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MALTA 2016
VERSATILITY
Matchless financial freedom
INNOVATION
A relentlessly evolving industry
PROSPERITY
Capitalising on every opportunity
FEATURING Be. Legal Advocates // Camilleri Preziosi Advocates
// Chetcuti Cauchi Advocates // Fenech & Fenech Advocates //
FinanceMalta // GANADO Advocates // Malta Stock Exchange //
Sparkasse Bank Malta plc // Valletta Fund Services
CHETCUTI
CAUCHI
YOUR TRUSTED
ADVISORS
Chetcuti Cauchi is a law firm ser ving successful
entrepreneurs, business families and institutions using the
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MALTA · CYPRUS · LONDON
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M A LTA 2 0 1 6
INTRODUCTION
M
alta has been experiencing unprecedented
change as it looks to grow its hedge fund
and captive industries.
This year’s HFMWeek Malta Report
aims to uncover the techniques that have
propelled Malta into the international
finance spotlight.
The establishment of some 600
investment funds, with a combined net asset value of €10bn,
highlights Malta’s growing asset management expertise. This report
utilises the knowledge of expert contributors to look behind the
statistics and provide a detailed analysis of the country’s financial
sector.
New developments, such as the prospect of the jurisdiction
becoming an EU hub for securitisation, are also discussed in this
edition of HFMWeek's Malta Report.
The contributors to this report bring together a vast array of
experience and understanding of the region to provide an intimate
and expert view of Malta’s financial sector.
Tom Simpson
Report editor
Published by Pageant Media Ltd
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SUB-EDITORS Luke Tuchscherer, Mary Cooch, Alice Burton, Charlotte Romeyer ASSOCIATE PUBLISHER Lucy Churchill
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HFMWeek is published weekly by Pageant Media Ltd ISSN 1748-5894 Printed by The Manson Group
© 2016 all rights reserved. No part of this publication may be reproduced or used without the prior
permission from the publisher
H F M W E E K . CO M 3
CONTENTS
M A LTA 2 0 1 6
06
FUND SERVICES
MALTA’S FUND REGIME
20
Dr Maria Chetcuti Cauchi of Chetcuti Cauchi Advocates explores the
many sectors within Malta’s financial industry and highlights her
future expectations for the Mediterranean island
08
FUND MANAGEMENT
MALTA CAN RISE TO THE TOP
FUND MANAGEMENT
MALTA: INNOVATING THE HEDGE FUND INDUSTRY
22
MALTA’S SUCCESS STORY
25
LEGAL
THE DEPOSITARY PASSPORT DEBATE
Dr Louis de Gabriele and Dr Andrew Caruana Scicluna of Camilleri
Preziosi discuss the decisive factors behind the depositary
passport and why its arrival would be ground-breaking
LEGAL
THE RIGHT TOOLS FOR THE JOB
Fenech & Fenech Advocates partners, Dr Joseph Ghio and Dr
Josianne Brimmer, outline the versatility of the Maltese regulatory
framework for investment funds
17
FUND MANAGEMENT
Joseph Camilleri of Valletta Fund Services examines Malta’s central
role in the captive industryand what we can expect in the coming
12 months
Dr Richard Bernard of Be. Legal Advocates discusses how Malta
became so dynamic in the hedge fund industry
14
WHERE TO DO YOUR BUSINESS
Ivan Grech, head of business development at FinanceMalta,
explains why Malta is going from strength to strength in the hedge
fund industry
Paul Mifsud, managing director at Sparkasse Bank Malta,
explains how Malta has the potential to become Europe’s leading
securitisation centre
11
FUND SERVICES
FINANCIAL SERVICES
THE POTENTIAL OF LIMITED PARTNERSHIPS
André Zerafa of GANADO Advocates studies the Maltese limited
partnership as a vehicle for private equity and venture capital
strategies
4 H F M W E E K . CO M
29
FUND SERVICES
MALTA STOCK EXCHANGE’S CONTINUING
DEVELOPMENT
Cliff Pace of Malta Stock Exchange offers a unique insight into the
advancement of Malta’s capital market and what we can expect to
see in the near future
A breath of fresh air in Depositary services.
Tailored fund custody from Sparkasse Bank Malta plc.
Custody and depositary services are a core part of what we do at Sparkasse Bank Malta plc
- a service we provide to our customers through our robust infrastructure and highly trained and
experienced team of professionals. A team willing to listen and competent to act. We deliver a holistic
custody and depositary solution to AIFs, UCITS and Non-EU funds. Banking, execution, settlement,
safekeeping, monitoring and oversight solutions from one account.
For Private and Corporate Banking, Wealth Management and Fund Custody, talk to Sparkasse Bank Malta plc.
Call +356 2133 5705 or email us on [email protected].
www.sparkasse-bank-malta.com
Sparkasse Bank Malta plc, 101 Townsquare, Ix-Xatt ta’ Qui-si-Sana, Sliema SLM3112, Malta
Sparkasse Bank Malta plc is licensed and regulated in Malta by the Malta Financial Services Authority (MFSA)
to provide Banking, Investment and Custody services.
Part of the Austrian Savings Banks - Banking since 1872
M A LTA 2 0 1 6
MALTA’S FUND REGIME
DR MARIA CHETCUTI CAUCHI OF CHETCUTI CAUCHI ADVOCATES EXPLORES THE MANY SECTORS WITHIN MALTA’S
FINANCIAL INDUSTRY AND HIGHLIGHTS HER FUTURE EXPECTATIONS FOR THE MEDITERRANEAN ISLAND
L
Dr Maria Chetcuti
Cauchi is the partner
in charge of the corporate
law & regulated business
units of the firm. Maria
developed the firm’s practice
in the corporate and finance
areas with clients ranging
from banks, funds, financial
services companies, asset
management companies
and large corporates and
institutions.
aunching and running an effective fund can
be equally rewarding and challenging. It is a
thoughtful and time-consuming process that
requires skill, careful consideration and supportive collaborations. Therefore, considerable attention needs to be placed on the
choice of jurisdiction, regulatory environment and the
project team that is working on the process.
Malta’s fund regulatory regime ensures the highest
standards of probity and transparency whilst ensuring that
operators function within the necessary freedom of competitiveness and innovation. The Malta Financial Services
Authority (MFSA) is the single regulator which oversees
the whole spectrum of financial services. It adopts a style of
regulation that aims at combining a high standard of regulation with an efficient response to industry requirements.
Malta is no longer regarded as an ‘emerging’ domicile for
funds. On the contrary, it is now seen as a well-established
location of substantial depth and sophistication. The island
is also well versed with various fund typologies including Professional Investor Funds, Alternative Investment
Funds (Loan Funds and Shariah Funds), and Ucits funds.
Malta also received various badges of recognition including the ‘Most Favoured Fund Domicile’ recognition award
bestowed on the island in 2013 and 2014 (Hedge Funds
Review).
BANKING AND FINANCIAL INSTITUTIONS
As at the end of 2015 the total number of Malta licensed
credit institutions increased to 28, with one company having its licence upgraded from that of a financial institution
to a credit institution. Nine companies were also granted a
financial institution licence with two of the latter licensed
to provide payment services while another licensed to issue electronic money. Another three institutions were licensed to provide both payment services and electronic
money issuance.
INVESTMENT SERVICES, INSURANCE AND PENSIONS
Investment services licenses registered significant growth in
2015 with 22 licences issued in the various categories. Of
particular interest are the 16 Cat 2 licenses which included a
number of Ucits and AIF managers setting up herein. Custody licences also increased with three new issuances, two of
which were Cat 4a level and one Cat 4b.
Despite an increase in international economic uncertainties associated with the new Solvency II framework postJanuary 2016, the insurance sector in Malta continued to
perform well. Four new insurance undertakings were issued
under the Insurance Business Act, these including one life
insurance undertaking, one Protected Cell Company, and
6 H F M W E E K . CO M
one reinsurance company. The MFSA also approved two
new cells bringing the total number of authorised cells in
2015 at 29 within 12 Protected Cell Companies. The Authority also granted certificates of registration to two retirement schemes and two retirement scheme administrators.
COMPANIES AND TRUSTS
The Registry of Companies registered over 5,500 new
companies in 2015. Nine new authorisations were issued
in terms of the Trusts and Trustees Act and with three surrenders of authorisations the total number of authorisations
was brought to 148 as at the end of 2015. The relatively new
Company Services Providers Act also heralded 67 registrations in 2015, an increase of 58 from the previous year.
FUNDS
Malta’s fund industry and its infrastructure have continued
to progress, with the MFSA licensing new Collective Investment Schemes (including sub-funds) on a regular basis. As
at June 2014 Malta could boast:
• A total net assets of funds of €9.7bn
• A total net asset value of €6.6bn for PIFs
• A total net asset value of €2.42bn for Ucits
Retail non-Ucits funds amounted to a total net asset value
of €0.7bn in 2013.
With regard to the management of Collective Investment
Schemes, as at June 2014, Malta vaunted:
• Over 38% of funds (including sub-funds) being Malta
domiciled and managed by Malta-based fund managers
• Around 43% of funds managed from outside Malta
• Over 18% of funds (including sub-funds) being Malta
self-managed funds.
With regard to the administration of Collective Investment Schemes, as at June 2014, around 74% of funds were
administered in Malta, while 26% of the funds were administered outside the island.
