Wednesday 29 February 2012

Getting a Maltese Investment Services license: a Case Study

As part of my work I continually speak with people who are interested in doing business in Malta or through Malta. One of the recurring themes of these discussions is that people know about Malta and know that there are some interesting opportunities here, however few know what this means in real, tangible terms. Therefore today I want to present a case study which details, in a practical manner, the process by means of which a business can obtain an investment services license in Malta and offer its services throughout Europe. At every stage, I highlight the input that we would typically provide. Note that the specifics of the project are fictitious (in the interests of confidentiality), but I hope this will serve as a clear and useful example.

The Project

Mr Smith and Mr Jones are long time friends. Mr Smith is a mathematician with several years experience working as a currency trader at a Swiss bank; he is also fluent in IT. Mr Jones is a former athlete with many connections in the hedge funds industry. Smith has developed, in his spare time, an algorithmic trading system that consistently beats the market. Jones encourages Smith to take this further, and promises to invest in the project. The two plan to market the product as a solution to hedge fund clients looking to allocate a portfolio of their assets to currency trading. They consider the software itself to be their secret sauce however, and will not license it directly to clients. Instead their plan is for clients to deposit moneys in account that they (Smith and Jones) hold: the algorithm will then perform the trades. They plan to charge an annual management fee as well as a performance fee.

Determining the relevant license
The first step will be that of determining the applicable license. Foreign exchange acquired for speculative purposes is an instrument under the Investment Services Act, therefore an Investment Services License will be required. Their business will involve their 'holding or controlling' the moneys of their clients, therefore they will need a Category 2 Investment Services License.

Knowing which license they need tells Smith and Jones a lot of important information about the costs that the project will entail, such as their regulatory fees (application fee, license fee, supervisory fee and contribution to investor compensation scheme). They can now plan and budget accordingly.

How we help: guidance in relation to the selection of the appropriate license, advice on likely license conditions associated with the license, mapping out of project plan and timeline

Operational set-up
Next, they need to determine the exact nature of their operational set-up in Malta. Jones lives in London and cannot move to Malta because of family commitments; plus in London he can be close to the fund managers. Smith, on the other hand, will take up residence in Malta. They will locate servers in Malta as well. Neither of them has any experience in a compliance role, so they will hire a local lawyer as a compliance officer. Initially they plan to start small, but plan to hire one or two local professionals within six months from commencement.

How we help: input on likely levels of local presence required, advice on rules regarding operational set-up and internal organization, assistance with hiring processes, introductions to reputable local service providers and professionals

Meeting the regulator
Jones and Smith now organize a meeting with their future regulator, the MFSA. More specifically they meet the authorisations unit, the team within the regulator which is dedicated purely to handling new applications. During the meeting they get the opportunity to discuss their business model and to address any preliminary queries in an open and informal manner.

How we help: organization of meetings, negotiation with and representation before the regulator, drafting of formal communications

Preparing the application

Now comes the exciting part where all the form filling, drafting and number crunching happens. The application consists in the filing of a number of documents including: a business plan, financial projections, due diligence documents, detailed financial projections. These need to be drafted to a high standard and must provide the MFSA with a coherent picture of the business.

How we help: drafting of all relevant documentation - typically we will source 'building blocks' from our clients which we then help to expand and build up to the high standards expected by the regulator


The documents are ready and a draft submission takes place. The MFSA now commences its review. This is a thorough process - the business model will be analyzed for feasibility and adherence with local legislation, the adequacy of internal organizational arrangements will be scrutinized, and due diligence will be conducted on Jones and Smith.

During this stage a dialogue will take place with the regulator, with some back and forth communication being commonplace. The MFSA will not, except in exceptional circumstances, refuse an application outright - if there are issues, these will be flagged (e.g. some area of the business is unclear) and an opportunity given to address them.

How we help: continuous follow-up with authorities, addressing regulatory queries

In Principle Approval

The regulatory review is complete and 'in principle approval' is issued. This is a document stating that the MFSA will issue the license provided that certain stated conditions are adhered to. In this case (and in most cases) these are simple requirements; form the companies, file signed original versions of the application forms, pay the licensing fee, etc. Smith and Jones have done their homework well, and the remaining conditions are easy to satisfy at this stage.

How we help: assistance with the fulfilment of all 'in principle approval' conditions.

Issuing of the License

The conditions stated in the In Principle approval are adhered to and a note to this effect is sent to the MFSA. Shortly thereafter the license itself is issued. Once the license is issued, an application for 'passporting' is filed with the MFSA, indicated the jurisdictions in which the company will offer its services. This is processed within a month (there is a statutory time limit) and the company can now start to collect client moneys and invest them.

