Tuesday 31 January 2012

Malta Investment Services: Demystifying the License Categories

One of the very first steps in any licensing process is the determination of the appropriate license. This is a very important step, since a mistake at this stage can saddle you with an authorisation which is not fit for purpose. The obtainment of a Maltese investment services license (the sort of license that has become much sought after by investment advisors, fund managers and foreign exchange businesses) also necessitates the determination of a suitable license category.

There are four license categories under Maltese investment services rules. Distinguishing between them can be difficult, and a detailed analysis of each category is beyond the scope of this post. What I intend to do below is to outline in broad terms what each category is best suited for.

Investment Services Category 1: this category is primarily for investment advisers and investment intermediaries that simply receive and transmit orders. The key thing here is that the business cannot hold or control client moneys, so you cannot have a client account. This category carries a capital requirement of EUR50,000.

Investment Services Category 2: this category is best suited for fund managers, wealth managers and stock brokers. This category permits licensees to hold and control moneys, meaning that it is ideal for those businesses which exercise some form of discretion over the management of client money or which execute transactions. This category carries a capital requirement of EUR125,000.

Investment Services Category 3: this is the most sophisticated of the license categories and is suitable for multi-lateral trading facilities, market makers and firms which place instruments on a firm commitment basis. This category permits the conduct of all activities except fund custody. Firms are of course permitted to hold and control client money. Category 3 carries a capital requirement of EUR 730,000.

Investment Services Category 4: this category is reserved for businesses offing custody services to funds. This category carries a capital requirement of EUR 730,000.

Of course, if one reads into the detail of the rules, there are additional layers of complexity to the categorisation process in the context of Maltese investment services licenses. However the above should serve as a handy guide which covers the basics of investment services category selection.

Get in touch if you have questions.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

Wednesday 18 January 2012

Malta gets the nod from Financial Times

There's more good press for Malta, with the Financial Times joining Bloomberg and Business Insider in highlighting Malta's efforts at building a financial centre of good repute. Titled 'Mediterranean Revival', the article highlights some of the various initiatives that are going on in Malta, such as the new High Net Worth Individuals Scheme and the Highly Qualified Persons Rules, which Jean-Philippe discussed in an earlier post. The article focuses on the various attractions of the Malta property market. While it does criticize certain aspects of the property market, the overall tone is positive.

Read the full article here.

Monday 16 January 2012

Getting a Malta Financial Services license - what's it like?

Thanks to its low base costs and access to EU, Malta is attracting many smaller start-up firms. The jurisdiction is therefore seeing the arrival of smaller fund managers, investment boutiques and FOREX funds. This means that for many of my clients, their application for a Malta financial services license is their first encounter with a financial regulator.

Stepping into a regulated environment for the first time can be a daunting experience, but with proper preparation and guidance, it need not be. Therefore today I will try to provide a brief overview of the process that an applicant is expected to go through in order to obtain a Malta financial services license.

Preparing the documentation

Key to every licensing process is the preparation of high quality documentation that can demonstrate the well-preparedness of the applicant to the regulator. Thus, business plans, projections and other documents will need to be supplied to the MFSA for getting. Information about the individual promoters also needs to be provided as the MFSA will need to be satisfied that the promoters are fit and proper i.e. they have the qualities of integrity, solvency and competence that are expected from individuals running a financial business. Applicants need to be prepared to submit very high quality documentation; Malta is business friendly but regulators do not compromise on standards.

Meeting the regulator

The MFSA encourages face to face meetings. In fact we always advise or clients to make it a point to meet the regulator before proceeding with their applications. Responsiveness to applicants is one of the MFSA's strong points, and meetings can typically be secured in a matter of days (even within 24hrs, in urgent cases). Meetings are conducted in a friendly and informal atmosphere; the aim is not to discourage applicants, but to identify any possible challenges and discuss plans going forward.

Post-submission dialogue

Once documentation has been submitted, a two way dialogue process with the regulator begins. The MFSA will typically raise a number of queries or require certain clarifications. The regulator will very rarely respond to an application with an outright no (we have never had this experience), but is strict about standards and will expect applicants to be similarly diligent.

In principle approval

Once the regulator is satisfied with the documentation, an 'in principle approval' is issued. This is a document stating that, all things being equal, the license will be issued. Typically this document indicates a number of basic requirements that need to be ticked off, such as the formation of the relevant companies and the signature of agreements with third party service providers. Generally these are minor matters that can be settled in a few days.


This is of course the million dollar question! If an applicant is well prepared and pro-active, a two/three month period from submission should suffice. Nevertheless, preparedness of the applicant is key here. Malta has many things going for it, but it is not a 'quick fix' solution. Applicants should also make sure they budget for the time it takes for passporting procedures to be completed.


Once the license is obtained, the licensee can start to offer its services. The licensee is required to adhere to a number of post licensing conditions, designed to ensure it is well run and its clients protected. Post-licensing conditions are a big topic, and I'll touch upon them in a future post.

