HedgeWeek Special Report, Malta Hedge Fund Services 2012

1. September 2012
Malta Hedge
Fund Services
2012
Expertise attracts Opportunities grow Tax implications
managers as for fund services for collective
AIFMD looms providers investment schemes

2. Contents
In this issue…
04 Global fund industry drawn to Malta’s
proven qualities
By Kenneth Farrugia, FinanceMalta
07 Collective Investment Schemes:
Tax implications
By Laragh Cassar, Camilleri Preziosi
08 Malta’s expertise attracts managers as
AIFMD looms
By Simon Gray
12 Value-added services from
Mediterranean Bank
Interview with Ximo Vicent, Mediterranean Bank
14 Seeking an asset management license
By Dominique Lecocq and Dr Caroline Pace, Lecocqassociate
19 Malta and corporate governance
By Roger Buckley, Castlegate Fund Services
20 Service providers see opportunities as
Malta gains traction
By Simon Gray
22 Private equity funds and the AIFM
Directive
By Dr Stephanie Micallef, Ganado & Associates
24 Malta is not a small island of light
touch regulation
By Adam de Domenico, Zodiac Advisory Services
27 The online one-stop shop that’s open
for business
Interview with Gatis Eglitis, EXANTE
29 Local fund regime could run in parallel
with AIFMD
Interview with Joseph Saliba, Mamo TCV Advocates
33 Working under the AIFM Directive
By Chris Casapinta, Alter Domus
Publisher
Special Reports Editor: Simon Gray, simon.gray@globalfundmedia.com
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Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 2

3. structured
for success
Exceptional Growth for Malta’s Fund Industry
The number of collective investment schemes increased from 200 in 2006 to 525 in December 2011.
This success was made possible by Malta’s highly favourable business environment. This includes the role
played by the island’s Single Regulator, renowned throughout the industry for its flexibility coupled with
meticulous attention to detail.
The island’s highly competitive, cost-effective business environment and the presence of all the Big Four
accounting firms adds even further advantage.
An onshore EU jurisdiction allowing passporting and redomiciliation of funds, with an efficient fiscal regime,
a balmy Mediterranean climate and a multilingual, ethical and professional workforce, Malta offers a winning
combination of advantages specifically designed to foster further growth and maximise success.
more information on:
www.financemalta.org
Scan QR Code
with your smartphone Effective | Secure | Skilled
Find us on: FinanceMalta @FinanceMalta FinanceMaltaYT FinanceMalta
FinanceMalta - Garrison Chapel, Castille Place, Valletta VLT1063 - Malta | info@financemalta.org | tel. +356 2122 4525 | fax. +356 2144 9212
FinanceMalta is the public-private initiative set up to promote Malta’s International Financial Centre

4. Introduction
Global fund industry drawn
to Malta’s proven qualities
By Kenneth Farrugia
Malta’s fund industry is increasingly making refused to license funds focused on exotic
the headlines in the financial media, which investments, such as racehorses. Malta’s
have highlighted the island’s attractiveness Investment Services Act provides for three
as a domicile. Journalists and finance categories of PIFs with different eligibility
analysts progressively see Malta as a criteria for investors, based on their
complementary EU jurisdiction to traditional experience and knowledge.
fund domiciles, where regulatory environment Under the assumption that investors are
supports innovative strategies and solutions. familiar with strategies and markets and
According to the country’s financial aware of risks, PIFs are not regulated as
regulator, the Malta Financial Services tightly as UCITS and other non-UCITS retail
Authority (MFSA), the number of Maltese- Kenneth Farrugia is chairman
funds. UCITS currently play a relatively
based funds has grown from around 130 of FinanceMalta minor role in Malta’s fund sector with some
in 2004 to more than 550 at the beginning 60 schemes currently registered, but their
of this year, with EUR8.3bn in assets under number is gradually increasing.
management. Much of this growth has taken
place since the island joined the European Full range of structures
Union. In 2011 alone, the country added PIFs or UCITS can be formed in a number
more than 100 new registrations from fund of possible vehicles, including open-ended
managers primarily using the island to tap and closed-ended corporate entities, trusts,
into EU markets. limited partnerships and contractual funds.
But it is not only EU membership that The investment company with variable
gives Malta the edge over other fund share capital (SICAV) is currently the most
domiciles. It also offers easy market access widely-used vehicle in Malta, especially by
to non-EU countries through various tax PIFs, and it can be structured to include
treaties and other bilateral agreements, while master-feeder funds and umbrella funds with
the island’s geographic location makes it segregated sub-funds.
a convenient gateway for European and In 2011 the MFSA enacted new regulations
international financial services firms targeting making it possible for a fund to be constituted
North Africa and the Middle East. as an incorporated cell in an Incorporated
Malta offers a number of fund options, Cell Company (ICC). While under the SICAV
including alternative funds under the Regulations a fund and its segregated sub-
Professional Investor Fund (PIF) regime, funds form a single legal entity and the
and UCITS (Undertakings for Collective sub-fund has no separate identity, each
Investment in Transferable Securities). incorporated cell is a limited liability company
Hedge, private equity and property funds are endowed with its own legal personality.
usually set up as PIFs, which make up three- As a relatively new concept, the ICC
quarters of all Malta-based funds. regime is still under development, and in
Free from investment restrictions and November 2011 the MFSA announced that it
targeted at financially-literate high net was considering extending it into a platform
worth investors, PIFs can invest in a variety concept that would involve a Recognised
of assets, from financial securities and Incorporated Cell Company (RICC) providing
instruments to real estate. However, to administrative services to any number of
protect the country’s reputation as a quality incorporated cells licensed as collective
fund domicile, the MFSA has repeatedly investment schemes.
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 4

