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ME PoV Spring 2016 issue
Malta is turning the European Union’s challenging asset management regulatory landscape into a competitive advantage for your business.
A main objective of the European Union (EU) is to create a level playing field across the entire Union. This is especially evident in the asset management sphere. The Union’s directives and regulations ensure that collective investment schemes, asset managers and regulated investment services companies created in any of the member states are regulated under a uniform set of rules, while benefitting from the opportunity to operate within the entire Union. Effectively, a fund or asset manager incorporated and regulated in an EU member state can operate throughout the entire Union. The objective is to eliminate jurisdiction shopping by having the same regulatory framework apply, irrespective of the jurisdiction in which the entity is incorporated and regulated.
While the objective is a noble one, in practice things have panned out differently, and this for a number of reasons. First and foremost there are a myriad of non-regulatory factors, such as fiscal considerations and the cost of operations that weigh in when a promoter is making his choice of jurisdiction.
More importantly, the European Union’s challenging and ever changing regulatory regime itself also creates opportunities for efficient and proactive jurisdictions such as Malta to differentiate themselves from other member states.
The regulatory operating landscape within the European Union has experienced a seismic change in the wake of the financial crisis of 2008. In the space of seven years the European Commission enacted approximately 40 pieces of legislation and regulation, most of which have generated an average of around 10 technical standards and sub-regulations, making a daunting total of some 400 documents to assimilate, evaluate and comply with when appropriate. Nowhere is this more evidenced than in the asset management sector: regardless of the spate of new regulatory requirements, the entire hedge fund industry now falls under the Alternative Investment Fund Managers Directive (AIFMD), whence this sector had not previously been regulated at Union level.
So in this daunting regulatory landscape, how is it that Malta can offer a competitive advantage to financial services firms looking for a European solution?
Firstly, Malta is the EU Member State with a record for efficiency in transposing EU Regulations and Directives into its domestic legislation. Malta has continued to rank top among European Union Member States, having the best transposition record of European Legislation, according to the May 2015 scoreboard published by the European Commission.
The scoreboard benchmarks Union member states’ efforts in the implementation of Internal Market Law, by recording the transposition deficit, which is the gap between the number of Internal Market laws adopted at EU level and those in force in the member states.
To name just one example, Malta was the first member state to fully transpose the aforementioned AIFM directive.
There are even more compelling reasons for Malta to be considered as a natural choice for companies seeking to gain a competitive advantage in terms of regulatory challenges in the asset management industry.
Our single best testimonial comes from the industry itself. Regulated companies in Malta repeatedly assert that the big attraction to the industry is the peace of mind with which they are able to deal with regulatory change. This is the result of a well-honed approach that sees all the stakeholders–whether the legislator, the regulator, the various industry bodies, the service providers or the license holders themselves–come together to ensure that regulated entities always have complete visibility, instant access and timely responses on regulatory matters. The country’s size ensures that it is nimble and effective, and this is something that is difficult for larger jurisdictions to replicate.
Add to the above the fact that English is an official language in Malta, and that the prevailing company law is based on UK Company Law and it becomes clear why Malta is a favorite destination for promoters looking for a European Union regulatory solution.
That Malta is best in class in transposing and enacting relevant directives in an efficient manner is, for us, a given. Our real strength is the continuous evolvement of our regulatory solutions, enabling market players to find a ‘best fit’ in terms of the most appropriate channel through which to offer their services.
Let us take the advent of the aforementioned AIFMD as an example.
Apart from having a fully- fledged AIFMD solution, Malta provides, among other things, the following possibilities:
- Re-domiciling non-EU managers and non-EU funds into the European Union. Effectively this is a simple continuation procedure wherein the fund, or manager, transfer their operation to Malta, where they will fall to be licensed and regulated by the Malta Financial Services Authority. The continuation is a seamless one wherein the entity retains its track record and there is no requirement for any redemption or realization of any sort.
- Establishing a fully regulated manager and fund outside the scope of AIFMD. Malta has retained its popular Professional Investor Fund regime and as long as the structure falls outside the scope of the directive, it will be possible to continue operating without adhering to the more onerous obligations of the AIFMD.
- Malta does not adopt a one-size fits all approach to regulatory obligations. The principles of proportionality are firmly entrenched in our jurisdiction such that the substance requirements will be firmly in line to the nature and complexity of the operation and the assets being managed.
- Fund platforms that allow the co-existence of fund structures operating under different regimes.
This last point is a very relevant one and a further illustration of Malta’s ability to create new products to satisfy market requirements. In this particular sphere Malta has not one, but three different regulatory modules under which a fund platform can be established. These range from the traditional model wherein each sub-fund is legally a separate patrimony of assets, distinct and ring fenced from other sub-funds within the platform, to the more recent incorporated cell concept, where each cell regulated as a fund scheme has its own independent board of directors and is a separate and distinct legal personality at law.
Yet another strong selling point is the plurality of structures available to establish a fund, ranging from a limited liability company with variable share capital, to a partnership, to a mutual fund and beyond.
There is also plenty to look forward to with the Capital Markets Union aiming to bring about greater flexibility and access to the capital markets and the imminent introduction the European Long-term Investment Funds that should open the market of infrastructure investment to the retail market.
In conclusion, Malta has a vibrant financial services sector, with one of its main assets being its robust and yet flexible regulatory regime, enabling you to transform the EU’s challenging regulatory regime into a competitive advantage for your business.