Get in touch if you would like to learn more.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

Friday 13 January 2012

Malta hedge funds generate more press buzz

It's very encouraging to see the hard work put in by local professionals and regulators being rewarded by a string of positive reviews focusing on the Malta hedge funds centre. It is indeed no longer correct to speak of Malta as a fledgling financial services jurisdiction; the country is very much a bona fide mature centre that can cater for the needs of a variety of industries and hosts some top names and professionals.

Thus, following hot on the heels of the Bloomberg article mentioned in a previous post, we now have a Business Insider article highlighting a number of reasons for opting for the Malta hedge fund solution. The reasons highlighted by the article include the country's excellent climate, competitive tax rates, sound regulatory infrastructure and EU membership. You can read the article here:


Bloomberg has also followed up its article with an interview with the article's author. While warmly praising the domcile, the author sounds a warning note about the possibilities of the jurisdiction losing its edge as growth reduces the available human resources and dents competitiveness, but reassures viewers that this certainly won't be a problem in the short term. Indeed, with the various incentives and projects that are underway in this regad, I would say that the country appears to be very well aware of this challenge and is doing plenty to address this scenario even in the medium and long term. You can view the interview here:


Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

Thursday 12 January 2012

Malta Investment Services: Gateway to Europe for Advisors and Managers

While much of the industry buzz in Malta has focused on the growth achieved in the gaming and funds sectors, the investment services industry has been quietly gaining traction without attracting similar levels of attention. By investment services I am here referring to those activities that are regulated under the Markets in Financial Instruments Directive, or MiFID.

In Malta a number of factors combine to make the jurisdiction one that is very well suited for service providers looking for a platform from which to do business in Europe. Today I will be looking at some of those factors.

The MFSA: the Malta Financial Services Authority is the single regulator for financial services in Malta. It is a single regulator responsible for the authorisation and supervision of most of the businesses that one would characterize as financial in nature. Investment advisors, fund managers, insurance principals and intermediaries and banks all fall other its jurisdiction. The key things to know about the MFSA are that; a) it is a serious regulator that expects adherence to high standards b) it is nevertheless open to innovative ideas and unorthodox strategies c) it is highly accessible and keen to meet licensees and applicants face to face. This means that Malta Investment Services businesses can enjoy an unusually open and frank relationship with their regulator.

Low costs: Malta is not the cheapest jurisdiction in the world to do business in, and those investment services providers for whom bottom line is the sole determining in choosing their jurisdiction will certainly find other territories that suit their needs better. Nevertheless, for those service providers for which high regulatory standards, and access to the EU market are important considerations, Malta is likely to be the most cost effective options. Licensing and supervisoryfees are very competitive, as are professional fees and salaries. High quality property can also be purchased at a fraction of what property of a similar qualit would fetch in any other well established European financial centre.

Access to Europe: investment services are harmonized across Europe via the MiFID. Investment services providers which are authorised to trasact business in a European country can therefore passport their services into other jurisdictions, that is, offer their services in another EU country without incurring additional regulatory burdens. The cost and efficiency benefits that this can give rise to are self-evident. Thus, within a month from the obtainment of a Malta Investment Services license, the new licensee enjoys access to the European market for financial services.

Proportionate regulatory burdens: Malta investment services providers are not subject to a one size fits all regulatory regime. Instead there are four categories of license that are available, each catering for the risks raised by different types of business. Thus the Category 1 Investment Services license caters for low risk activities such as advisory services and reception and transmission of orders, and gives rise to an EUR 50,000 capital requirement. Riskier and more sophisticated activities, such as the activity of a multi-lateral trading facility, necessitate the obtainment of a Category 3 Investment Services license, which carries a capital requirement of EUR 730,000, and so on.

The factors outlined above mean that Malta is uniquely well suited as a platform for investment services providers looking to target a European clientele. The jurisdiction provides an affordable cost base, passporting rights, and an 'open for business' regulatory environment. Get in touch with us if you would like to know more.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

Tuesday 10 January 2012

Some less well known facts about Malta hedge funds

Much has been said in the specialist press about the Malta Hedge Fund product - the Professional Investor Fund, and I assume many readers will be familiar with the basic characteristics of the product. Today I want to highlight some features that, it seems to me, are somewhat less well known but are nevertheless important and noteworthy.

Service provider flexibility: one of Malta's key distinguishing features is the freedom that is afforded with respect to choice of service providers. The authorities understand that managers have strong relationships with their service providers which they may want to preserve when changing domicile. Malta hedge funds are therefore generally allowed to appoint whichever reputable service providers they choose, whatever the domicile of the service provider may be (a list of recognized jurisdictions is kept by the regulator for this purpose, covering the majority of the likely jurisdictions.

Choice of legal structure: most Malta hedge funds are formed as investment companies with variable share capital. Although this is a proven model with an excellent track record, its universality may have more to do with habit than necessity. A number of other vehicle options exist and these may be better suited to different circumstances. Tax transparent unit trusts, for example, may be useful in situations where an underlying asset attracts a high tax at source.

Freedom to pursue unorthodox investment strategies: the Malta hedge fund product, the PIF, allows fund managers to pursue their investment strategy of choice, with no investment restrictions being imposed on Malta hedge funds which have a minimum investment threshold of EUR 75,000 and market to suitably professional investors. The jurisdictions thus plays host to a variety of investment strategies, from traditional equity long/short to funds that invest in antique watches, life settlements, and similarly unusual asset classes.