INVESTOR BASE AND PROFESSIONAL INVESTOR FUNDS
The fund manager will also need to assess and determine the
target investor base and the applicable regulatory regime.
Malta caters for the setup of both retail and non-retail funds.
With respect to a non-retail investor base, the fund manager
can set up a Professional Investor Fund (PIF) with three categories of investors being targeted:
• Experienced Investors where the minimum entry level
amounts to €10,000
• Qualifying Investors where the minimum investment
amounts to €75,000
• Extraordinary Investors where the minimum investment
amounts to €750,000
With regard to domiciliation and choice of vehicle, there
FUND SERVICES
are no restrictions on leverage or diversification, and such
funds are not required to appoint a custodian. Non-retail
funds cover a wide range of fund typologies including hedge
funds, master-feeder funds, and property funds as well as a
wide range of funds investing in diverse asset classes.
Service providers on Malta PIFs need not be located in
Malta and such funds can be set up here but managed and
administered elsewhere. PIFs can use any reputable bank
or prime broker in a recognised jurisdiction outside Malta.
Having said that, due to Malta’s success in attracting managers, many of the latter have still chosen to set up herein.
UCITS
With regard to retail, Malta provides the fund manager with the option of setting up a Ucits scheme
whereby funds can be freely distributed throughout
all EU Member States without the need for a licence
in any other jurisdiction. The trend towards having
a regulated product is evident in the managers opting to re-package hedge funds as Ucits schemes.
PRESENT AND FUTURE EXPECTATIONS
Historically, Malta has been regarded as a jurisdiction where
funds can be set up quickly and in a cost effective way. In the
last decade, the country has also gained a reputation with
reputable fund managers themselves. Under the promulgation of AIFM Directive, the industry experienced a further
boost with more offshore fund managers moving into a
desirable regulated onshore environment. With AIFMD
allowing a fund manager to choose Malta as its domicile
and providing its fund management services throughout
the European Union, Malta has gained a name as a hub for
such industry drivers. This was mostly driven by the
country’s attractiveness in terms of high quality human capital, effective value for cost-of-investment,
language fluency, reachability of the regulator and
an attractive fiscal base.
Malta is also highly regarded internationally as
being notably compliant with international standards, continuously topping the scoreboard of Member States for well-timed implementation of internal
market rules for financial services and the implementation of various MoUs with various non-EU
jurisdictions.
Malta is also exploring possibilities related to Islamic Finance structures. It already has the relevant
infrastructure in place therefore availing itself of exciting prospects for investors and issuers to launch
Shariah compliant structures which use Malta as a
hub to market to European investors even through a
cost-effective European exchange such as the Malta
Stock Exchange.
Another expectation is related to Custodians. With
Malta’s number of funds strong and growing, Malta is feeling
the need for more specialised banking services, including custodian services. It is expected that a range of boutique banks
and specialised credit institutions will find scope to capitalise
on this opportunity. All this justifies Malta’s label as a jurisdiction with ‘a Culture of Getting Things Done’. With such a
securely regulated environment, reachable regulator, skilled
workforce and first-class service providers, the island’s outlook to the future can be nothing but positive. Q
WITH SUCH A SECURELY
REGULATED ENVIRONMENT,
REACHABLE REGULATOR,
SKILLED WORKFORCE
AND FIRST-CLASS SERVICE
PROVIDERS, MALTA’S
OUTLOOK TO THE FUTURE
CAN BE NOTHING BUT
POSITIVE
ALTERNATIVE INVESTMENT FUNDS
Following the introduction of the EU’s Alternative
Investment Fund Management Directive (AIFMD)
that regulates both alternative fund managers and
the promotion of Alternative Investment Funds
within the EU, Malta’s fund industry has entered a
new phase in its development. A new AIF regime
has been launched alongside the PIF regime. The
AIFMD is a 2011 EU Directive that came into force
in 2013 and regulates the marketing or the management of funds (other than Ucits) within the EU and
also subjecting fund managers within scope to an authorisation or registration requirement. The AIFMD provides
the possibility to authorised EU AIFMs to market units or
shares in their EU AIFs to professional investors in all EU
Member States without needing to comply with any further
local requirements. It is important to note that retail nonUcits CISs, PIFs and Private CISs would be encapsulated by
the definition of an AIF in terms of the AIFMD.
”
H F M W E E K . CO M 7
M A LTA 2 0 1 6
MALTA CAN RISE TO THE TOP
PAUL MIFSUD, MANAGING DIRECTOR AT SPARKASSE BANK MALTA,
EXPLAINS HOW MALTA HAS THE POTENTIAL TO BECOME
EUROPE’S LEADING SECURITISATION CENTRE
8 H F M W E E K . CO M
FUND MANAGEMENT
M
alta is very well positioned in becoming a hub for securitisation, dematerialisation and custody of securitised
assets. Despite Malta introducing a
legal framework for securitisation in
2006, the financial crash meant that
it was rarely used until around 2012.
But there are signs that securitisation in general is
gaining momentum. This is being helped by a dedicated
regulated market for wholesale securities, the European
Wholesale Securities Market (EWSM); a joint venture
between the Irish Stock Exchange and Malta Stock Exchange established in 2012 that allows the listing of
wholesale-denominated debt securities to trade on an
EU regulated market.
Soundly structured, securitisation is an important
channel for diversifying funding sources and enabling
a broader distribution of risk by allowing lenders such
as banks to transfer the risk of some exposures to other
banks, or long-term investors such as insurance companies and asset managers.
This allows for the freeing up
of part of their capital that would
otherwise be taken up to cover
for the risk in the sold exposures.
Thereby allowing banks to generate new lending. In the European financial system, where bank
lending accounts for 75% to 80%
of total funding of the economy,
securitisation can lead to more
credit for businesses and households.
Paul Mifsud joined Sparkasse
Bank Malta plc in 2006 as managing
director. He was instrumental in
developing the bank’s business and
presence in Malta and for building
the investment services/wealth
management division, as well as
steering it to becoming a major player
in fund custody in Malta.
DYNAMIC LEGISLATION
To further strengthen Malta’s position, an innovative
piece of legislation – the Securitisation Cell Companies
Regulations – was enacted on 28 November 2014. This
improves investor protection by formally recognising
the segregation and protection of assets allocated to
segregated accounts, compartments or units within the
same company.
A Securitisation Cell Company (SCC) may be established for
the purpose of either entering
into securitisation transactions
or assuming risks as a reinsurance special purpose vehicle.
The SCC is a company that
creates one or more segregated
cells by means of a board resolution. The cells do not have separate legal personality – only the
SCC does – but do have separate patrimony status; the assets
and liabilities of one cell are
treated as being separate from
the assets and liabilities of any
other cell within the SCC, and
from the assets and liabilities
of the SCC itself. Assets attributable to a cell are only available to the creditors of that cell
and are ring-fenced from other
creditors.
IN THE EUROPEAN
FINANCIAL SYSTEM, WHERE
BANK LENDING ACCOUNTS
FOR 75% TO 80% OF
TOTAL FUNDING OF THE
ECONOMY, SECURITISATION
CAN LEAD TO MORE CREDIT
FOR BUSINESSES AND
HOUSEHOLDS
THE SECURITISATION ACT OF MALTA
The revival of securitisation in
the EU is now considered to be
one of the priorities of the Capital
Markets Union, in particular for
the refinancing of SME loans and
to reduce reliance on bank funding.
We believe that the Securitisation Act of Malta lends itself well
for the establishment securitised
structures that could fit well within the scope of the
European Commission’s initiatives in this regard, and
that Malta is well placed to offer cost-effective solutions
for companies to raise non-bank financing. The Maltese
Securitisation Act covers three main types of securitisation: asset securitisation, synthetic securitisation and
whole business securitisation.
The securitisation vehicle may delegate the day-today administration function to a third party, including
the originator of the securitisation assets. The bank is
currently playing an active role in this field especially
in that of providing dematerialisation services, paying
agent and custodian for the underlying assets held by
the vehicle.
”
THE FUTURE
In terms of financing the securitisation transactions for
each cell, the SCC would issue financial instruments
in respect of the relevant cell, in one or more tranches;
typically, these would be debt securities but it is also
possible to issue shares in respect of a particular cell.
Debt securities may be listed and admitted to trading
on a regulated market such as the EWSM, or can be offered on a private placement basis.
With the legal and regulatory framework in place,
Sparkasse Bank Malta plc is starting to see interest
build among asset managers for tailor-made solutions
in alternative asset classes and as structures that offer
administrative ease for money managers. Q
H F M W E E K . CO M 9
JOBS BOARD
NOW OPEN
HFM CAN HELP YOU
ADVERTISE AND SEARCH
FOR ROLES ACROSS
A RANGE OF SPECIALISMS
AND LEVELS OF SENIORITY
WWW.HFM.GLOBAL/JOBS
FUND MANAGEMENT
M A LTA 2 0 1 6
MALTA: INNOVATING THE
HEDGE FUND INDUSTRY
DR RICHARD BERNARD OF BE. LEGAL ADVOCATES DISCUSSES HOW MALTA BECAME SO DYNAMIC IN THE HEDGE FUND INDUSTRY
T
Dr Richard Bernard
is a managing partner at
Be. Legal Advocates and
has garnered circa 10 years
of hands-on experience
in Maltese and European
financial services regulation,
company law, corporate
finance transactions and
mergers and acquisitions.
he very fact that HFMWeek is publishing this
jurisdiction-specific report is testament to
Malta’s ‘coming of age’ as a European financial services centre. The growth of our asset management sector, driven by new fund
set-ups and redomiciliations, has resulted in
the establishment of some 600 investment funds with a
combined net asset value of circa €10bn. A staggering 98%
of all foreign direct investment in 2014 stemmed from financial services. Moreover, Malta was affirmed the ‘most
favoured domicile in Europe’ by the Hedge Funds Review
in its Service Provider Rankings in 2013 and 2014 and
has retained its status as one of the most advanced global
economies, ranked among the top 20 financial services jurisdictions worldwide by World Economic Forum.
