as number of Malta-based funds administered by the company). It was, and remains, a key objective for us to maintain our market leadership position, considering that there is a crowded market of 27 fund administration firms operating from Maltaº a clear enough indication of Malta’s stature as an international fund domicile of repute!
