MFSA’s feedback statement on the proposed establishment of a NPIF framework

On 1 September 2023, the Malta Financial Services Authority (the ‘MFSA’ or the ‘Authority’) released its feedback statement (hereinafter, the ‘Feedback Statement’) on stakeholders’ contributions received in relation to the proposed establishment of a NPIF framework in Malta (hereinafter, the ‘Framework’). The Framework was subject to two different stakeholder consultations held earlier in the year, with the first seeking stakeholder feedback on the MFSA’s proposed NPIF Rulebook (hereinafter, the ‘Rulebook’), and the second seeking feedback on the legislative amendments (in various Subsidiary Legislations (S.L.) of the Laws of Malta) proposed to promulgate the Framework.

The Feedback Statement is organised into two respective sections in line with the above referred to, with the most notable remarks made by the Authority under each section being as follows:

1. Feedback on the NPIF Rulebook

Eligible investors

Further to stakeholder feedback suggesting that the Framework should not only be limited to qualifying investors (as locally defined), the MFSA extended the Framework’s scope to also encompass professional investors (as defined in MiFID (2014/65/EU)) as eligible investors subject to a minimum investment of EUR 100,000 or currency equivalent.

Governing body

Subject to stakeholders’ propositions, the Authority amended the Rulebook so as to necessitate at least one of the members of the governing body of a NPIF to be independent of all its service providers (e.g., manager, fund administrator etc.) and of its founder shareholders. Moreover, in relation to reporting obligations of the NPIF, these will be limited to the preparation and submission of relevant information as stipulated in the AIFMD (2011/61/EU), while no annual fund return will be required by the Authority.

Fund manager

On the basis of several queries posed by stakeholders, the Authority clarified that the term ‘authorisation’ is to be interpreted in its widest sense so as to also include EU de minimis AIFMs which are only subject to registration (and not authorisation) in their respective member states. In addition, the MFSA reiterated its position on the exclusion of EU full authorised AIMFs from the possibility of managing a NPIF given that, in such event, the NPIF would be subject to the onerous requirements of the AIFMD, including full authorisation. Finally, the Authority expressed that NPIFs may also be marketed in jurisdictions outside Malta on the condition that the relevant rules of such jurisdictions are complied with.

Due diligence and duties of the due diligence service provider (‘DDSP’)

Further to various stakeholder contributions, the MFSA has revised its previous position and will be carrying out amendments to the Rulebook so as to limit the eligibility to provide due diligence services (which mainly include fitness and properness assessments of all functionaries of a NPIF) to only (i) recognised fund administrators; and (ii) company service providers which are not under-threshold, and have therefore excluded full licensed AIFMs. In this regard, the relevant notification of a NPIF to the Authority will not be considered complete unless and until the DDSPs appointed are approved by the Authority in terms of their eligibility to carry out such services, the scope and depth of which may be further clarified by the Authority in the form of guidance note/s published in due course.

Ongoing due diligence

Subject to relevant stakeholders’ remarks, the Authority will be necessitating a declaration by the DDSP on the due diligence conducted to be included in the certificate of compliance confirming that the due diligence is satisfactory on an ongoing basis. In terms of any change of DDSP, the incoming DDSP will be required to confirm in writing to the Authority that there are no material issues identified in relation to the due diligence carried out by the previous DDSP and in the event that there are, a new due diligence exercise will need to be carried out.

Conversions and investment strategy

As noted by various stakeholders, the MFSA will be amending the Rulebook so as to cater for the possibility of a NPIF to be converted into other types of collective investment schemes (‘CIS’), be it fully licensed (e.g., PIF or AIF) or otherwise (e.g., NAIF) subject to satisfaction of the requirements applicable to these categories of CIS.

Further to concerns raised in relation to certain investment strategies that NPIFs may pursue, the MFSA will be carrying out amendments to the Rulebook so as to further stipulate that a NPIF shall be prohibited from engaging in an activity or pursuing an investment strategy which contravenes the MFSA’s Risk Appetite Statement.

2. Feedback on legislative amendments in S.L

The legislative amendments proposed to be made in S.L have been well received by stakeholders with minor changes to certain regulations being sought for further clarity.

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It should be noted that the Authority is currently working towards finalising all matters necessary for the proper implementation of the Framework, including updates to the relevant rules and regulations, application forms and guidance note/s to be issued so as to assist industry participants and interested parties navigate the Framework.

Deloitte Malta will be monitoring developments in the furtherance and implementation of the Framework.

A link to the full feedback statement may be found here.