WHAT MAKES MALTA SO ATTRACTIVE TO FUND MANAGERS
AND PROMOTERS?
Malta’s solid reputation as a stable eurozone economy and
a highly competitive, cost-effective and tax-efficient jurisdiction harbouring all the lifestyle luxuries of a Mediterranean island with a multi-lingual and professional workforce, has certainly contributed to Malta’s exponential
growth in the sector. Couple these incentives with cuttingedge regulatory innovation and Malta’s role as a European
hub for financial services starts to make a great deal of
sense. Ever-evolving regulation, restrictive by design to
ensure greater financial stability, is ostensibly changing the
rules of the game in a way that generates new demand for
innovative, yet prudent, investment products and vehicles.
Since the enactment of Malta’s investment services legislation back in 1994, the Malta Financial Services Authority (MFSA), qua the sector’s regulator, has consistently
demonstrated a commitment to working together with
the financial services industry for the implementation of
major strategic objectives. It has a view to fostering innovation through regulation which has effectively been manifested in the creation of various niche fund markets which
Malta is well-positioned to service.
POST-AIFMD MALTA – AN OPPORTUNITY SEIZED
Few would disagree that the entry into force of the AIFM
Directive has led to seemingly seismic shifts in the global
hedge fund landscape, as both EU and non-EU fund managers have had to reconsider their strategic positioning in
the light of new regulatory demands and market realities.
Self-managed AIFs which have assets under management
in excess of €100m, or €500m if the AIF is unleveraged,
are required to operate within the heightened regulatory
strictures of the various regulations transposing the AIFM
Directive into Maltese law. Operators not exceeding the
said prescribed thresholds qualify as ‘de minimis’ AIFMs.
Malta was one of the first EU member states to transpose the AIFM Directive into local legislation, which is
noteworthy of itself, but it is the manner of its transposition of the Directive’s ‘de minimis’ provisions which truly
demonstrates its regulatory style. Consistent with this forward-looking and pragmatic approach to regulation, and
driven by an ongoing endeavour to innovate, the MFSA
has maintained Malta’s popular Professional Investor Fund
(PIF) framework alongside the new AIF regime and, in
so doing, has created niche market for ‘sub-100m funds’
which the island has excelled in servicing.
While full AIFMD compliance certainly benefits larger
operators, start-ups and ‘smaller’ funds may indeed be
overwhelmed by the corresponding regulatory load. The
PIF regime offers three different fund typologies, each
based on the participating investors’ wealth and experience, with the regulatory regime being relaxed proportionally to the minimum entry threshold required from each
individual investor. A PIF is fundamentally an AIF which
escapes the necessity of full AIFMD compliance when
structured as a self-managed fund satisfying the de minimis thresholds.
Accordingly, while many EU jurisdictions have seemingly been left reeling by the AIFMD regulatory overhaul,
Malta has coupled its transposition into the local legislative framework with the retention of the light-touch, more
flexible PIF regime and, effectively, has guaranteed the
survival of the ‘start-up’ fund, which had come to be synonymous with pre-AIFMD Malta.
Moreover, the appropriate mechanisms are in place to
facilitate the change from de minimis status to full AIFMD
compliance once the operators feel that the associated expense and resource can be justified by the fund’s growth.
THE RICC
One of the more innovative vehicles added to Malta’s repertoire of fund structures is the Recognised Incorporated Cell
Company (RICC) which specifically targets platform providers, in that it facilitates the creation of a RICC or ‘core’
with the sole purpose of providing standardised administrative services to any number of incorporated cells (ICs),
each established within its platform structure and each duly
licensed as a fund. Such administrative services largely consist of routine contractual matters and start-up support.
A key advantage of a RICC platform is the ‘standardisation’ of fund documents, such that functionary agreements and regulatory consents in respect of standardised
fund documentation will be in place upon the setting up of
the RICC platform structure and, accordingly, a new cell
or fund can be added at a fraction of the time that would
H F M W E E K . C O M 11
FUND MANAGEMENT
M A LTA 2 0 1 6
regulatory framework addressing the specific risks and requirements of loan funds and under which Maltese funds
can provide finance to unlisted companies and SMEs and
acquire portfolios of loans.
In terms of the rules, loan funds may be established
as PIFs or AIFs targeting ‘professional investors’ and are
to be structured as unleveraged closed-ended schemes
which will invest through loans solely and exclusively to
unlisted companies and SMEs. Fund managers are
expected to establish and implement various policies and procedures including a credit risk strategy
proportionate to the scope and sophistication of
the loan fund’s activities and an appropriate liquidity management system.
In July, 2015 the MFSA clarified that loans to
households or individuals that have been originated by credit institutions may indeed be acquired
by a loan fund under the applicable conditions
established by the Loan Fund Rules. The current
EU regulatory environment has led banks to limit
SME financing activities which has resulted in an
opportunity to be seized by alternative fund managers and institutional investors.
be required were the fund to be established from scratch as
a ‘stand-alone’ entity. Notably, from a legal and asset planning perspective, an IC is endowed with separate legal personality. The key legal principle in this respect is that assets
and liabilities of each IC are distinct and ‘ring fenced’ from
those of other ICs within the platform and the RICC itself.
Whilst the RICC platform structure has also proven to
be beneficial for larger funds, it is particularly relevant to
start-up and ‘smaller’ funds to the extent that it offers an ‘incubation’ style set up. Indeed, in view of
the increased cost and resource brought about by
the AIFM Directive and other EU-wide regulatory
reform, the RICC model is looking increasingly attractive as it allows several funds to co-exist under
a single, service-providing platform.
MALTA WAS AFFIRMED
THE ‘MOST FAVOURED
DOMICILE IN EUROPE’
BY THE HEDGE FUNDS
REVIEW IN 2013 AND 2014
AND HAS RETAINED ITS
STATUS AS ONE OF THE
MOST ADVANCED GLOBAL
ECONOMIES
PRIVATE EQUITY AND LOAN FUNDS
The past couple of years have seen Malta muster
considerable interest as a domicile of choice for
private equity and venture capital fund managers.
Recent changes to Malta’s already flexible limited partnership framework, which changes were
geared primarily towards ensuring that the applicable Companies Act provisions would facilitate the
structuring of private equity funds as limited partnerships, have inter alia clarified the extent to which
limited partners can participate in the management
of the partnership without losing their ‘limited liability’, a particularly relevant consideration in the
context of investment committees. Moreover, Maltese limited partnerships are afforded separate legal
personality. Combine this with Malta’s unrivalled
cost and tax incentives and an extensive network of double
taxation treaties and Malta’s foray into the global private
equity space becomes somewhat clearer.
Malta’s solid housing of private equity investment activity is further bolstered by the recently introduced loan
funds regime comprising a set of rules applicable specifically to such funds. Which effectively provide for an ad hoc
1 2 H F M W E E K . CO M
”
THE WAY FORWARD
Despite the turbulence, and subsequent regulatory overhaul, that has rocked global markets over
the course of the past years, Malta’s fund industry
has managed to secure consistent growth. Going
forward, the outlook appears bright insofar as the
jurisdiction continues to leverage its unique selling points by fostering innovation through regulation, promoting unparalleled efficiency and incentivising
compliance.
Of course, the ever-increasing regulatory load inherent
in this industry means that proper preparation and careful
selection of professional advisors will be paramount for
operators to correctly implement a structure which suits
their requirements. Q
Start your own
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Providing complete umbrella structures
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based in Malta
For further information regarding these new
fully regulated and licensed fund services,
please contact :-
Sales & Marketing:
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M A LTA 2 0 1 6
THE RIGHT TOOLS FOR THE JOB
FENECH & FENECH ADVOCATES PARTNERS, DR JOSEPH GHIO AND DR JOSIANNE BRIMMER, OUTLINE
THE VERSATILITY OF THE MALTESE REGULATORY FRAMEWORK FOR INVESTMENT FUNDS
M
alta joined the European Union in
2004 and holds one of the best records
among member states for the timely
transposing of EU directives across all
sectors. Malta is a civil law jurisdiction,
with a civil code based on the French
Code Napoléon. Having been a British crown colony for
almost 160 years, before gaining independence in 1964,
Malta has historically mirrored English law on corporate
and financial services law.
Joseph Ghio is a
partner at Fenech & Fenech
Advocates where he coheads the financial services
and aviation departments.
His practice areas include
aviation, M&A and asset
finance, as well as banking,
insurance, and investment
services. He is widely
recognised for his expertise
in investment funds and
remains a well-known figure
in financial services.
