An Update on Malta's Fund Industry

Mr Nicholas Warren, from Chetcuti Cauchi Advocates talks about the fund industry in Malta in the LATEST VIDEO in Finance Malta’s series of podcasts.  As a prime advisor who has been providing council to international clients with regards to the Fund Industry in Malta for the last 10 years, Mr Warren gives an excellent overview of Malta as a fund jurisdiction, going into the reasons why Malta has matured into such a favourable jurisdiction for funds, what it can offer to promoters of funds and what type of fund structures can be offered in Malta.

The Fund industry in Malta – how has Malta evolved into a fund jurisdiction? 

Mr. Warren starts off by outlining Malta’s EU accession back in 2004 as the launch pad which truly allowed the fund industry in Malta to take off and start thriving. He also credits the Malta Financial Services Authority (MFSA) for Malta’s success in the funds industry and for fostering an excellent regulatory environment which gives scope for larger funds and fund managers to thrive, but concurrently provides a good platform for starting managers. MFSA’s approachable and flexible attitude and its adoption of an 'open door' policy has encouraged many to set up their fund or licensable activity within Malta's shores. Unlike other regulators around the world, the MFSA distinguishes itself by giving potential fund managers the chance to meet the regulator before sending an application for submittal in order to carry out an open and frank discussion and receive informal guidance on what one should do and how one should approach the application process.

What does the Fund Industry in Malta offer to promoters of funds?

Mr Warren outlines a number of reasons why promoters of funds are continually choosing Malta as their jurisdiction of choice to set up a fund or licensable activity. Apart from an accessible regulator, Malta offers a safe haven, peace of mind and political and regulatory stability, and thus promoting continuity within the industry. The facts speak for themselves; the funds industry has recorded a rapid growth, with over 550 funds, including sub-funds amounting to an asset value of over EUR 10 billion. The Maltese financial sector has continued to prove its stability through the resilience it showed during times of financial crisis, registering growth year on year when other jurisdictions around the world struggled. Fund promoters can rest assured, knowing they are investing within a stable industry where business is done in a sound manner which safeguards everybody’s interests. In addition, Mr Warren points out how Malta’s double taxation treaties with different jurisdictions, which now add up to over 70 treaties, including a treaty with the US, can be used by promoters of funds and fund managers in order to have tax efficient structures. Moreover, Malta has fostered excellent relations with its European, Middle Eastern and North African neighbours thus allowing Malta to serve as a gateway to these markets. Investors may tap into newer markets which remain widely unexplored and which could provide a multitude of opportunities waiting to be ventured.

The Fund industry in Malta - What type of fund structures can be offered in Malta? 

Mr Warren explains what kind of funds can be set up which are various and include investment companies with variable share capital, investment companies with fixed share capital, trusts, partnerships and as of 2012 we have seen the introduction of the Recognised Incorporated Cell Company structure. The Professional Investor Fund (PIF) remains the most popular Maltese hedge fund to date, but with the introduction of the Alternative Investment Fund Managers Directive (AIFMD), Alternative Investment Funds may be attained as well. Funds can be managed by a third party or be self-managed, allowing for a degree of flexibility.

Malta's legislation and regulation - is it onerous? 

With regards to legislation and regulation in Malta, the fact that all legislation is in English helps foreign investors to better understand the requirements. The Fund Industry in Malta thrives thanks to Malta's flexible, non-draconian legislative framework and its approachable legislator who is always willing to listen and understand queries or concerns about potential investors coming to Malta to set up their structures and see whether potential exemptions may apply. 

MFSA launches rulebook for collective investment schemes investing through loans

Malta's flexibility as a domicile for funds has recently been enhanced through the introduction of a rulebook addressing the needs of collective investment schemes investing through loans. The introduction of the rulebook answers in the affirmative a question that has long pre-occupied financial services professionals in the jurisdiction i.e. can a fund issue loans? The Maltese legal environment for money lending companies remains imperfect, with the rules governing money lending under the financial institutions act being particularly unwieldy, but there can be no doubt that this is a step in the right direction for Malta.

The positive development does not however come without some caveats.  In particular the rulebook is very particular about the borrowers that may borrow from an MFSA authorised loan issuing fund i.e 'unlisted companies and SMEs'. Some other noteworthy features of the rulebook are the following:

• The fund must be of a closed-ended nature (although there are certain limited flexibilities)
• The fund can only be sold to professional investors as defined under MiFID, or investors who elect to be treated as professional investors and invest a minimum of EUR 100,000
• The fund must implement a credit risk strategy
• The fund must maintain a liquidity management policy
• The fund must adhere to a number of investment restrictions

You can read our full report on the rules here: http://www.ccmalta.com/publications/malta-loan-funds

Dr Charles Cassar

Chetcuti Cauchi Advocates

Malta establishes itself as a hub for E-money issuers

Over the past twelve months we have seen increased interest in e-money operators looking to domicile and operate their businesses in Malta. In response to this growth we have published E-money institutions: licensing and regulation in Malta on our website www.ccmalta.com. This publication provides what we hope will be a useful introduction to the topic, and covers the following:

• The definition of e-money under Maltese law

• The distinction between server based and card based e-money

• Distinctions between payment service providers and e-money issuers

• The activities that EMIs authorised in Malta are permitted to undertake

• Key regulatory requirements

• The licensing process

• Why e-money institutions have started to choose Malta as their domicile in Europe

The payments ecosystem as a whole has also registered encouraging growth. You can read about the growth in the related sector of payment services by clicking on the below link:

• Payment services in Malta

Malta also continues to attract interest from operators in the virtual currency sphere (non-fiat money such as Bitcoin and Linden dollar). Local authorities remain understandably cautious about the sector, but we believe that it is only a matter of time until these new technologies and systems achieve more widespread acceptance and legitimacy. You can read more about the topic here:

• Virtual currencies in Malta

If you are interested in any of these sectors, contact us on info@ccmalta.com

Dr Charles Cassar

Chetcuti Cauchi Advocates

MFSA Issues Consultation Document on Malta Company Services Providers Rules

Further to the recent introduction of the Company Service Providers Act, the MFSA has issued a consultation document proposing detailed rules which clarify and implement the provisions of the Act. This is a useful and welcome step, and one which will lend further clarity to an Act which has already been broadly welcome by service providers in Malta. We have uploaded a more detailed overview of the proposed rules on our website here: Malta Company Service Providers Consultation Overview

The proposed rules should not contain too many surprises for established and complaint service providers, and well established providers are not expected to experience major difficulties in complying. While the rules do introduce introduce an additional layer of documentation and reporting which will be novel to service providers, this is counterbalanced by the benefit resulting from the introduction of a level playing field in the sector.

The application process is premised on common regulatory procedures centered around fitness and properness, capital adequacy and proper documentation. Our financial services regulatory team has handled various such processes in the context of other regulated areas (such as investment services, funds and financial institutions) and is currently advising a number of CSPs with respect to their prospective applications.

We are also currently preparing a detailed brief providing a summary and analysis of the Act and the rules, which we will be uploading shortly on ccmalta.com 

Dr Charles Cassar

Chetcuti Cauchi Advocates

Malta Financial Services Lawyer

Malta Residence & Wealth Planning Seminar, London

The Malta Residence, Citizenship & Wealth Planning Seminar will treat the programmes provided under Maltese law for individuals and families to take up residence in Malta, including the Global Residence Program, the Retirement Programme and Malta's Citizenship-by-Investment Program. The seminar will also deal with the opportunities for structuring wealth using Malta.

The seminar, be held on Tuesday 26 of November 2013 at the Malta House in Piccadilly, this breakfast briefing will be led by Dr Jean-Philippe Chetcuti, a leading tax and immigration law specialist.

Event Programme:

0900 - Registration and Breakfast

0930 - Presentation on Maltese Immigration Programmes

1015 - Registration and Coffee

1030 - Presentation on Wealth Management Using Malta

1115 - Q&A Session

1130 - Coffee

Venue

Malta High Commission

Malta House

36-38 Piccadilly

London W1J 0LE

Limited space is available so early reservations are advisable.


Wealth Planning using Malta

Malta offers a number of opportunities for the structuring and management of wealth using Maltese trusts or Malta Companies. More about Using Malta Companies in International Tax Planning.

Malta Global Residence Programme

The Malta Global Residence Program (GRP) allows non-EU nationals to obtain a permanent residence permit on the basis of an investment in or rental of property in Malta. As residence non-doms, residence permit holders benefit from Malta's remittance basis of taxation and special tax status taxable at a flat rate of 15% tax on remitted income only.

Malta's Citizenship-by-Investment Program

The Individual Investor Program (IIP) allows good standing individuals and families to acquire Maltese citizenship on basis of a contribution to the National Development Fund.

Classification of Binary Options Service Providers as Category 2 Investment Services Providers

There has been some debate recently within the industry as to whether a binary options business may be classified as a Category 2 investment services provider. Circulars previously issued by the MFSA had seemed to suggest that such businesses would be deemed to be Category 3 investment services providers, irrespective of the exact activities performed by the operator i.e. whether or not the operator bore the risk of the transactions by taking the opposite side of the order. Of course this is not ideal, as it means that businesses which are relatively low risk intermediaries would need to adhere to capital and reporting requirements designed for higher risk operators.

Further to discussions with the regulator, it has become clearer that if the operator is acting as a "riskless principal", essentially receiving and transmitting orders in a manner similar to that of a Forex STP Broker, then the operator may be classified as a Category 2 investment services provider. This is a welcome and sensible development. It should be noted however that in such cases the Category 2 investment services providers would be expected to route orders through to another regulated entity.

Having said the above, it should be noted that the sector is still in its infancy in Malta and prospective applicants are encouraged to discuss their ideas openly in order to determine the correct regulatory classification.

You are read our detailed Malta Binary Options publication here:

http://www.ccmalta.com/publications/malta_binary_options

Dr Charles Cassar
Chetcuti Cauchi Advocates

The regulatory treatment of bitcoin and other virtual currencies in Malta

We're increasingly seeing interest from businesses operating in the bitcoin / virtual currencies space looking to establish operations in Malta. We feel there is a lack of useful Malta-specific information on this topic, and we've therefore put up a detailed article on the topic on our website. You can read more by following the link below:

Bitcoin and Virtual Currencies in Malta

One interesting phenomenon that we have noted is the keenness of many operators to run their businesses in-line with well established regulatory best practice principles, even though bitcoin is strictly speaking neither fiat money nor a financial instrument and therefore not yet regulated under Maltese law. Having said that, in light of all the attention (both positive as well as negative) that virtual currencies have been attracting, it is only a matter of time before regulators issue rules governing the sector, and therefore it makes sense for serious operators to be prepared.

Dr Charles Cassar
Chetcuti Cauchi Advocates, Malta Law Firm