A quasi-retail option: PIFs are sophisticated products that are intended for investors having a high degree of financial strength and expertise. Having said that, Malta permits the creation of 'quasi-retail' professional investor funds that can be marketed to 'experienced investors'. Investors in these funds are only required to invest a relatively modest EUR 10,000 as a minimum. The trade-off is that these funds are required to adhere to certain minimum diversification and investor protection requirements, designed to ensure that the rights of investors are protected.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

Saturday 7 January 2012

The Malta FOREX boom

An increasing number of businesses providing services focusing on the foreign exchange asset class are choosing Malta as their domicile. At Chetcuti Cauchi we have experienced this growth first hand, having been engaged by a healthy number of FOREX businesses to handle their licensing and compliance requirements.

What is driving this growth? First of all, Malta has been working for a couple of decades now to create a business friendly environment. FOREX businesses are therefore choosing Malta for much the same reason that hedge funds, gaming operators, investment boutiques, financial institutions and other financial businesses choose the country; approachable regulators, competitive costs, low taxes, quality professionals and Mediterranean lifestyle.

Secondly, and perhaps more importantly, Malta also has certain characteristics which may appear to be of minor importance but can be of great benefit to FOREX businesses. Let's focus first on the question of legal clarity; in some jurisdictions, FOREX businesses exist in a sort of no man's land. Malta FOREX businesses on the other hand are regulated under the Investment Services Act, 1994. This is the same legislation that implements MiFID (the EU Directive on investment services) into Maltese legislation. This can gives rise to various advantages, including passporting opportunities, high regulatory standards as well as the all important peace of mind of knowing which set of rules one is required to adhere to.

In addition, Malta also has flexible rules with respect to leverage ratios. This allows Malta FOREX businesses to cater for a broader array of investor risk appetites.

Feel free to get in touch with us if you are interested in setting up a Malta FOREX business, or would like to know more about what Malta can offer you and your company.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

Bloomberg highlights Malta hedge funds industry

Bloomberg has just spoken in glowing terms about Malta as a hedge funds domicile in an article titled 'Malta lures hedge funds with 300 days of sun aided by EU rules'. The article observes that a number of factors are leading hedge fund managers to choose Malta as a domicile for their hedge funds, such as a renewed focus on transparency. The article also suggests that widespread worries that the EU is soon to become hostile towards hedge funds not domiciled in an EU jurisdiction may also be leading some hedge funds towards Maltese shores. The much maligned AIFMD appears may be turning out to be a blessing in disguise for the jurisdiction; the changes that it introduces are likely to trigger discussions about choice of domicile in many boardrooms, and Malta, with its various charms and attractions, will certainly top many shortlists.

The article further cements Malta's standing as a hedge funds domicile, allowing hedge fund managers that have chosen Malta to reap a rich reputational dividend. No one expects 2012 to be an easy year, but this article serves as a reminder that Malta's hedge funds industry is strong and set for another year of growth.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

Low taxes for Malta Financial Services Executives

A welcome initiative of the Maltese government is the recent introduction of a lower tax rate of 15% chareable on income of Malta financial services executives in excess of Euro75,000 and exempting from Malta tax any income over the five million Euro threshhold.
Evidently, Malta is showing concrete signs of its commitment to its success story with the financial services industry.  Topping the already favourable regulatory framework and corporate tax regime enjoyed by the gaming industry in Malta, these recent initiatives seek to attract highly qualified financial services expatriates to relocate to Malta under employment with gaming companies licenced by the Malta Financial Services Authority.
The Highly Qualified Persons Rules 2011 apply as of fiscal year starting 1st January, 2010 and will benefit financial services specialists with technical, management and industry specific know-how that will be crucial to ensure Malta survival as a top financial services domicile.  My partners and I have had the exciting experience of witnessing the exponential growth and the privilege of assisting top regulated hedge fund managers, investment services firms, captive insurance operators, forex companies and banking institutions start up their operations in Malta in the last decade and I for one welcome this initiative with open arms given the ever increasing demand for candidates to fill top jobs opening regularly in the local financial services market market.

Amongst the high end financial services executive positions covered by these new personal tax rules are the CEO, CFO, COO, Chief Risk Office, Senior Analyst, Structuring Professional, Senior Trader/Trader., CTO, Head of Marketing, Head of Distribution Channels, Head of R&D.  These “eligible offices” must be held with companies authorised or recognised by the Malta Financial Services Authority (MFSA).

My team is currently handling of a number of applications for top management officials of leading gaming groups under these rules.  I have prepared an overview of the Malta tax guidelines for financial services executives under the Highly Qualified Persons Rules - Malta Top Financial Services Management on my law firm's website. These should answer your first questions as to whether you qualify. If still in doubt, please contact me and my team of Malta tax advisors at your convenience.

Dr Jean-Philippe Chetcuti
International Tax & Immigration Lawyer
Chetcuti Cauchi Advocates