Josianne Brimmer
is a partner at Fenech
& Fenech Advocates
working principally within
the international practice
and financial services
departments. Her practice
areas include M&A and
asset finance, as well as
funds and investment
services. Prior to rejoining
the firm in 2014, she spent
seven years as in-house
counsel with European
hedge fund managers.
14 H F M W E E K . CO M
BEST OF BOTH WORLDS
Malta was ranked first by the European Commission for
the timely implementation of the EU internal market rules
into national law, and thirteenth by the World Economic
Forum for the soundest banking system.
Malta remained stable in the face of the global financial
crisis, and has, over recent years, continued to grow in recognition as a jurisdiction of choice for fund and fund manager set-ups. From one fund in 1995, the Malta Financial
Services Authority (MFSA) currently regulates over 900
funds (including sub-funds) and over €9bn of AUM across
Malta domiciled funds.
Malta’s hybrid legal system enables versatile solutions
across different legal forms used for collective investment,
ranging from the investment company to the trust, from
the partnership to the cell company.
FLEXIBLE AND ROBUST
Fund promoters looking at Malta have an array of choices
as to the format and regulatory regime for their funds. The
Maltese regulatory regime acknowledges that not all investors, and therefore not all funds and fund promoters, have
the same investment requirements and risk appetites and
the regulatory framework is designed around the idea that
there is no ‘one-size-fits-all’ model.
Malta provides for the setting up of both licensed and
recognised funds across retail and professional investor
types. Although the vast majority of Maltese schemes are
set up as open-ended investment companies with variable
share capital (SICAVs), other legal forms are also available
to better accommodate the different set-up and structuring
requirements promoters and their investors. Close-ended
investment companies with fixed share capital, contractual
funds, limited partnerships, incorporated cell companies
and unit trusts can all be set up and licensed as funds, a
testament to the versatility of our hybrid legal system.
Promoters would also need to determine which regulatory framework would apply to their funds, the type of investors to which they can be available, the applicable marketing rules and passporting opportunities, who can be the
service providers involved, depository considerations, in
other words whether the scheme would be a Ucits, an AIF,
a PIF, self-managed or third-party managed.
The Maltese Investment Services Act requires collective investment schemes issuing or creating units or carrying on any activity in or from Malta to be in possession
of a licence issued by the MFSA. A scheme set up in terms
of Maltese law wanting to carry on any activity from any
country or territory outside of Malta is also required to be
licensed by the MFSA.
While within the retail space, Malta caters for the setup and licensing of both Ucits and non-Ucits schemes. In
the case of professional investors, the Maltese regulatory
regime caters for the setting up of Alternative Investment
Funds (AIFs) in terms of the Alternative Investment Fund
Managers Directive (AIFMD), as well as Professional
Investor Funds (PIFs) licensed and regulated by the Investment Services Rules for Professional Investor Funds
issued by the MFSA. Both AIFs and PIFs can be set up as
both externally managed or self-managed schemes, with
the regulatory requirements applicable to the scheme
varying accordingly.
The determination of whether to set up a scheme as an
AIF or a PIF depends principally on the prospective or
current total assets under management of the manager,
or of the scheme itself where this is self-managed. Where
the assets under management exceed the thresholds established by the AIFMD, the scheme would have to be set
up as an AIF. Where the assets fall within the de minimis
thresholds under the AIFMD, the scheme can be set up
either as an AIF, or as a PIF.
Where the scheme is externally managed, and where
the manager is a fully-fledged Alternative Investment Fund
Manager (AIFM) in terms of the AIFMD and established
in the EU, the scheme would have to be set up as an AIF;
where, on the other hand, the manager is established as a
de minimis EU AIFM, the Maltese scheme would have to
be set-up as a PIF. Third country (non-EU) managers have
the option to set up either a Maltese PIF or an AIF, subject
to compliance with special provisions applicable to nonEU AIFMs managing EU AIFs.
PIF FLAVOURS
The option available in terms of the Maltese regulatory regime to also allow for the establishment of licensed PIFs
gives promoters further flexibility, particularly in the initial stages of fundraising of smaller funds. While the PIF
regulatory regime provides for a robust scheme set-up, and
will always require that directors and officers satisfy the
MFSA ‘fitness and properness test’, since these schemes
are targeted at professional investors, the applicable rules,
LEGAL
particularly with respect to investment restrictions, and
the appointment of service providers, become less restrictive as the minimum entry-level investment by a subscriber increases.
PIFs targeting extraordinary investors where
the minimum initial investment is set at €750,000,
are therefore not subject to any investment or
borrowing restrictions, save those laid down in
the offering documentation, and are not required
to appoint a custodian. Similarly, PIFs targeting
qualifying investors where the minimum initial
investment is set at €75,000, are, where they do
not invest in immovable property, not subject to
any investment or borrowing restrictions (the
exceptions being those laid down in the offering
documentation). PIFs are not required to appoint
a custodian, subject to having to implement other
proper safe-custody arrangements with respect to
the assets of the scheme.
This degree of flexibility allows promoters to establish smaller schemes which may, at least initially,
be set up as PIFs, and then transition to the AIFM
regulatory regime without losing any track-record,
as the assets under management increase, and the
scheme is large enough to support the relative higher costs
of such a set-up. The Maltese regulatory regime also caters
for a recognition process in respect of private collective
investment schemes. Where, amongst others, scheme is
private in nature and purpose, limits the number
of participants to 15 individuals who are close
friends or relatives of the promoters (or entities
owned by them which are merely investors). The
scheme may apply to the MFSA for recognition
as a private collective investment scheme, which
will not require a fully-fledged licence in terms of
the Investment Services Act.
MALTA’S HYBRID LEGAL
SYSTEM ENABLES
VERSATILE SOLUTIONS
ACROSS DIFFERENT
LEGAL FORMS USED FOR
COLLECTIVE INVESTMENT
”
ACCESSIBLE AND EFFICIENT
The registration and licensing process is straightforward and, with the support of internationally
well-respected legal and accountancy professionals, can be handled efficiently. The MFSA remains an accessible regulator, ready to meet with
promoters, and while uncompromising on principles and enforcing applicable rules, it strives to
be open to developments and, where possible, to
assist promoters in seeing their projects through
in a timely way. Q
H F M W E E K . C O M 15
FINANCIAL SERVICES
M A LTA 2 0 1 6
THE POTENTIAL OF LIMITED
PARTNERSHIPS
ANDRÉ ZERAFA OF GANADO ADVOCATES STUDIES THE MALTESE LIMITED PARTNERSHIP AS A VEHICLE FOR
PRIVATE EQUITY AND VENTURE CAPITAL STRATEGIES
O
André Zerafa heads
GANADO Advocates’
investment services and
funds team, specialising in
structuring and establishing
alternative investment
funds and retail funds.
André advises promoters
on corporate and regulatory
matters, including capital
raising issues, and he is
involved in setting-up
asset management firms,
administrators, custodians,
prime brokers and advisers.
ne of the primary considerations for any
fund promoter is the choice of corporate
structure for the collective investment
scheme which will be used to raise capital and eventually make investments. The
structure would need to tick several boxes
particularly in relation to investor rights, control, voting,
the management structure, investment period and last
but not least taxation. The limited partnership structure,
which is available in Malta, ticks all these boxes. Limited
partnerships were originally introduced back in 1962
through the Commercial Partnerships Ordinance; however, it was only in 2003 that the legislator felt the need
to cater for limited partnerships which have collective
investment as their main or sole objective. The changes
brought about in 2003 were welcome but not sufficiently
detailed in order to cater for a structure which has developed certain legal complexities over the years, especially
in Anglo-Saxon jurisdictions.
The need for more bespoke corporate regulation for
limited partnerships was partly addressed when a whole
new schedule – the Tenth Schedule – was added to the
Maltese Companies Act which catered exclusively for
investment funds set up as limited partnerships. The
Tenth Schedule was reviewed further and refined, also
with the assistance of international legal consultants in
2014. These latest changes placed Malta on the proverbial map as a domicile where limited partnerships can be
incorporated with the flexibilities normally encountered
by Anglo-Saxon fund promoters which have been at the
forefront of using limited partnerships as collective vehicles for private equity and venture capital investments.
MAIN FEATURES OF THE MALTESE LIMITED PARTNERSHIP
The Maltese limited partnership has separate legal personality from that of its partners and can contract in its
own name albeit represented by the general partner.
Whilst the limited partnership itself would be subject
to licensing by the Malta Financial Services Authority in
view of the fact that it would qualify as a collective investment scheme (all types and forms of funds are subject
to licensing barring a handful of specific exceptions), the
general partner would not be regulated in its own right
unless it is providing management services to the limited
partnership. The general partner is typically set up as a
Maltese private limited liability company and this further
enhances the substance of the fund in Malta. Nevertheless, the legislation allows the general partner to be incorporated anywhere else.
The LP can be either divided into shares or else can
issue partnership interests. In both cases, these would
qualify as units for the purposes of defining an investor’s
H F M W E E K . C O M 17
FINANCIAL SERVICES
M A LTA 2 0 1 6
ownership interest in the partnership. As in any other
partnership structure, the liability of the limited partners
is limited to the investments which they make whereas
that of the general partner is unlimited.
The acts of general management and administration
of the partnership would be vested in the general partner. The GP would act in the name and on behalf of the
partnership in the delegation of specific functions to
fund managers, administrators and depositaries, or else
fulfil the investment management function itself and
at times the administration function too. However any
limited partner can be provided with a specific power
of attorney to perform certain acts on behalf of the
partnership. Although the GP is responsible for the
partnership’s general management and representation, the limited partners can still be given certain veto rights and can also form part of advisory
boards or committees which would provide them
with a level of participation in the operations of the
partnership.
The GP is also bound by certain fiduciary obligations towards the partnership and would require the
express approval of the other partners (normally
catered for in the deed of partnership) to carry on
business on its own account or on account of others
in competition with the partnership, act as general
partner or director of another entity competing with
the partnership, or deal with the partnership’s property in any way other than as permitted by the deed
of partnership.
The Tenth Schedule renders the rights of limited partners subject to what is stated in the deed
of partnership. However, it provides limited partners with basic rights of inspection of books of account and records, albeit such rights can be curtailed
further in the deed. Limited partnerships can also issue
fractional shares and can accept non-cash contributions from investors. These aspects would normally be
regulated by the deed of partnership and the offering
memorandum.
MULTI-FUND AND MULTI-CLASS
It is also possible for a limited partnership to have segregated sub-funds which would have separate investment
objectives where the assets and liabilities of each subfund would constitute a separate patrimony, although
the sub-fund would not have separate legal personality
which would remain vested in the limited partnership
as a whole. On the other hand, a partnership which is
issuing shares can also have different classes of shares
which are all exposed to the same pool of assets, in
which case there is no segregation of liability between
one class of shares and another.
FIXED OR VARIABLE CAPITAL PARTNERSHIPS
Partnerships are allowed to have either fixed capital or
variable capital. This is a reflection of other corporate
options available under Maltese company law in the
form of the SICAV (variable capital company) and the
investment company (fixed capital company). These
features have been incorporated within the limited
partnership law in order to provide partnerships with
18 H F M W E E K . CO M
options on their capital structure. One would expect fixed
capital partnerships to be preferred over variable capital
ones if there is no redemption mechanism embedded in
the structure and hence it is investors’ expectation to remain invested for a certain period of time; however both
are possible. In fact, the legislation caters for both open
ended and closed ended partnership structures.
CORPORATE FILINGS AND REPORTING
All corporate filings relating to the limited partnership
would be submitted with the Malta Registrar of Companies, which is the public depositary of all corporate
documents relating to the partnership. The
legislator recognised the importance of retaining a certain level of confidentiality, especially in relation to the commercial terms
negotiated with investors.
In fact, the filing of the deed of partnership
is not required and, instead, the partnership
can file a partnership registration document
containing basic details such as the name and
residence of the general partner, the name,
registered office and objects of the limited
partnership, and indicating whether the capital of the partnership is variable capital or
fixed capital. Limited partnerships are also
bound to file audited financial statements
which are produced in accordance with International Financial Reporting Standards. An
important point to note is that the identity of
limited partners is not in the public domain
and the corporate filings are not required to
identify the limited partners, but only the
general partner/s.
THE MALTESE LIMITED
PARTNERSHIP PROVIDES
ALL THE ELEMENTS OF
A ROBUST CORPORATE
STRUCTURE WITHIN A
REGULATED FRAMEWORK
”
DISSOLUTION AND WINDING UP
The law provides extensive detail on the dissolution
of limited partnerships and the various ways in which
this can be achieved. The provisions on dissolution and
winding up generally reflect the provisions which apply to companies such as those relating to dissolution
by the court, or by creditors of the partnership, the
manner in which the dissolution is conducted and the
circumstances in which a partnership can be dissolved.
CONCLUDING REMARKS
We are of the view that the Maltese limited partnership
provides all the elements of a robust corporate structure within a regulated framework enjoying all the hallmarks of tax transparency, where required, confidentiality where this counts while ensuring full transparency
towards investors and the regulator. This structure has
been sparsely used over the years, however, the improvements made in 2014 have placed limited partnerships on
a par with the SICAV, which remains the most widely
used corporate vehicle in Malta. We expect the use of
limited partnerships in Malta to increase in the short to
medium term in view of the initiatives being taken by
the European Commission on the introduction of harmonised rules for venture capital funds and long term
investment funds, where limited partnership structures
could be well suited for such strategies. Q
M A LTA 2 0 1 6
WHERE TO DO YOUR
BUSINESS
IVAN GRECH, HEAD OF BUSINESS DEVELOPMENT AT FINANCEMALTA, EXPLAINS WHY MALTA IS GOING FROM
STRENGTH TO STRENGTH IN THE HEDGE FUND INDUSTRY
Ivan Grech is the head
of business development
at FinanceMalta, the
promotional arm of the
financial services industry in
Malta. Working in marketing
management roles for
more than 20 years, he has
gained experience in various
industry sectors ranging
from private healthcare to
the automotive business.
HFMWeek (HFM): It is almost nine years since
FinanceMalta was founded. What level of growth has
Malta’s fund industry seen in that time?
Ivan Grech (IG): Since the establishment of FinanceMalta the financial services sector in Malta has seen some
remarkable and robust growth, expanding at around 25%
annually, with the sector now a major force in Malta’s economy, contributing approximately 13% to GDP in 2014.
While the fund industry was set up in Malta in the
1990s, it only experienced meaningful growth with the
island’s accession to the European Union in 2004. Despite
the turbulence of global markets, Malta’s ascent into an
international centre of repute has
been one of the fastest and most
remarkable stories in recent times,
growing at a much faster rate than
many industry professionals had
ever anticipated. Over the last few
years it has risen up the ranks on
the list of top European fund domiciles, and regularly receives high
rankings in benchmarking reports.
Malta was named ‘most favoured
domicile in Europe’ for investment
funds in the Hedge Funds Review
Service Provider Rankings in both
2013 and 2014.
Malta is now attracting increasingly sophisticated asset management activities with an accompanying steady year-on-year growth
in the number of domiciled funds.
Today the island is estimated to have a market share of 20%
of the EU’s fund business comprising over 600 investment
funds with a combined net asset value of approximately
€10bn.
million people in 28 EU economies.
Malta’s central location in the Mediterranean and its
frequent air connections allows for access to all major European business centres in only a few hours. It is also in a
convenient time zone to do international business, as it is
only one hour ahead of GMT, thus matching office hours
with Europe throughout the day, Asia in the morning and
the US in the afternoon.
Malta also offers great cost advantages as a finance
centre, with low operational overheads, a fiscally efficient
framework through its tax-friendly base, low living expenses, competitive personal tax rates and overall great value
for money when considering the
skills and expertise present in the
Maltese market when compared to
the rest of Europe and other leading jurisdictions.
AS IT IS ONLY ONE HOUR
AHEAD OF GMT, MALTA
CAN DO BUSINESS WITH
EUROPE THROUGHOUT THE
DAY; ASIA IN THE MORNING
AND THE US IN THE
AFTERNOON
HFM: What does Malta offer
funds with regard to the availability of service providers and
expertise?
IG: The island’s support services
are first class, efficient and offer
cost-effective solutions to fund
administration. Service companies
in Malta have developed expertise
and have proven track records in
key areas such as listing, custody,
administration and management
of funds through professionals of
the same calibre of those in London, Dublin or Luxembourg.
While funds registered in Malta are not required to appoint a local administrator, the exorbitant growth of the
fund industry has attracted increasing numbers of fund administrators to set up on the island. Currently 27 entities
are recognised by the Malta Financial Services Authority
(MFSA) and include local as well as global institutions
such as Valletta Fund Services, Apex, Customs House,
Praxis, IDS Group, Calamatta & Cuschieri, Alter Domus,
Heritage, TMF and Amicorp.
Services fund administrators usually provide are
post-trade services; pre-settlement trade processing
and support, position and trade reconciliation; and risk
”
HFM: How important is Malta’s proximity to Europe
in its offering as a jurisdiction?
IG: Malta’s entry into the EU in 2004, and the eurozone
in 2008, makes Malta a stepping stone to markets in Europe. Passporting rights that allow companies to establish
a branch or provide services in any other European countries mean that establishing a business in Malta provides
instant access to the EU’s internal market of more than 500
20 H F M W E E K . CO M
FUND SERVICES
management reporting. They also offer NAV calculation,
reconciliations, pricing of the investment portfolio, payment of bills, transfer agency, preparation of financial
statements and fund accounting, performance and compliance reporting and preparation of contract notes.
HFM: What role have the government and regulator
played in creating a strong environment for the hedge
fund industry?
IG: The regulator, the MFSA, is renowned for performing
its regulatory function in a constructive and helpful manner. Their open door policy and accessibility for face-toface meetings with fund promoters are the basis for relationships of value and benefit to all parties. Part of Malta’s
success as a fund domicile is due to the fact that even
though it has a robust regulatory framework, the licensing
process through MFSA is quick, thorough and efficient.
The MFSA has been at the forefront of new legislation
that has attracted new business to the island including the
introduction of specialised regimes such as Professional
Investor Funds.
The Maltese government is cognisant of the importance
of business success to the nation’s prosperity and is committed to liberal economic policies in a well-regulated but
open business environment. Through the implementation
of the right legislative and regulatory framework, it has encouraged an optimum environment for the financial services industry to grow and prosper.
HFM: What is being done to maintain and build
upon Malta’s position as a jurisdiction of choice for
the industry over the coming years?
IG: Malta’s commitment to the development of a transparent, well-regulated financial sector is clear from the
work it has recently done to introduce new legislation,
establish international partnerships and nurture an appropriate infrastructure.
All parties including the government, the regulator
and practitioners within the industry are committed to
ensuring that Malta’s unique advantages remain strong,
while safeguarding its reputation as a strong jurisdiction
in order for its fund industry to continue on its growth
course and win business from competing jurisdictions.
The future looks very promising for Malta to become
an EU domicile of choice, and the country also provides
distribution opportunities to other countries such as
China, India, Hong Kong and the US, areas where FinanceMalta are focusing their marketing efforts.
With the full extent of regulatory developments, such
as the AIFM Directive and Ucits IV Direction, which
brought about the management passport for fund managers known and established, Malta hopes to see a significant migration of funds and service providers to the
island.
Another area of potential growth that is also being addressed is Islamic banking and the establishment of Shariah compliant funds, such as Sukuk funds, in Malta. Q
H F M W E E K . C O M 21
M A LTA 2 0 1 6
MALTA’S SUCCESS STORY
JOSEPH CAMILLERI OF VALLETTA FUND SERVICES EXAMINES MALTA’S CENTRAL ROLE IN THE CAPTIVE INDUSTRY
AND WHAT WE CAN EXPECT IN THE COMING 12 MONTHS
Joseph Camilleri
joined Bank of Valletta
Group in 1985, occupying
various managerial and
executive roles within the
group, including representing
it in Italy for seven years.
He joined Valletta Fund
Services in 2007 where he
currently heads the business
development division.
HFMWeek (HFM): In terms of crucial developments
in Malta’s captive industry, which were the most
instrumental in 2015?
Joseph Camilleri (JC): One first needs to look at, and
define captive industry. Given VFS’s business in the funds
field, I will of course limit myself to the funds segment, as
a subset of the financial services sector, which in itself has
developed into an enabler of the Maltese economy.
Malta’s positioning in the funds sphere has largely been
driven and influenced by the country’s core success factors
in establishing itself as an ideal EU fund domicile. Undoubtedly, the small and nimble nature of what makes up
Malta in this sector, has enabled the jurisdiction to present
itself to the outside world as a pro-business domicile, with
a predominant can-do mind-set permeating the industry.
Adding to this, the inbuilt flexibility within a robust regulatory framework catering for all typologies of investors
(from retail to institutional investors), as well as addressing
the needs of investment managers in terms of own specialisations in investment management. Malta strengthened its
position during 2015 as a domicile for funds investing in
real and hard-to value assets, high frequency trading funds,
and hedge funds in general. Malta’s cost competitiveness
has also contributed to further sustained growth of the sector through attracting small-to-medium sized fund managers following a myriad of investment strategies, including
the Ucits retail segment. Time-to-market considerations,
there again have aided the domicile to reinforce its image
of efficiency; no doubt a much sought after trait by fund
managers.
2015 was also characterised by strong growth in the fund
management field, particularly in the AIFMD realm. Full
scope AIFMs carrying out risk management activities in
Malta (with outsourcing arrangements, in some cases, of
the investment management function to out-of-scope managers in other domiciles) has given a new dimension and
definition to Malta’s captive market in the funds industry.
HFM: How does Malta’s regulator, the MFSA, work
with the industry to ensure an appropriate and effective regulatory regime?
JC: The financial services industry’s success in Malta has
largely been underpinned by the strategic alliance between
the authorities (government and regulatory bodies), and
the industry players. This has been a fundamental feature for Malta to make inroads into a highly competitive
market place, dominated by big EU players, like Luxembourg and Dublin. Such an alliance ensured that adoption
of EU-wide regulation in the funds sector, as well as the
coming into being of home grown regulation, took into
consideration the realities of Malta, as well as the country’s economic stated mission (that being, to present itself as an attractive alternative EU domicile for funds and
fund managers). In order to ensure that such alliance is an
22 H F M W E E K . CO M
effective one, rather than a clichéd marketing blurb, ongoing fora for regulator-industry brainstorming and exchange of ideas, information, suggestions have been a constant ever since the island set its declared objective cited
above, in terms of it becoming a viable and sought after
domicile for fund related business.
The AIFMD was transposed into local legislation
within the EU set time frames; likewise, a new regulatory
rule book was introduced to cater for alternative funds
managed by full scope AIFMs. This did not however imply a turning of the page for Malta’s erstwhile regulatory
framework for alternative funds. In effect, the Professional
Investor Fund (PIF) rule book, that had been with us since
2000, and which has been the main contributor to the
creation and sustained growth of the alternative funds sector in Malta, was retained alongside the newly introduced
AIF rule-book mentioned earlier. Thanks to the industry’s
feedback to the regulator, and to MFSA’s own receptiveness of the industry’s views, Malta now caters for different
categories of fund promoters according to their categorisation. This ensures that whilst the island competes on a level
playing field with other EU domiciles in the alternative
space, it provides too alternative (and less rigid) solutions
to fund promoters.
HFM: What does Malta offer the redomiciliation
market with regard to the availability of skills and services? And what further advancements can we expect
to see from Malta’s redomiciliation industry in 2016?
JC: Redomiciliation of companies from and to Malta has
been a legal and effective reality since 2002 with the introduction of the Continuation of Companies Regulations
within Malta’s Company’s Act.
This piece of regulation within the mentioned Act has
enabled hundreds of corporate entities to ‘change’ their address from a foreign one, to one based in Malta. For well
over a decade or so, the provisions of the regulation were
widely resorted to by companies based in different domiciles and operating in various economic sectors, which
opted to redomicile to Malta. In the main, during this period, such entities operated in unregulated fields, ranging
from holding companies, to general trading, to property
related activities, to shipping, and others…
In more recent times, regulated entities, particularly
offshore collective investment schemes have also, thanks
to the same regulation, redomiciled to Malta (and attained
MFSA’s licences in the process).
Of particular interest, and I’d add what differentiates
Malta’s redomiciliation regulation to similar rules in other
domiciles, is that Malta’s Continuation of Companies Regulations cater for the possibility of redomiciling of companies both into and out of Malta, rather than just allow
incoming business, thus providing the necessary flexibility
for further redomicilations out of Malta, in the eventuality
FUND MANAGEMENT
(unlikely as it may be) that the market and business
conditions in Malta take a negative turn.
Such has contributed to a spate of redomicilations
of collective investment schemes from offshore
domiciles to Malta; in some cases, redomiciling into
Ucits platforms, thence passported into other EU
markets for distribution purposes.
Given the fiscal treatment in some EU countries
on capital gains derived from offshore investments,
coupled by the growing investor awareness of risks
associated with less regulated jurisdictions, as well
as the active marketing potential for onshore funds
(as opposed to the limited market accessibility for
offshore funds), it augurs well for the continued development of this market segment during 2016.
legislative overhaul that redefined Malta’s mission, converting it from an offshore domicile, to
an onshore concept, based on best practices as
adopted by the EU member states. This paved
the way for Malta’s eventual accession to the EU
that came about in 2004.
Essentially aligning itself with the rest of the
EU, Malta turned the page in the financial services world. The offshore legacy, albeit short lived,
to some extent stuck…conceptually.
One might ask why this has been the case. Is
it due to Malta’s physiognomy, it being a sunblessed small island surrounded by crystal-clear
waters, which is reminiscent of the Caribbean
offshore concept? Perhaps, but maybe not!
Malta’s pro-business approach, the regulator’s
accessibility, the flexibility inbuilt within its robust regulatory framework, the competitive cost
nature, and other such characteristics generally
associated with offshore domiciles, have in my view, to
some extent contributed to the legacy referred to earlier.
This has thus placed Malta in a win-win situation, whereby
it marries the predominant culture of highly regulated financial domiciles (as is the case in the entire EU context),
to the ‘quick-on-the-ball’, flexible and accessible concept
as prevailing in the offshore world. Such a combination
has been a major positive component in attracting fund
business from European-based fund promoters. Q
2015 WAS ALSO
CHARACTERISED BY
STRONG GROWTH IN THE
FUND MANAGEMENT FIELD,
PARTICULARLY IN
THE AIFMD REALM
HFM: In conjunction with its ideal location in
the continent, how much does the relationship
between Malta and Europe factor into the country’s financial success as a captive jurisdiction?
JC: Malta’s mission as a financial services domicile dates
back to the late 1980s. At the time, Malta positioned itself
as an offshore centre, with the enactment of the MIBA Act.
This was a rather brief experience in view that the country applied for EU membership in 1990, which essentially
necessitated Malta’s adoption of the Acquis Communitaire. Among others, in 1994, a paradigm shift in Malta’s
financial services mission occurred, through an extensive
”
H F M W E E K . C O M 23
DATA
GIVING HFM MEMBERS
ACCESS TO GLOBAL
INDUSTRY
INTELLIGENCE
THROUGH
+HedgeCheck
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LEGAL
M A LTA 2 0 1 6
THE DEPOSITARY
PASSPORT DEBATE
DR LOUIS DE GABRIELE AND DR ANDREW CARUANA SCICLUNA OF CAMILLERI PREZIOSI DISCUSS THE DECISIVE FACTORS BEHIND THE
DEPOSITARY PASSPORT AND WHY ITS ARRIVAL WOULD BE GROUND-BREAKING
T
Dr Louis de Gabriele
currently heads the corporate
and finance practice
group at Camilleri Preziosi,
which includes the asset
management and investment
services units of the firm.
Dr Andrew Caruana
Scicluna’s main areas
of practice are asset
management, investment
funds and investment
services regulation.
he absence of a European passport for
depositaries is one of the few remaining
impediments to the cross-border activity
of AIFs and Ucits and haemorrhages the
concept of the European single market.
Until now, the leading argument against
its introduction has been entrenched in the supposition
that a depositary passport should not be introduced before depositaries’ responsibilities, duties and liabilities
are harmonised across the EU.
Whilst divergences pervaded EU national laws on
depositary regulation, the absence of a depositary passport could have been justified. However, in the postUcits V/AIFMD environment, and in view of the high
standards to which depositaries are now regulated, this
argument is no longer valid.
Introduction of depositary passport is a necessary
development in the evolution of the European investment fund industry. In its absence, there is a risk of a
lack of competition amongst depositaries which could
result in heightened systemic risk. Further, the lack of
a depositary passport is (in the view of these authors)
untenable in light of the current position under the
AIFMD and represents a breach of the principle of freedom of movement of services.
FREEDOM TO PROVIDE SERVICES ACROSS BORDERS
The introduction of a depositary passport is a delicate matter which is posited at the intersection of two important
objectives: the unhindered cross-border mobility of entities within the EU/EEA; and the requirement to safeguard
investors’ interests. The introduction of a depositary passport would, in these authors’ view, fulfil these objectives.
The freedom to provide services across borders
(which is protected under Article 56 of the TFEU) is a
central underpinning of the internal market and is key
to its effective functioning. On the basis of this principle, if depositaries consider that they could benefit
from providing their services across borders, this right
should be protected under the TFEU. Indeed, should
depositaries be allowed to transcend European borders
when providing their services, the internal market will
be fortified and the protection of investors enhanced as
a result of increased competition.
Notably, the introduction of a depositary passport
could enable depositaries to challenge local market leaders by offering their services across Europe. This will
have a ‘disciplining effect’ on custodians, who, afraid of
losing ‘local’ clientele, may need to shift towards more
productive patterns and possibly even revise their fees
in order to maintain competitiveness. Additionally, this
will also provide Ucits and AIFs with a larger selection
of depositaries, all of which are regulated to high standards in terms of the AIFMD and Ucits V. This should
allow funds to obtain the best services at the lowest cost
possible.
Moreover, via the introduction of a passport for
depositaries, managers would be permitted to use the
same custodian for all funds – irrespective of their domicile – which could in turn mean that managers may be
able to negotiate more favourable terms for investors on
the basis of economies of scale.
INCREASE IN SYSTEMIC RISK
The failure to introduce a depositary passport (and the
implications arising from this failure) should not be considered in a vacuum. The imposition of strict liability on
custodians by the AIFMD and Ucits V has, from a practical
standpoint, led to an increase in depositary fees, and has
also prompted some banks to discontinue their offering
H F M W E E K . C O M 25
LEGAL
M A LTA 2 0 1 6
of depositary services. Further, because of the increased
risk inherent in the provision of custody services in the
post-AIFMD/Ucits V regulatory architecture, some depositaries are presently refusing to provide services
to smaller funds, where such depositaries consider
the opportunity to generate revenue streams from
servicing such funds to be outweighed by the possible risks to which they will be exposed.
Such funds may, in these situations, have no
choice but to stop operating as AIFs or Ucits as
they will be required to appoint a custodian located in their own jurisdiction. If no onshore custodian is willing to provide such services to the AIF
or Ucits, the fund will be forced to cease operations, as it will not be able to appoint a depositary
located in another European jurisdiction.
As a result, investors may opt to shift their
monies into Ucits and AIFs that have greater levels of assets under management. In turn, investor cash previously spread across several funds
could be concentrated in a contracted universe
of Ucits/AIFs. Ultimately, this will increase the
systemic importance of these funds, as the failure thereof could result in losses to a greater
number of investors.
Furthermore, investors who have a greater
appetite for risk may invest directly in the underlying financial products (if the fund in which it is
investing is forced to close down its operations due
to the absence of a local custodian to provide services
thereto).
In a financial ecosystem without funds as risk buffer,
the risk of loss would be heightened. Indeed, Ucits and
AIFs are managed by qualified investment managers
which are better equipped to take investment decisions
than investors acting individually.
It is paradoxical, therefore, that imposing strict liability on depositaries may detract from the standard
of protection afforded to investors. However, it is
the views of these authors that the introduction
of a depositary passport would function to suppress these negative externalities by permitting
smaller funds to look overseas to the appointment of a foreign depositary where none are
available locally. This will allow them to remain in
operation, hence retaining investor monies scattered across a wide array of investment vehicles.
WHILST DIVERGENCES
PERVADED EU NATIONAL
LAWS ON DEPOSITARY
REGULATION, THE
ABSENCE OF A DEPOSITARY
PASSPORT COULD HAVE
BEEN JUSTIFIED
26 H F M W E E K . CO M
”
INCONSISTENCY WITH AIFMD
In addition to the above, and in view of the current position under the AIFMD, the requirement for the depositary be located in the same
member state as the fund whose assets they have
custody over no longer holds water.
Indeed, in the case of AIFMs managing third
country AIFs, AIFMs may appoint a depositary:
in the third country where the AIF is established; in the home member state of the AIFM
managing the AIF; or in the member state of reference of the AIFM managing the AIF.
The AIFMD therefore allows a depositary
passport through the backdoor for AIFMs managing
non EU-AIFs. On this basis, the reason as to why the
AIFMD and the Ucits framework would negate the
right for European depositaries (most of which are
credit institutions regulated to the highest of standards
under the capital requirements directive) is indefensible and hard to digest. Q
structured
for
success
Exceptional Growth for Malta’s Fund Industry
For two consecutive years, Malta has been coveted with Europe’s ‘Best Domicile’ award at the Hedge
Funds Review 13th European Fund of Hedge Funds Awards 2014.
This success was made possible by Malta’s highly favourable business environment. This includes the role
played by the island’s Single Regulator, renowned throughout the industry for its flexibility coupled with
meticulous attention to detail.
The island’s highly competitive, cost-effective business environment and the presence of all the Big Four
accounting firms adds even further advantage.
An onshore EU jurisdiction allowing passporting and redomiciliation of funds, with an efficient fiscal regime,
a balmy Mediterranean climate and a multilingual, ethical and professional workforce, Malta offers a winning
combination of advantages specifically designed to foster further growth and maximise success.
more information on:
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(IIHFWLYH_6HFXUH_6NLOOHG
Find us on:
FinanceMalta
@FinanceMalta
FinanceMaltaYT
FinanceMalta
FinanceMalta - Garrison Chapel, Castille Place, Valletta VLT1063 - Malta | info@financemalta.org | tel. +356 2122 4525 | fax. +356 2144 9212
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YOUR TRUSTED
LEGAL ADVISERS
IN MALTA
GANADO Advocates holds an unequalled reputation in the Maltese legal market
for advice in relation to investment services regulation. Our dedicated Investment
Services and Funds team advises investment funds of all types at all stages of their
life-cycle as well as asset management firms, family offices, custodians and fund
depositaries, broker dealers, advisers and sponsors.
We advise on the full range of investment services regulatory matters, including
aspects of ongoing compliance with Maltese and EU requirements. We also
advise on specific regulatory issues such as re-organisations, investment services
solicitation and fund distribution with a cross-border dimension.
The team has been particularly active over the years in assisting clients with
mergers and acquisitions with an international or a local dimension, as well as with
representing clients in litigious issues relating to their investment services activities.
171, OLD BAKERY STREET
VALLETTA VLT 1455, MALTA
T. (+356) 2123 5406
F. (+356) 2122 5908
E. lawfi[email protected]
ganadoadvocates.com
FUND SERVICES
M A LTA 2 0 1 6
MALTA STOCK EXCHANGE’S
CONTINUING DEVELOPMENT
CLIFF PACE OF MALTA STOCK EXCHANGE OFFERS A UNIQUE INSIGHT INTO THE ADVANCEMENT OF MALTA’S CAPITAL MARKET AND WHAT
WE CAN EXPECT TO SEE IN THE NEAR FUTURE
T
here is a lot to be said about the resilience of traditional banking services built on cautious and
solid foundations in the economic environment.
Alongside this is the level of access to finance that
companies have as a result of a well-developed
and solid banking infrastructure as well as a
well-regulated and liquid capital market, giving companies the
choice of how to access capital when required.
Cliff Pace is the
business and product
development manager at
the Malta Stock Exchange
plc, a position he has held
for over four years. He
has had a long career in
financial services, having
held executive positions in
branch management, public
relations, marketing and
banking operations.
THE STOCK EXCHANGE’S ADVANCEMENT
The development of the capital market in Malta has been successful even though this goes back just over 24 years. During
this period, the exchange focused its efforts on the operations
that surround the trading of listed financial instruments, together with the necessary clearing and settlement processes
and management of the depository. This
has been a successful growth phase that
has seen the listing of over more than
40 companies, and the issuance of over
€15bn in equity, corporate and government bonds and treasury bills. This
certificate of success must be equated
to the fact that this activity took place
on a developing island economy with a
GDP of €6.8bn and a population of just
over 400,000, the source of much of the
investment. The critical mass of market capitalisation today stands at over
€11.6bn and there is an appetite for new
opportunities for investment amongst a
very ‘retail’ investor base ensuring that
subsequent issues are likely to be consistently successful.
This level of confidence in the market
by investors combined with the increasingly entrepreneurial private sector has
created an environment that allows the capital market to co-exist with the traditional banking sector, and ensures a fairly regular supply of new listings and related investment opportunities
coming to market.
The Malta Stock Exchange is still growing. The connectivity of the exchange through the Xetra trading platform and
our Clearstream Custodial relationship has already established
the exchange to be well positioned for international business
growth. In 2015, the exchange formed part of wave one of the
Target 2 Securities settlement system, a fact that has rubberstamped our ability to implement challenging technological
systems that will further connect us to our European colleagues
in the depository and settlement world.
FAMILY-RUN BUSINESSES
In our SME-driven economy, which is mostly built on familyrun businesses, we feel that there are the right circumstances
to attract privately owned, family-run companies to the capital
market. This could be through the sale or issue of new equity,
or the issue of corporate bonds. The benefits of seeking a listing are clear: access to new capital in a cost-effective manner,
without the need to put up collateral; the branding and corporate identity of being a listed company; and the valuation and
visibility of the business on a very well-monitored market to
name just a few. There is also value of being a listed company
when seeking international markets, since this gives the company additional credibility when marketing itself overseas.
Of course, the listing of equity of family-run businesses would
also create the additional benefit of creating an exit route for
existing shareholders, who may have a
relatively diluted stake in the business.
Succession planning is something that
is often overlooked, and it is clear that
businesses need to prepare for when
they move into second and third generation levels of ownership.
SMEs in Malta and overseas will
soon be able to access the capital market in a cost-efficient and transparent manner through a new product
called Prospects. This market, which
will be regulated by the Malta Stock
Exchange, and operate under a multilateral trading facility structure, will be
a perfect platform for SMEs seeking
financing or to address their succession planning concerns. It is targeted
towards IPOs of under €5m, which
is a good level of financing for most
medium-sized SMEs in Malta and
overseas. Of course, nothing stops the company from migrating
to the main market, regulated by the MFSA, in the future and
once a good track record and confidence in the company have
been established.
SUCCESSION PLANNING IS
SOMETHING THAT IS OFTEN
OVERLOOKED, AND IT IS
CLEAR THAT BUSINESSES
NEED TO PREPARE FOR
WHEN THEY MOVE INTO
SECOND AND THIRD
GENERATION LEVELS OF
OWNERSHIP
”
PREDICTIONS
The exchange will continue to grow, through the creation of
networking opportunities that could result in higher levels of international investment in Maltese assets, or through the admission to listing on the main market or on Prospects. We believe
that these are key to the continuing development of the Maltese
capital markets and the growth of this sector both in Malta as
well as internationally. Q
H F M W E E K . C O M 29
S E R V I C E D I R E C TO R Y
M A LTA 2 0 1 6
LAW FIRM
Be. Legal Advocates, The Hub, Suite W305, Triq Sant’ Andrija, San Gwann, SGN 1612, Malta – EU // T: (+356) 2713 0150 // [email protected].
mt // www.belegal.com.mt // Swiss Representative Office, Gartenstrasse, 3, Postfach 4754, CH-6304 Zug, Switzerland // [email protected]
Be. Legal Advocates is a Malta-based law firm established in 2008 to service an ever-growing international client base seeking a business approach to
legal services. At Be. Legal, we strategically combine astute business acumen with technical expertise to provide you with highly efficient and bespoke legal
solutions. The firm provides both transactional and regulatory advice and we are proud to be regarded as our clients’ strategic partner in Malta by providing
a quality service in the turn-around time mandated by today’s fast-paced business environment.
LEGAL SERVICES
LAW FIRM
Camilleri Preziosi, Louis de Gabriele
The firm is reputed for its ability to deliver pragmatic and solution-driven advice to clients through a combination of innovation in thought and technical
excellence in the law.
Chetcuti Cauchi Advocates, 120, St Ursula Street, Valletta, VLT 1236, Malta // T: +356 2205 6200
Chetcuti Cauchi is a law firm serving successful entrepreneurs, business families and institutions using the financial centres of Malta & Cyprus, and their advisors
around the globe. Our unique multi-disciplinary set-up of over 120 lawyers, tax advisors, accountants, company administrators and relocation advisors allows
us to provide the full spectrum of services and maintain key strengths in corporate law, international tax, intellectual property, immigration law, property law and
trusts. The firm has built a name for serving today's and tomorrow's industries with significant commercial awareness, helping set up and license the following:
Malta Hedge Funds; Malta Payment Services Providers; Forex; Investment Services; Binary Options; Electronic Money Institutions EMIs.
FINANCIAL
SERVICES
Fenech & Fenech Advocates, Dr. Joseph Ghio, Partner // [email protected] // Dr. Josianne Brimmer, Partner // josianne.brimmer@
fenlex.com // T: 00356 21 241232
Established in 1891, Fenech & Fenech Advocates is a leading law firm in Malta, with a strong commercial, corporate, tax, maritime, ship registration, M&A and
financial services practice. The largely international client base is serviced by a team of close to 100 professional and support staff. The firm has advised
a variety of promoters on the setting up both management firms and investment funds, taking them through the initial licencing stage as well as providing
ongoing legal support to fund managers and fund boards alike. As a full-service organisation, Fenech & Fenech Advocates puts the expertise of its multidisciplinary team at its clients’ disposal, with a legal insight and business instinct which provide clients with value-driven solutions.
LEGAL SERVICES
FINANCIAL
SERVICES
FinanceMalta, Garrison Chapel, Castille Place, Valletta, VLT1063, Malta
FinanceMalta, is a non-profit public-private initiative, set up to promote Malta’s international Financial Centre. The organisation brings together, and harnesses, the resources of the industry and government, to ensure that Malta maintains a modern and effective legal, regulatory and fiscal framework in
which the financial services sector can continue to grow and prosper.
GANADO Advocates, André Zerafa, Partner // T: (+356) 2123 5406 // [email protected]
GANADO Advocates is a leading full service business law firm based in Malta, widely recognised for its business and commercial law practices. We hold
an unequalled reputation in the Maltese legal market for advice in relation to investment services regulation. Our team advises investment funds of all
types, at all stages of their life-cycle, as well as asset management firms, family offices, custodians and fund depositaries, broker dealers, advisers and
sponsors. We advise on the full range of investment services regulatory matters, including aspects of ongoing compliance with Maltese and EU requirements, and on specific regulatory issues.
CUSTODIAN
BANKING
Sparkasse Bank Malta plc forms part of the Austrian Savings Banks and the Erste Group Bank AG forming part of Austria's largest banks. From Malta the
bank provides private banking and fund custody solutions. As trained private bankers, the bank strives to deliver private, personal and tailored solutions
to its fund customers by offering a seamless banking, execution, settlement and custody solution from one account. Fund custody is considered a core
service at Sparkasse Bank Malta plc and the bank avoids all potential conflicts by focusing entirely on what it is they are truly hired to do i.e. - safekeeping, record keeping, monitoring and reporting.
FUND
ADMINISTRATION
Sparkasse Bank Malta PLC, Paul Mifsud, Managing Director // [email protected]// 101 Townsquare, lx-Xatt
ta'Qui-si-Sana, Sliema SLM 3112 // T:(+356) 21 33 57 05 // www.sparkasse-bank-malta.com
Valletta Fund Services Limited, TG Complex, Suite 2, Level 3, Triq il-Birrerija, L-Imriehel, Birkirkara, BKR 300, Malta // T: (00356) 2122 7148
// F: (00356) 2123 4565 // [email protected] // www.vfs.com.mt
3 0 H F M W E E K . CO M
Valletta Fund Services Limited (VFS) was incorporated in 2006 as a fully owned subsidiary of Bank of Valletta plc, Malta's largest banking group, to provide
the fund management industry with a comprehensive and integrated range of high-quality fund administration solutions. Through the dedication of its
highly qualified and professional human resources as well as the significant investment in state-of-the-art technology, VFS has positioned itself as Malta's
leading fund administrator. As at September 2015, VFS was servicing over 125 investment funds representing €3.4bn worth of assets, about 25% of the
local market. VFS is recognised to provide fund administration services by the Malta Financial Services Authority.
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䣈 䣋 䣐 䣃 䣐 䣅 䣋 䣃 䣎 䢢 䣕 䣇 䣔 䣘 䣋 䣅 䣇 䣕
䣒 䣃 䣔 䣖 䣐 䣇 䣔 䢢 䣋 䣐 䢢 䣏 䣃 䣎 䣖 䣃
be.legal Advocates
The Hub, Suite W305
Triq Sant’ Andrija, San Gwann, SGN 1612, Malta
T. (+356) 2713 0150
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