How we help: filing of passporting applications, post-licensing compliance consultancy services, company administration and maintenance services

Our Investment Services Practice

My firm’s expertise and familiarity with local regulatory processes and comprehensive licensing and compliance service has positioned Chetcuti Cauchi Advocates as the Malta law firm of choice for discerning operators seeking a one-stop shop financial services solution provider in Malta. I hope the above gives readers a clear idea of what this kind of process looks like in real terms. Get in touch if you want to discuss further. You can find more information by following links to our website here:

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

Monday 27 February 2012

Residence in Malta: the recent amendments

The rules governing the take up of residence by high net worth individuals in Malta have just undergone some important changes. We've put up an article on our website detailing the changes to the rules: this is essential reading for anyone interested in Maltese residence and immigration law matters. Read the full article by following the link here. While you're there, you may want to have a look at our immigration & relocation law practice page. Ours was one of the first law firms to focus on immigration & relocation for HNWI individual and if you're interested in relocating to Malta you should find plenty of useful information. Follow this link.

Friday 17 February 2012

Malta iGaming Webinar

Over here we usually like to talk about the Maltese financial services industry and the opportunities it offers for international business. But there's plenty of other things happening in Malta which are of interest. The iGaming sector, for example, is very big and my colleagues in the iGaming team are always very busy assisting with the creation of new businesses and advising on compliance matters.

We're holding a webinar on the 28th of February 2012 at 11.00 (GMT +1). My colleague Dr Silvana Zammit
will be the main speaker and will run attendees through a number of practical examples. Should be useful for anyone interested in the industry.

Sign up here:

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

Thursday 16 February 2012

The Maltese Captives Industry: a quick note

As we've said in the past, Malta's financial services offering is not just about hedge funds (although that works very well for many different reasons, some of which are highlighted here). The country is also very well geared up to serve as a domicile for insurance captives, thanks, in particular, to protected cell company legislation that is pretty much unique within the EU.

I will write in more detail about this sector in a future post. In the meantime, you can find an overview of the relevant legislation on our website. There's also a neat presentation you can have a look at. You'll need to register on our portal to get access; just follow this link. Registering on our portal is worth your while; there's a wealth of information you can get access to.

Get in touch if you want to discuss this further.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

Sunday 5 February 2012

Do I need an office in Malta?

One of the most common questions that we get asked from clients looking to obtain a Malta financial services license is whether or not they need to set up an office in Malta. This matter is not addressed in the MFSA's rules and can be a source of some confusion. In this post I intend to share some experiences on this topic.

The key thing to bear in mind is that the regulator needs to see that the business is being done 'in or from Malta'. Otherwise the question arises: why is this regulator, rather than any other, exercising jurisdiction to regulate the business? What this means in practical terms will depend on the business in question. If you propose to have a hundred traders in Mayfair but only a single individual in Malta, that will inevitably be problematic (and not only because your Mayfair traders are likely to be highly envious of their colleague's new tan). A Malta financial services license needs to be backed up by real substance; this applies across the board, whether we are talking about a fund manager, a FOREX business, an insurance intermediary etc.

So far this is all very theoretical and high level of course. In order to discuss this topic in a more tangible manner, you need to look at the nature of the business in question, and the volume and kind of transactions that it is involved in. Not every Maltese financial services license is the same. A boutique advisory firm with a small, select clientele, is one thing. A FOREX market maker with sophisticated IT systems and thousands of customers is another.

Examples will help. We've been involved a number of times in the set-up of small advisory boutiques. Given that the activity here focuses on the giving of advice, the firm will certainly require at least one advisor to be located more or less permanently in Malta. The MFSA also invariably expects the compliance function (your CO) to be Malta based in one way or another. If the business is small, this could feasibly be sufficient, more so if the local advisor is also a director.

A different example: we were involved in the set-up of a highly specialized asset management company that catered for the needs a clientele composed of hedge funds. In this case, the promoters of the business moved to Malta en masse. This is of course ideal, but is by no means necessary. Intermediary arrangements in which some of the promoters are located in Malta while others are located elsewhere are fairly common and acceptable.

Note that in no case is the actual rental or purchase of office space a requirement. Various arrangements can be acceptable, as long as the interests of clients and investors are protected.

Of course, there are no hard and fast rules here given the silence of the rules on these matters. However I hope the above has shed some light on the matter. As usual, get in touch if you would like to discuss further.

Dr Charles Cassar
Malta Financial Services Lawyer
Chetcuti Cauchi Advocates

Wednesday 1 February 2012

Visit our Malta FOREX page

At Chetcuti Cauchi we were among the first to recognize Malta's potential as a hub for international FOREX business. In the past months we have had the pleasure and the privilege of assisting many of these businesses with their Malta FOREX set ups. We've advised fund managers focusing of FOREX as an asset class, intermediaries employing straight-through-processing techniques, software developers providing FOREX platforms, as well as FOREX market makers. 

We're therefore launching a dedicated page on our website which will cater exclusively to this growing market. Here you will find a wealth of information, news, publications and other useful materials. Here's the link:

Have a look, and feel free to get in touch if you want to know more.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates