Recent amendments to the NAIF Regime introduced by the MFSA

Malta introduced the Notified Alternative Investment Fund (‘NAIF’) framework in 2016, then constituting a novelty within Europe, with Malta being amongst the first EU Member States to adopt such a framework. In light of a rapidly growing number of funds seeking registration on the List of NAIFs, and as Alternative Investment Fund Managers (‘AIFMs’) continue to look for a straightforward process and quick time-to-market for establishing their funds, the MFSA has recently revisited and updated its NAIF Rulebook so as to address certain regulatory gaps and to enhance the effectiveness of the NAIF framework in general.

The updates being effected to the NAIF regime come in the form of amendments to the investment services regulations setting out the legal basis of the NAIF framework, particularly, the List of Notified AIFs Regulations (Subsidiary Legislation 370.34 of the Laws of Malta) and the MFSA NAIF Rulebook, with the key changes being summarised below.

1. Scope of application

Generally, the utility of the NAIF regime continues to be limited to qualifying full-scope AIFMs which are authorised and regulated under the AIFM Directive and for funds marketed and sold exclusively to professional and/or qualifying investors. However, under the revised NAIF framework, a licensed collective investment scheme may now request a conversion into a NAIF.

Moreover, under the amended rules, there is also scope for NAIFs to be set up as ‘loan funds’, to the extent that they meet and comply with the rules applicable thereto and provided that they do not engage in loan origination and only acquire loans from, and originated by, authorised credit institutions or firms duly regulated and authorised to engage in the activity of lending.

2. Investment restrictions

Under the updated framework, there are generally no restrictions applicable on the type/s of asset classes in which a NAIF may invest, with the main exceptions being: (i) loan origination, which as above, remains restricted; and (ii) loan acquisition which is subject to certain conditions.

3. Compliance requirements

Currently, the compliance function of the NAIF is, by default, vested upon the compliance officer of the AIFM. Under the updated framework, alternative arrangements may be set up, subject to these being assessed and approved by the MFSA on a case-by-case basis.

Furthermore, the anti-money laundering function of the NAIF may now be carried out by either: a) the MLRO of the Administrator of the NAIF (but not of the AIFM), provided that such Administrator is in possession of a recognition certificate by the MFSA or authorised in an EU Member State/reputable jurisdiction; or b) by a Senior Officer of the NAIF and who is resident in Malta.

4. MFSA Processing timeframes

Under the revised framework, changes to the NAIF’s prospectus must now be acknowledged by the MFSA within just five working days from the notification of change.

Additionally, changes to the investment management function and/or valuation arrangements of the AIFM, may now be submitted at least 3 weeks prior to the filling of the notification document pack when a submission of a PQ is not required and at least 2 months prior to the filling of the notification document pack when a submission of a PQ is required.

Moreover, under the revised framework AIFMs are no longer required to submit a risk management policy with the notification document pack.

The revised NAIF Rules are applicable to current and prospective Notified AIFs as from 24th of June 2021. Additionally, AIFMs of existing Notified AIFs should undertake an impact assessment of the revised rules against their current operations and any potential issues should be addressed by 31 December 2021.