Malta - the jurisdiction of choice for asset managers
By Emma Bartolo & Patrick Mangion
The regulatory operating landscape within the European Union (EU) has experienced a seismic change in the wake of the financial crisis of 2008. Since then, regulators have been actively seeking to contain system risk by enforcing measures to regulate various sectors of the Financial Services industry.
In the span of a decade, the European Commission enacted an overwhelming number of legislation and regulation, most of which have generated an even bigger number of sub-regulations, technical standards and guidelines, resulting in a daunting volume of pan-European documentation to assimilate, evaluate and implement. Unsurprisingly, the Asset Management sector was not cast aside in this wave of regulation. On the contrary, it is enough to mention that as of 22 July 2013, subject to a one year transition period, the entire Hedge Fund sector fell to be regulated through the Alternative Investment Fund Managers Directive (AIFMD), when this was previously not regulated at a European Union level.
So, in this daunting regulatory landscape, how can Malta offer a competitive advantage to Financial Services firms looking for a European solution?
In premise, 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 at the top from among European Union Member States, having the best transposition record of European legislation, according to the December 2016 scoreboard published by the European Commission. The scoreboard benchmarks 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. In fact, Malta is the only Member State achieving a perfect score for the fourth time on the compliance deficit scoreboard which measures the number of infringement proceedings for non-conformity on transposition.
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 our 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 which sees all the stakeholders, being the legislator, the regulator, various industry bodies, service providers as well as licence holders themselves, coming together to ensure that regulated entities always have complete visibility, instant access and timely responses on regulatory matters. Our size ensures that we are nimble and effective, and this is something which is difficult for larger jurisdictions to replicate.
Add this to the fact that English is an official language in Malta, and that our company law is based on UK company law, one starts to understand why Malta is a favourite destination for promoters looking for a European Union regulatory solution. To top it all, Malta enjoys a good standard of living, decent infrastructure, an attractive tax regime, and an exceptionally skilled workforce that accommodates the needs of the industry.
Nevertheless, 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’s take the introduction of the AIFMD as an example.
Apart from having a fully-fledged AIFMD solution, Malta also provides, amongst other things, the following possibilities:
- Establishing fund structures relying on the regulated status of the manager. In a conscious effort to reduce the time-to-market on the set up of new fund schemes and to eliminate overlapping regulatory requirements, the Malta Financial Services Authority (MFSA) launched the Notified AIF regime, thereby effectively aligning the local product range to the manager-oriented regulatory oversight endorsed by the AIFMD, as opposed to the product-oriented one set forward by the UCITS Directive. This is a further illustration of Malta’s ability to create new products that are better aligned to market requirements.
- Establishing a fully regulated manager and fund outside the scope of AIFMD. Malta has retained its popular Professional Investor Fund (PIF) 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. This provides an attractive solution for private equity funds which operate below the AIFMD thresholds for full compliance and are not pursuing broader distribution channels by means of the passporting benefits enshrined in the AIFMD. Furthermore, the flexibility of PIF structures in Malta allow for the rapid adaption to the dynamic Asset Management sector. This is evidenced through the recent revision of the rules applicable to PIFs addressing investor protection and market integrity in the context of such fund schemes investing in virtual currencies.
- Fund platforms which allow the co-existence of fund structures operating under different regimes. 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.
- Redomiciling 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 MFSA. The continuation is a seamless one wherein the entity retains its track record and there is no requirement for any redemption or realisation of any sort.
- A focus on proportionality principles. 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 with the nature and complexity of the operation and the assets being managed.
Yet another strong selling point is the plurality of legal structures available to establish a fund, ranging from a limited liability company with variable share capital, to a partnership, a contractual fund and beyond.
In the past four years, regulatory developments in Malta have seen the addition of a new category of loan funds, the introduction of EuVECA and EuSEF funds, the launch of the European Long Term Investment Funds and the concept of cell structures with a securitisation vehicle, thereby providing a diverse range of regulated product offerings to cater for a demanding Asset Management sector. In addition, the advent of MiFID II, AML IV and General Data Protection Regulation continue to strengthen the regulatory framework in Malta.
In an age where technology plays a vital role in every imaginable aspect of the Asset Management sector, one cannot overlook recent developments evolving around blockchain. Being the first country to have a national strategy for blockchain, Malta has definitely put itself on the map in this sector, this being the essential first step in establishing itself as a fintech hub.
Malta has a vibrant Financial Services industry with one of its main assets being its robust and yet flexible regulatory regime. Our jurisdiction will enable you to transform the EU’s challenging regulatory regime into a competitive advantage for your business.
Being the first country to have a national strategy for blockchain, Malta has definitely put itself on the map in this sector, this being the essential first step in establishing itself as a fintech hub.
About the authors
Emma Bartolo is a regulatory specialist within the financial services industry, with particular focus on investment services licenceholders as well as collective investment schemes licensed and regulated by the Malta Financial Services Authority. Learn more...
Patrick Mangion has been actively involved in the regulated financial services sector for 12 years and has gained valuable experience on all facets of this industry both locally as well as internationally when working at the Deloitte offices in London and Zurich. He represents Deloitte Malta at a number of local and international financial services fora and is best placed to provide guidance on Malta as a regulated financial services jurisdiction. Learn more...