AIFMD Compliance: MFSA issues self-assessment forms

The post-AIFMD regulatory scenario in Malta has really taken shape over the last few months in Malta, with various consultation documents being circulated giving current and prospective licence holders a clearer picture of the practicalities associated with the transition. As part of this transition process, the MFSA has just issued self-assessment questionnaires intended to allow self-managed funds and fund managers to determine whether they fall to be regulated by the 'full fat' version of the directive or whether they fall under the de minimis provisions.

You can find a full a more detailed breakdown on our website by following the link.

Charles Cassar,
Malta funds lawyer
Chetcuti Cauchi Advocates

The Definition of Investment Advice Under Maltese Law

One of the questions which we come across with some frequency in our practice is the question of what constitutes investment advice under the Investment Services Act. This is an important question; if a service is considered to be investment advice under the Investment Services Act then a number of important legal and regulatory implications arise. Investment advisors are required to obtain an MFSA license before commencing operations, which licence would be subject to a number of conditions relating to matters such as conduct of business, capital adequacy and internal organizational structure.

The investment services act defines 'investment advice' in the following manner:

Giving, offering or agreeing to give, to persons in their capacity as investors or potential investors or as agent for an investor or potential investor, a personal recommendation in respect of one or more transactions relating to one or more instruments

The question therefore hinges on the what constitutes a 'personal recommendation'. Clearly the legislator here does not intend any simple recommendation to be deemed to be a 'personal recommendation. ESMA has issued helpful guidance in this regard.

If you are interested in reading more about this topic, follow the link below to the relevant article on our website, which examines the matter in further detail: definition of investment advice.

Malta High Commission Event: Hedge Fund Management in Malta

On the 19th of February 2013 our firm will be delivering a breakfast briefing at the Malta High Commission in London (36-38 Piccadilly). You can register here: http://www.ccmalta.com/events/malta-fund-management-hub Further details below.

About Malta as a Hub for Hedge Fund Management

Since EU accession in 2004, the Maltese financial services industry has gone from strength to strength, and the jurisdiction is now a well established centre of excellence for funds, investment services providers, forex operators, credit institutions, insurance captives and various other financial businesses. One of the key drivers of this growth has been the alternative investment funds industry, with the jurisdiction now playing host to hundreds of alternative funds pursuing a diversity of investment strategies. The professional investor fund, the Malta hedge fund product, has proven to be a remarkably popular vehicle, thanks to its flexibility and soundness.

Chetcuti Cauchi Advocates focus on Malta Hedge Fund Management

In recent months, the jurisdiction has started to attract, in addition to fund structures, the relative fund management enterprises as well. Chetcuti Cauchi’s briefing will engage with the regulatory, fiscal and business environment elements that are underpinning this development. The briefing will include a 30 minute presentation by Dr Charles Cassar focusing on fund regulation and business environment, and a 30 minute presentation by Dr Jean-Philippe Chetcuti focusing on tax considerations for Malta domiciled fund managers. There will also be an opening address by His Excellency the High Commissioner Joseph Zammit Tabona. The briefing will be followed by a question and answer session, and will conclude by 10am. The briefing should be of interest to fund managers, investment advisors, regulatory lawyers, as well as financial services practitioners who are interested in understanding better the technical building blocks of the Maltese funds industry success story. 

Event overview

• Topic: Using Malta as a Hedge Fund Management Hub
• Venue: Malta High Commission, 36-38 Piccadilly, London
• Date: 19th February 2013
• Schedule:
• 8am - 8:30am: Networking breakfast
• 8:30am - 8:35am: Opening address, by High Commissioner Joseph Zammit Tabona 
• 8:35am - 9:05am: Regulatory overview, by Dr Charles Cassar
• 9:05am - 9:35am: Tax considerations for Malta Fund Managers, by Dr Jean-Philippe Chetcuti
• 9:35am - 10am: Question time

We look forward to seeing you!

Dr Charles Cassar

Malta fund management lawyer

Chetcuti Cauchi Advocates, Malta

7 Reasons Why Fund Managers are Setting Up Hedge Funds in Malta

We've often spoken about the remarkable growth that the Maltese hedge funds sector has experienced over the last few years. In this post we will touch upon what we believe are the seven main reasons underpinning this growth.

An accessible regulator: one of the key drivers behind Malta's growth in this sector has been the attitude  of the local single regulator for financial services, the Malta Financial Services Authority. As an EU country, Malta adheres to all the required regulatory and anti-money laundering standards, however the jurisdiction differentiates itself by adopting an open door approach. This means that while the rules are the same, the regulator's attitude is one of working hand in hand with entrepreneurs to identify solutions that can work within the existing framework. This makes the jurisdiction particularly interesting for innovative products. In addition, face to face meetings are very easy to organize, and the regulator is sensitive to matters of urgency.

Low costs: while Malta isn't the cheapest fund jurisdiction available, it has a good claim to being the cheapest fund jurisdiction within the EU. Regulatory, legal and fund administration fees are highly competitive, and significantly lower than those in EU competitors. Set-up and maintenance costs often work out at circa 50% of what they would in other EU domiciles. This makes Malta attractive for smaller fund managers and start-ups for whom such costs are of vital importance.

A stable EU Domicile: Malta became a full EU member state in 2004. This means that the jurisdiction is regulated at the high level that one would expect in an onshore EU domicile. In addition, EU membership means that licenses issued in Malta enjoy a high level of international recognition, making marketing of products significantly simpler. This aspect will be further strengthened once AIFMD comes into force and passporting rights are introduced for EU managers. In addition, Malta also enjoys a sound track record of political stability and broad agreement about the jurisdiction's policies with resoect to financial services.

Tax: licensed funds which have more than 15% of their assets located outside of Malta (a threshold which is easy to reach for most funds) pay zero Malta tax at the fund and the investor level. In addition, Maltese fund managers benefit from a refunds system which can allow shareholders to benefit from a 5% rate of net effective tax. Tax-efficient fund and fund manager structures can therefore be set-up within the jurisdiction. Moreover Malta is FATF and OECD compliant. 

Sound legal infrastructure: Malta's legislative framework has been designed in order to be ale to accommodate the needs of the industry whilst protecting the interests of investors. Thus the jurisdiction offers all the structuring options that managers require, such as a broad selection of legal vehicles (including SICAV, INVCO, partnership, contract and unit trust), sub-funds with separate assets and liabilities and incorporated cell companies. All financial legislation is freely available in English and in many cases the binding version for interpretational purposes is the English version.

No need for local service providers: generally speaking, no Maltese service providers need to be engaged; overseas fund administrators can be used, for example. This can encourage managers to make use of the jurisdiction without severing well-established relationships. Nevertheless, it is worth noting that many funds do in fact choose to work with a local service provider, probably due to the low cost base and high levels of professionalism available.

Flexibility: Malta permits a number of useful flexibilities within its regulatory framework. Perhaps the key flexibility is that funds sold to Qualifying and Extraordinary investors are not required to adhere to any investment or leverage restrictions. This is an important factor which makes possible a number of innovative strategies. Malta also offers a low-ticket hedge fund product, the experienced investor fund, which has a minimum investment threshold of EUR 10,000. This can allow managers to attract smaller, more experimental investments.

Investment Services Law in Malta: Presentation

We've put up a handy presentation on the basic Maltese legislative framework for investment services on Slideshare providers. This should be useful for anyone looking for a succinct overview of the topic.

You can find the link here: Investment Services Law in Malta

You can read more about our firm's services in the area here: Investment Services law firm

Dr Charles Cassar
Malta Financial Services Lawyer
Chetcuti Cauchi Advocates, Malta Law Firm

Some recent work highlights

We've put up a very interesting section on our website. Basically we're highlighting some of the work that we've been engaged to handle over the last few months. This should be useful reading for anyone who is interesting in getting to know better what is going on with the Maltese financial services industry, how it's growing, and the kind of activity that takes place. Some of the material will be familiar to more regular readers of this blog, but there are various interesting bits and pieces such as work relating to the regulatory implications of social networks with a focus on securities trading activity. Some of the other engagements highlighted include, in no particular order:

• Advising on the tax and regulatory implications of a cross border loan
• Creation of PIF structures for start up fund managersAssisting own account securities, commodities and forex traders
• Obtainment of exemptions from regulation
• Set-up and passporting of investment advisory firms

I think the diversity of engagements serves to show how interesting and well-populated the local financial services industry has become. Get in touch if you'd like to discuss situations similar to the above.

Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi, Malta

Side Pockets in Malta Hedge Funds

We've put up a detailed publication dealing with side pockets under Maltese legislation on our website www.ccmalta.com. The material should be of interest to any Malta fund manager looking to use side pockets, as well as to anyone who is interested in learning more about the flexibility which Maltese hedge funds can afford.

In essence, side pockets are a mechanism which allows for the segregation of problematic assets e.g. assets which cannot be valued in an accurate manner. A side pocket involves the transfer of problematic assets to a new class of shares within the fund, i.e. a side pocket, and are thus separated from the main pool of assets.

You can find a lot more about the topic on our website 

Charles Cassar
Financial Services Lawyer, Malta
Chetcuti Cauchi Advocates, Malta Law Firm