5. Introduction
Malta’s legislation also scores highly in the small and medium-sized accountancy
other areas, especially the appointment of firms and large number of law firms
service providers. Service providers to PIFs servicing the fund sector. Having developed
may be based in any jurisdiction in the world a versatile industry cluster, Malta is keen to
that is recognised by the MFSA, a non- attract further service providers – particularly
protectionist approach that gives promoters custodians – to increase its share of UCITS
the flexibility to work with institutions with business.
which they have already established a Interest in Malta is also set to grow as
business relationship. the implementation of the EU’s Alternative
However, a large number of funds Investment Fund Managers Directive in
choose to work with local service providers, July 2013 draws closer. Many offshore fund
especially in the field of fund administration. managers are currently assessing whether it
More than 70 per cent of Malta-domiciled might be more cost-effective to establish a
funds have a Maltese administrator, a clear permanent base in the EU.
testament to the high quality of service offers With its generally lower cost structure
by local providers. and a track record in the management of
Another competitive advantage for the alternative funds, Malta offers an attractive
island is that PIFs and UCITS can be base for alternative managers in this new
set up with a self-managed structure as environment. The first firms to have relocated
an alternative to external management, include managers from traditional offshore
subject to the appointment of an investment centres such as the Cayman Islands and the
committee. Around 10 per cent of Maltese British Virgin Islands.
funds follow this model, with 40 per cent
managed from Malta and almost 50 per cent Increasing competitive edge
managed from outside the country. Effective oversight and a highly personalised
approach have helped Malta to establish
Cluster of global leaders itself as a fund domicile of international
Promoters looking for a local service provider repute. In the coming years, the industry
are spoiled for choice. In tandem with the expects a further boost when the full impact
growing number of funds, more and more of regulatory developments such as the
service providers have set up operations in AIFM Directive will become apparent.
Malta in recent years. Similar to the licensing The island has already seen a significant
process for collective investment schemes, inward migration of funds and service
managers, investment advisors, custodians providers. Funds from other jurisdictions can
and prime brokers establishing operations easily be transferred to Malta, where the
in Malta need to apply for a licence under fund undertakes the licensing process with
the Investment Services Act, while firms the MFSA concurrently with the corporate
intending to provide purely administrative redomiciliation procedure. Maltese legislation
services must apply to the MFSA for a allows redomiciliation from all EU, EEA
recognition certificate. and OECD countries as well as from most
Around 70 fund managers are currently offshore centres.
operating in Malta, including Liongate Malta has already proved it is well suited
Capital Management, Clive Capital, Comac as a base for fund operations, serving not
Capital, and BlueGold Investments, while 24 only domestic clients but also European
fund administrators such as Valletta Fund and international markets. With low costs,
Services, HSBC, Apex, Custom House, efficient regulation, beneficial tax treatment
Praxis, TMF and Valetta Fund Services have and a flexible and accessible regulator,
been recognised by the MFSA. Six global the island is an attractive domicile for both
custody providers have a presence in Malta, funds and managers. Competition may be
including HSBC. increasing in the fund industry, including
Malta has the capacity and expertise to between jurisdictions, but as long as Malta
help the fund industry continue to expand, maintains its competitive advantages, it is
with the ‘Big Four’ accounting firms all well placed to capture an even bigger share
established on the island, adding weight to of the world’s fund business. n
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 5

7. C a m ill e r i P r e z i o s i
Collective Investment
Schemes: Tax implications
By Laragh Cassar, Partner, Camilleri Preziosi
Collective Investment Schemes distributions made to a resident person
Collective Investment Schemes (CIS) offer (whether directly or indirectly as beneficial
various benefits and enable participants to owner of such income) would generally be
pool in their investments under the principle subject to withholding tax at the rate of 15%.
of risk spreading. Furthermore, CIS enable
the individual investor to benefit from Capital Gains for non-residents
investment opportunities which are generally Capital Gains derived by a non-resident
not viable or available to them, due to cost, person from the transfer of units in any
regulatory and licensing restrictions. The fund are exempt from tax in Malta whilst
number of CIS licensed in Malta has grown a transfer of units in a CIS by a resident
significantly over the past decade and, due Laragh Cassar, Partner, person is generally subject to tax, subject to
Camilleri Preziosi
to various factors (including a favourable certain exemptions.
fiscal regime), is continuing to increase at a
steady rate. CIS generally take the form of Switching of funds
investment companies with variable share Should an investor switch any units from
capital or limited liability partnerships. Other one sub-fund to another sub-fund within
vehicles that are also used include common the same CIS, no gain or loss is deemed to
contractual funds and units trusts. arise for income tax purposes and therefore
no tax will be charged. However, upon
The beneficial fiscal regime disposal of the final securities, tax will be
The taxation of a CIS depends on whether charged on any capital gains. Conversely, if
the CIS and its sub-funds are each classified such disposal relates to a disposal of units
as a prescribed fund or a non-prescribed held in a non-prescribed fund, the capital
fund. A prescribed fund is defined as a fund gains may be calculated by deducting the
of a Malta-based scheme where its assets original cost of acquisition from the proceeds
situated in Malta are equal to at least 85% of derived on disposal, provided that no units
its total assets. A non-prescribed fund is a were switched from a prescribed fund. On
fund which is not a prescribed fund. any other disposal of final securities, any
Generally, the income of prescribed and chargeable gains or losses arising throughout
non-prescribed CIS is exempt from tax in the switches of units are aggregated when
Malta, unless the income is derived from calculating the capital gain or loss.
immovable property situated in Malta. Securities may also be switched from a
Investment income received by a prescribed sub-fund of a CIS to a sub-fund of another
fund is subject to a withholding tax of either CIS. However for such a transaction to qualify
15% (if such income is domestic bank as a switch and benefit from the above
interest) or 10% (with respect to any other treatment, various conditions are satisfied.
investment income, including certain interest, For instance, the latter sub-fund must have
premium or discounts received, certain investment objectives, which are identical to
profits distributed by a foreign CIS). those of the first-mentioned sub-fund.
Investors participating in a CIS Value Added Tax (VAT)
Any distribution to any person, whether Activities involving the management of a CIS
resident in Malta or otherwise, is not subject are exempt from VAT. Furthermore, a CIS is not
to further tax in Malta. However, certain required to be registered for VAT purposes. n
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 7

8. Overview
Malta’s expertise
attracts managers as
AIFMD looms
By Simon Gray
As though a mediocre investment climate in practice – are not only running later than
and a difficult environment for fundraising expected but may differ in significant ways
weren’t enough to deal with, the alternative from the advice the Commission was given
fund industry in Europe is now facing up to last year by the European Securities and
the home straight of implementation of the Markets Authority.
European Union’s Alternative Investment Nowhere is the uncertainty more alarming
Fund Managers Directive, which is due to than among investment managers or
take effect as of July 22 next year. But while funds based outside the EU, who have in
many professionals may see the legislation theory have been offered a route to obtain
as a threat, or at best a distraction for urgent authorisation and the same cross-border
investment and operational issues, Malta and marketing passport as their European-based
its fund service providers tend to see it more counterparts, but not before July 2015, and
as an opportunity. only subject to subsequent decisions by
No-one can yet be absolutely sure how the EU institutions that are by no means
the directive is going to impact their business guaranteed.
because it is still shrouded in uncertainty. It’s an ill wind that blows nobody any
The final wording of the directive itself may good, and industry professionals in Malta
have been signed off by the EU institutions say the Mediterranean island could be a
last year, but the so-called Level 2 measures major beneficiary of the desire by managers
– the directly applicable regulation from the abroad to ensure they retain access to the
European Commission setting out the detail European market once the AIFM Directive is
of how the legislation is to be implemented in force. The jurisdiction may have a valuable 10
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 8

10. Overview
8 advantage over rival EU fund centres “Higher-profile clients
Luxembourg and Dublin in its significantly
lower cost structure, a more important
are starting to come in.
consideration when fundraising is slow Whereas previously business
and managers may be starting out with a
was largely dominated by
relatively small pool of assets.
At first sight Malta’s fund industry middle-tier funds that needed
does not seem to represent much of a a favourable environment,
threat to its bigger European rivals. At the
end of June the Malta Financial Services
the bigger players are now
Authority reported a total of 439 funds and considering Malta as it
sub-funds in locally-domiciled collective becomes better known and
investment schemes with EUR10.33bn in
assets under management, including 348 more popular.”
Professional Investor Funds (including sub- Laragh Cassar, Camilleri Preziosi
funds), the regulatory structure used by the
alternative investment industry, with assets wave of spin-off fund management firms
of EUR7.15bn. By contrast, at the same established in recent years under the impact
time Luxembourg was home to 3,867 funds of regulatory shifts such as the Volcker
(13,407 separate portfolios including sub- Rule, the increased preference of investors
funds) with EUR2.22trn in assets, including for fund vehicles established in regulated
1,445 Specialised Investment Funds with onshore European jurisdictions, and the
assets of EUR259.17bn). growing appeal of once-exotic investment
But these numbers do not necessarily specialities such as Shariah funds.
tell the whole story. For one thing, the By and large it has escaped blow-ups,
MFSA’s figures do not include funds and bar the 2008 collapse of the La Valette
assets domiciled in the Cayman Islands or Multi-Manager Property Fund, which
other traditional offshore fund domiciles but resulted in a long-running row between
managed and/or administered by Maltese disgruntled investors, the regulator and the
firms. For another, the island’s fund industry fund’s manager, Bank of Valetta, which still
has grown extremely rapidly over the past continues. On September 5 the international
few years despite a highly inhospitable accounting firm Mazars was appointed
global economic climate. At the end of 2006, by the MFSA to examine investor files for
just before the dawn of the financial crisis, evidence of mis-selling. However, the case
Malta had just 153 funds with EUR2.09bn in has not affected international perceptions
assets, including 78 PIFs with EUR1.28bn. of Malta because the investors were
The island has not been immune to the overwhelmingly domestic.
impact of the financial firestorms racing So far the growth in domiciled funds has
around the world in recent years, but by any been driven mostly by smaller vehicles. “The
standards it has performed impressively, typical size of fund launches we are seeing
capitalising on developments including the ranges from smaller launches with assets
of between EUR10m and EUR20m, which
“So far Malta, with these constitute perhaps around 40 per cent of
the Maltese fund market, to a handful of
few exceptions, has failed to launches above the EUR500m mark, but
attract big fund platforms. these are only between 2 and 3 per cent of
That is our next challenge the total,” says Dr André Zerafa, a partner
with law firm Ganado & Associates.
now that Malta is on the “So far Malta, with these few exceptions,
map as a fund domicile of has failed to attract big fund platforms. That
is our next challenge now that Malta is on
choice in the same way as the map as a fund domicile of choice in
Luxembourg or Ireland.” the same way as Luxembourg or Ireland.
Dr André Zerafa, Ganado & Associates The island does not does yet have their 15
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 10

11. Fund Services
Mediterranean Bank fund services delivers a market leading platform to its clients:
• International Standard Custody • Trade Execution • Finance
Mediterranean Bank is the perfect solution
for funds and family-offices operating in Malta.
10 St Barbara Bastion, Valletta VLT 1961, Malta • +356 2557 4400 • fundservices@medbank.com.mt
www.medbank.com.mt
Global custodian

12. Mediterranean bank
Value-added services from
Mediterranean Bank
Interview with Ximo Vicent
Mediterranean Bank is a relatively new fact weren’t. All a client has to do is log on
banking institution. Now, having focused to Clearstream’s system and hey presto, they
on building out its infrastructure to meet its have peace of mind that their assets are
own business needs, the bank is looking being clearly segregated.
to leverage this to support smaller funds “We put ourselves in the shoes of
domiciled in Malta. potential clients and said ‘What would
As a local custodian, the bank is well we like to see? If I can see my assets in
placed to service funds that will be required Clearstream I don’t need to take anyone’s
to register with the AIFM Directive, and word for it’,” states Vicent.
despite catering mainly to savers, Med Bank The partnership with Clearstream only
is already carving out a niche in capital Ximo Vicent, Head of Credit & commenced this summer. Nevertheless,
markets. As Ximo Vicent, Head of Credit & Investments, Mediterranean the bank is already working with a number
Bank
Investments, confirms: “Our infrastructure is of clients to get them signed up, focusing
able to support both retail and institutional on those to whom Med Bank knows it can
clients looking to access these markets.” provide the right value.
One of the biggest developments that Such a solution fits well with the new
the bank has been involved in is the regulatory paradigm evolving in Europe but
establishment of ‘segregated segregated having a robust custodian is only part of the
accounts’, in partnership with Clearstream, equation for hedge fund managers; they will
the clearing and settlement division of also require expertise and support in areas
Deutsche Borse. such as leverage, access to derivatives
As Vicent explains: “These are segregated products, which are typical of the prime
accounts, as is typical of all custodians, brokerage domain, but which remain thin on
but most importantly they’re not omnibus the ground in Malta.
accounts where the client is commingled Aware of this, Vicent says that over the
with everybody else. Even a client with next few years “we think there is going to be
a small account – say EUR2million – can a need for more prime brokerage services
have their own segregated account where on the island, which we are well positioned
they can see their own assets in their own to provide. Capital markets are part of what
account in Clearstream.” we do on a daily basis, so we can provide
Crucially, by working directly with the that access to the markets and things like
ultimate custodian – Clearstream – and cutting leverage to our clients.”
out the global custodian middleman, Med There are, no doubt, added pressures and
Bank is able to save on intermediary fees. costs on custodians and banks in terms of
This allows it to provide a lean service to how they operate under the Directive. Rather
small funds and as Vicent says: “Being a fairly than get carried away, Vicent says that the
new entrant we can provide direct segregated bank will take its time developing its prime
accounts to these clients in Clearstream, brokerage services, remaining vigilant on costs:
which may not necessarily be offered by “We hope to start offering execution
other custodians, most of whom typically only capabilities in the coming months, and some
consider accounts of over EUR100million.” additional capabilities shortly thereafter.
This is an important development in light We’re only interested in ever offering the
of the recent Lehman Brothers and MF right product in the right format. We want to
Global incidents where clients thought their develop these additional services in the right
assets were being fully segregated, but in manner.” n
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 12

13. lecocqassociate
banking & corporate finance law firm
l e co c q a s so c i at e i s a b o u t i q u e l aw f i rm
w i t h of f i c e s i n Sw i t ze r l a n d , i n M a l ta
a n d in t h e E m i rat es s p e c i a l ize d in
f i n a n c e r e g u l at i o n
areas of practice
co l l ec t i ve i nvest m e nt s c hem es
exc ha nge t raded funds
exc ha nge t raded comm o di t i es
pri vate e qui t y s c he mes
l i st i ng of se c uri t i es
re g ul ato ry ba nk i ng a nd fi na nc e
re g ul ato ry i ns u ra nc e
l i c e ns i ng of ba nks, ins ura nc es a nd
bro ke ra ge f i rm s
tax re l ated i ss ues
co rpo rate wo rk
contact details
www.lecocqassociate.com
Swiss office
42, route de Frontenex
1207 Geneva
Switzerland
T. +41 22 7079333
F. +41 22 7861468
E. drl@lecocqassociate.com
Malta office
Swiss Urban Factory
5, St-Frederick Street
Valletta - VLT 1470
Malta
T +356 21317171
F +356 21317172
E. drl@lecocqassociate.com

14. L e c o c q a s s o c i at e
Seeking an asset
management license
By Dominique Lecocq & Dr Caroline Pace
In order to get a regulatory license, an asset and a Risk Management Policy must
management company must guarantee a fit be established and maintained. Proper
and proper organisation. Most recognised documentation must be available and be
jurisdictions have set similar standards, aligned to the manager’s activity. The MFSA
including (i) a level of independence between reviews in detail the risk management
shareholders and board members; (ii) a level policy. Exemption: A request may be made
of ‘chinese wall’ between operations, risk to the MFSA to be exempt from having an
management and compliance; (iii) dual control independent risk management function on
and four eyes principles; (iv) good monitoring the basis that it is not proportionate in view
of conflict of interests. The Malta Financial of the nature, volume and complexity of
Service Authority (‘MFSA’) controls the issuing Dominique Lecocq, partner, the business, and the range of investment
of licenses and supervising asset managers and Dr Caroline Pace, senior services and activities undertaken by the
associate, Lecocqassociate
and advisors operating in or from Malta. management company.
While the 1994 Investment Service Act sets Internal audit function: An internal
core legal conditions required to get a license, audit function independent from the other
the MFSA has also implemented specific responsibilities of the asset manager is to
requirements which are not necessarily be established. Exemption: Derogation may
available in writing, summarised below: be requested where the nature, scale and
Shareholders: An asset management transaction volumes of the entity justify it.
company cannot be established as a single Minimum number of employee
member company and thus must have at required: If all exemptions are granted,
least two founding shareholders at all times. a start-up manager may start with one
Directors: The MFSA stresses the employee only.
principle of ‘Dual Control’ and the ‘Four Eyes Due diligence process: This is a crucial
Principle’, thus requiring a minimum of two stage in the licensing process whereby the
directors. In order to establish and maintain MFSA, following an assessment of all the
jurisdiction in Malta, at least one of the documentation provided, determines whether
directors must be a Maltese resident. a person is fit and proper. This requisite is
Investment committee members: A to be fulfilled by every qualifying shareholder
minimum of three investment committee (i.e. direct or indirect holder of ten percent
members are to be appointed yet not or more of the capital or voting rights of the
necessarily as employees of the entity. At least entity); director, IC members and any other
one member must be a local resident. The person proposed to hold a key position
investment committee must meet physically in within the applicant entity.
Malta at least once every quarter. Where the Business plan: The MFSA necessitates
entity prefers not to employ a local IC member a detailed Business Plan of the asset
before the license is issued, the MFSA allows management company’s business,
that the Business Plan be submitted containing contemplated scope of activities, future
a detailed description of the position to be held goals and the manner in which these goals
by a local person. Once the license is granted, will be achieved, three years of forward-
the founders may start looking for a proper looking financial statements, and any other
employee and present their credentials to the relevant details.
MFSA for review and approval. With a well-prepared application, an
Business conduct and risk management in-principle approval should be expected
requirement: A Code of Business Conduct within three months of submission. n
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 14

15. Overview
10 reputation, because they have been around “American managers are
for a lot longer, but we are fast catching up.”
Laragh Cassar, a partner with law firm
watching developments very
Camilleri Preziosi, believes that a change in closely, but they feel they still
the jurisdiction’s stature and the background
don’t have all the information
of its fund clientele is already underway.
“Higher-profile clients are starting to come they need about the AIFM
in,” she says. “Whereas previously business directive to take decisions.”
was largely dominated by middle-tier funds
Joseph Ghio, Fenech & Fenech
that needed a favourable environment, the
bigger players are now considering Malta as
it becomes better known and more popular.” “Costs are still important, but they have
Cassar says some of the newcomers are gone down the list of priorities for the typical
funds groups that are establishing Maltese fund promoter,” he says. “Today they are
investment vehicles alongside existing offshore looking at the capability of service providers
funds in order to ensure continued access in Malta, the capacity of the industry here,
to the European market under the AIFM and an approachable regulator. Time to
Directive, or that have previously focused market may not be as fast as in the Cayman
on markets such as North America or Asia Islands, where funds are not regulated in
but are now are seeking to attract European the same way that they are in EU member
capital as well. “They know that they need states, but it is still reasonable at around
an EU domicile to gain access to the market 10 weeks to launch. All these factors have
here, but with the passport mechanism, they militated in favour of Malta.”
see the directive not so much as a threat as At this point, most industry members
an opportunity,” she says. are reluctant to hazard a guess about the
The cost of doing business in Malta is extent to which these advantages may
a significant benefit for smaller and start- be compromised by the AIFM Directive.
up managers; some industry members put However, the authorities are determined
total set-up costs, including regulatory fees, that the island will be ready for the July
at between one-third and half the level in 2013 implementation deadline – even if, as
Luxembourg. Fears that costs might rise as is increasingly conjectured, a significant
the industry grows, a problem for Dublin in proportion of the EU membership will not.
the early 2000s, have so far proved needless. At the beginning of September the MFSA
However, Zerafa argues that in any case this published a consultation paper outlining
is no longer as substantial a driver for the its plans for transposing the directive into
choice of a Maltese domicile as it may have national law. Says Zerafa: “There will be
been in the past. a revamp of Malta’s main funds law, the
Investment Services Act, but the bulk of
the obligations stemming from the directive
will be implemented through rules and
regulations. This would give the MFSA the
flexibility to adapt the rules according to
what comes out of the Level II measures,
rather than having to go back each time
to change the main law through an act of
parliament.”
Says Cassar: “We currently have a very
concise rulebook regarding non-retail funds,
which will have to be substantially changed
in the light of the directive. For example, right
now there is no differentiation between a
passportable non-retail fund that would fall
within the scope of the directive and one
that would not. They will need to distinguish 17
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 15

17. Overview
15 between the two cases. And the rights and “I’m not aware of new players
obligations conferred by the directive will
need to be incorporated into the local rules.” coming into the market as
The deadline for responses to the MFSA’s yet, but Malta is certainly
consultation paper falls at the end of
actively trying to attract
September, and Cassar says that if Malta’s
MiFID implementation is anything to go by, larger custodians.”
adoption of the directive and its associated Paul Mifsud, Sparkasse Bank Malta
rules should take place rapidly. According to
Zerafa, the plan is to have all the legislation,
rules and regulations adopted by the first industry professionals acknowledge that
quarter of 2013, comfortably ahead of the some fund managers are uneasy at having a
transposition deadline. Already the regulator is relatively limited choice, and that this issue is
preparing more or less formal education and one factor in Malta’s more sedate growth in
training sessions both for licence-holders and the UCITS market.
members of the local support services sector The authorities have made attracting
on the way in which the directive will affect more custodians a priority; two well-known
Maltese firms and their clients. – but still anonymous – industry names
Joseph Ghio, a partner with Fenech & are reported to be in the pipeline. In the
Fenech Advocates, says some potential meantime, Malta plans to use its option to
clients are “sitting on the fence” about exercise a derogation to the local custody
whether to domicile funds, or indeed their requirement until 2017, by which time it is
investment management company, within the possible that progress on the vexed issue of
EU or outside until it becomes clear exactly an EU passport for depositaries could render
how implementation of the directive will work the question moot.
out in practice. “I’m not aware of new players coming
“This is particularly affecting business into the market as yet, but Malta is certainly
from the other side of the Atlantic,” Ghio actively trying to attract larger custodians,”
says. “American managers are watching says Paul Mifsud, managing director of
developments very closely, but they feel they Sparkasse Bank Malta, the subsidiary of an
still don’t have all the information they need Austrian savings bank that has carved out a
about the AIFM directive to take decisions. significant custody market share.
Until the Level 2 measures are published, the However, he believes it may be difficult
AIFMD remains a moving target.” to attract global players while new business
However, he believes the uncertainty also in Malta remains dominated by small and
has positive aspects in that market players start-up fund businesses. “Larger custodians
are taking the opportunity to re-examine normally require larger business, and they
their existing, often long-standing business normally charge fairly elevated minimum
models. The focus on how the international fees,” Mifsud says. “I don’t see the market
regulated fund space will change is creating being ready for that, because some of
new opportunities for Malta to become managers coming here are relatively small.
more visible,” Ghio says. “The directive is A big custodian would start off by asking
prompting people to look for alternatives and for EUR25,000 or EUR30,000 as a minimum
options for how to remodel their business, annual fee.”
and Malta can offer a very acceptable His view is shared by Ximo Vicent, head
alternative.” of credit and investments at another niche
One AIFM Directive issue that is set custody provider, Mediterranean Bank (not to
to affect Malta in the medium term is the be confused with Mid-Med Bank, forerunner
directive’s requirement that assets be of HSBC Bank Malta), which was established
deposited with a custodian in the jurisdiction in 2005 and is now owned by UK private
in which the fund is domiciled. For now equity firm Anacap Financial Partners. “Many
Malta has just a handful of licensed players here in Malta are focused on bigger
custodians, and only two international funds, but we offer a cost-efficient custody
names, HSBC and Deutsche Bank. Local solution designed for small funds,” he says. n
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 17

18. Fund Administration To
Suit Your Needs
Expertise
Responsiveness
Tailored Solutions
Competitive Fee Structures
Castlegate Fund Services Ltd. is a full service fund administrator and provider of
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Through a team of highly qualified and experienced individuals utilising leading fund
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Pieta, PTA9041,
Malta Roger Buckley – General Manager
rbuckley@castlegatefundservices.com
www.castlegatefundservices.com

19. C a s t l e g at e F u n d S e r v i c e s
Malta and corporate
governance
By Roger Buckley
As an emerging funds jurisdiction Malta is Accordingly, change may be on the
in a strong and perhaps enviable position horizon and having now established
to mould its future as a domicile and fund Malta as a jurisdiction of merit, the MFSA
administration centre with enhanced corporate has signalled that it’s exploring ways to
governance standards. Together with further enhance corporate governance,
compliance and risk management, decent which ultimately should lead to increased
corporate governance is a crucial pillar of transparency and market confidence.
fundamental importance in the investment Many other fund jurisdictions have
funds industry. Moreover, shortcomings in already established regulations and best
corporate governance have been a main practice guidelines in corporate governance,
contributor to the majority of the recent Roger Buckley, Castlegate especially in relation to the appointment
high profile international fund scandals. The Fund Services of independent service providers and non-
appointment of independent non-executive executive directors. For example, all Irish
directors and an independent administrator investment funds are required by law to
strengthens and improves governance, which appoint an independent Irish based fund
is of paramount importance to the integrity administrator and more recently the Irish
of an investment fund and maintenance of Funds Industry Association (“IFIA”) under
investor confidence. the supervision of the Irish Central bank,
To date, the Malta Financial Services introduced a voluntary “corporate governance
Authority (“MFSA”) has adopted a cautious code” for funds. Similarly Luxembourg has
hands-on approach to the establishment established a “conduct for investment funds”
and authorisation process for both funds and Jersey a “fund governance regime”.
and regulated service providers. Face-to- Castlegate Fund Services Ltd.
face meetings with potential new entrants (“Castlegate”) specialises in fund
is encouraged, this fulfils a dual role for the administration and the provision of
MFSA of safely gatekeeping the industry and independent directors for funds domiciled
welcoming new business. So far, the MFSA in Malta and elsewhere. Industry leading
has avoided any stringent specific rules or fund administration software married with a
guidelines on corporate governance, such management team with over four decades
as directorship limitations or service provider of multi-jurisdictional fund experience gives
requirements, thereby allowing a great deal Castlegate unique competencies. Castlegate
of flexibility in the structuring of new funds. has a strong focus on compliance and
For funds that choose to domicile risk management which ensures that all
in Malta, with the exception of certain aspects of a funds operation are individually
circumstances there are no local examined in detail and attended to with a
resident director or local service provider high level of thought and care.
requirements. When this is the case, the With the advent of these changes, now
minimum requirement of a fund is the is an ideal time for investment managers
appointment of a “local representative”. and promoters to examine the corporate
This light-touch approach has fared well governance of their funds, specifically with
in attracting funds to Malta, particularly in regard to the level of transparency and
the small to medium size range. However, independence. Ultimately the cost of an
the continued long term success of Malta independent administrator and director will
as a jurisdiction will rest with a quality over be offset by risk reduction and enhanced
quantity approach. reputational benefits. n
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 19

20. On d u v i e w
I verstry
Service providers see
opportunities as Malta
gains traction
By Simon Gray
The success of Malta in becoming including a global financial services player in
established as an alternative to the HSBC and the headquarters of the Custom
established European Union domiciles House group, a number of specialist service
for both traditional and alternative cross- providers active in various European and
border funds, Luxembourg and Ireland, is offshore fund centres including Abacus, Alter
underpinned by the growing breadth of Domus, Apex, Folio, Heritage, and Trident,
capacity and depth of expertise of service and various local firms such as the fund
providers to the industry, from law firms services arm of Bank of Valetta.
and accounting and audit practices to fund Some of the firms in the sector have come
administrators and custodians. to Malta with an existing client base, such
The administration sector has grown as IDS Fund Services, which specialises
substantially in recent years and still has in serving South African managers that are
plenty of room for further development, offering funds to a global market. “We have
given that the net assets of funds domiciled enjoyed booming business this year, mostly
in Malta, EUR8.3bn at the end of 2011, from South African fund managers looking
was larger than the volume of assets to mirror their domestic fund offerings or to
administered on the island, at EUR6.2bn, launch completely new products in Europe,”
even though the latter included 164 non- says director Andrew Frankish.
Maltese funds with assets of EUR1.4bn, “Because of the AIFM Directive, managers
mostly from the Cayman Islands and from outside are scrambling to establish
other offshore jurisdictions in the Western a presence in the EU, which opens up
hemisphere. opportunities for local providers to provide
There are currently 26 recognised fund services to managers, helping them obtain a
administrators active in the Maltese market, investment management license and setting 25
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 20

21. INVESTMENT FUNDS
SECURITIES LAW
TRUSTS
CAPTIVE RE-INSURERS
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INTERNATIONAL BANKING
CORPORATE FINANCE
MERGERS & ACQUISITIONS
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PRIVATISATION
TAXATION
EU PASSPORTING
SHIPPING
AVIATION
CORPORATE SERVICES
LITIGATION & ARBITRATION
EMPLOYMENT
INDUSTRIAL & LABOUR
TELECOMS, MEDIA & TECHNOLOGY
INTELLECTUAL PROPERTY
COMPETITION
PUBLIC PROCUREMENT
ENVIRONMENTAL LAW
RESIDENCY
PROPERTY CONVEYANCING
MEDICAL & HEALTH
ENERGY & RENEWABLES
Eyes see opportunity
where minds comprehend
Ganado & Associates Advocates, a leading law firm with a predominantly
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to deliver a bespoke service to our international business clients.
For more information on how we can help please call +356 2123 5406/7/8, Ganado
email lawfirm@jmganado.com or visit www.jmganado.com
& Associates
ADVOCATES
11433_GA_GENERAL_FP.indd 1 12/08/2009 15:36:06

22. G a n a d o & A s s o c i at e s
Private equity funds and
the AIFM Directive
By Dr Stephanie Micallef, Ganado & Associates, Advocates
Malta has become an attractive jurisdiction The AIFM Directive includes disclosure
for funds, due in part, to the flexible regime rules which require a private equity fund
for professional investor funds (“PIFs”). manager to notify involved parties when the
Under this regime, private equity funds fund it is managing acquires a major holding
are structured as PIFs. Currently the Malta or control of a non-listed company or an
Financial Authority (the “MFSA”), through issuer. The Directive also obliges the fund to
supplementary rules, regulates only one produce an enhanced annual report of the
aspect of private equity funds; drawdowns portfolio company or of the fund itself. The
on investors’ committed funds. Requests annual report must include a fair review of
on committed funds must be effected on a the development of the portfolio company’s
pro-rata basis amongst all relevant investors Dr Stephanie Micallef, Ganado business, its future plans for development
in the fund and further calls can only be & Associates, Advocates and must highlight any significant events
made by the fund once all outstanding which have occurred since the end of the
commitments from existing investors have last financial year. Although these measures
been requested. The fund is also obliged will increase transparency, the disclosure
to retain copies of written agreements of sensitive information might disadvantage
concluded with investors committing to private equity bidders. To control this
invest in the fund, at its registered office. effect, the Directive includes confidentiality
Local regulation also provides for the provisions, however it leaves it up to each
issuing of units at a discount to investors Member State to implement its own rules to
who have committed to subscribe for address confidentiality issues.
units, by written agreement. The discount In order to protect companies from
must apply exclusively to any outstanding short-term investments and prevent asset
commitment arising under the agreement stripping, the AIFM Directive has also sought
and must be provided for in the constitutive to regulate buy-outs of companies. The
document of the fund. The nature of such Directive prohibits a fund which has acquired
discount must be disclosed in the fund’s control in a company, from facilitating,
offering documentation. The regulations supporting, instructing or voting in favour
also impose a cap on the value of the of any distribution, capital reduction, share
units to be issued at a discount and if such redemption and/or acquisitions of own
discount is in excess of that permitted by the shares for a period of twenty-four months
regulations, the investor is bound to pay the following the acquisition of control.
fund the difference plus interest. These requirements, together with the
Although the PIF regime is flexible enough requirement for each fund to appoint a
to cater for private equity funds, the rules depository, have been criticised as increasing
specific to such funds are currently limited. costs for private equity funds as well as
The MFSA has therefore recognised the impacting the drawdown process and
need to consider additional regulation to closing procedures. A change in operating
facilitate the establishment of local private practice will inevitably be necessary.
equity funds and in this regard will shortly The introduction of new rules on private
introduce bespoke rules for these types of equity structures to the Maltese regulatory
funds. The introduction of the rules will also framework may address these issues and
serve as a means to align the current rules provide further clarity and solutions to private
with the AIFM Directive. equity fund managers. n
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 22

24. Zodiac Advisory services
Malta is not a small island
of light touch regulation
By Adam de Domenico
There are many reasons why managers rules require the Company to establish
might decide to come to Malta; its favourable relevant functions including: a compliance
tax regime, climate, inexpensive costs and function; risk management function;
more. In the last few years there’s been a operational & Supervisory (Board, Investment
good push from both managers and funds Committee); internal audit functions &
looking to set up in Malta. independent Risk function (if relevant);
And whilst Malta may be considered less establish, implement and maintain policy
expensive when compared to other key fund and procedures; have measures in place
jurisdictions, this shouldn’t be confused with to effectively monitor outsourced functions;
the idea that its services are sub-standard. The monitor, control and maintain adequate
quality of service providers here is at par with Adam de Domenico, Founder capital resources requirement (eg. 2 BPs on
mainland Europe with a focus of professional and Managing Director of AUM > EUR250Mmin of EUR125K).
Zodiac Advisory Services (ZAS)
services within the financial services industry. The Rules also require the Investment
When it comes to applying for a fund Manager to establish, implement and
license in Malta, it is also critical to maintain appropriate policies and
understand what’s needed post-approval. This procedures, covering various conduct of
is not a tiny island with minimum regulation. business obligations such as best execution,
Indeed, in many ways the MFSA takes a conflicts of interest, and staff dealing to
similar stand to the FSA, so managers need name a few.
to think clearly about how they plan to From a practical perspective, the Company
operate once the license has been obtained. may delegate certain functions to third
Promoters considering application for a parties approved by the Board, however
management company may wish to consult outsourced services remain the responsibility
the MFSA website which clearly lists out of the Board. Critical operational functions
the regulatory rules on application and post may not be outsourced in such a way as
licence. In general, the regulatory compliance to impair materially the quality of its internal
requirements of Collective Investment Schemes control and MFSA’s monitoring abilities and
(“Funds”) are similar to other key European the Company shall have measures in place
jurisdictions including that the Fund is to effectively monitor outsourced functions.
subject to the investment objectives, policies Once the license has been approved, it’s
and restrictions as outlined in its offering not a case of sitting on one’s laurels. There’s
memorandum. Furthermore, as one would a lot to think about. Whilst the MFSA are
expect, UCITS Funds are subject to additional available to meet promoters, they have rules
specific limitations and investment restrictions and they stick by them. The essence of the
from a risk management perspective. message here is that post-license things are
Funds are also required to submit annual easier said than done.
audited accounts and half-yearly reports to Zodiac Advisory Services Limited is an
investors and to the MFSA within four and investment management advisory firm. The
two months respectively. firm has been operating in Malta since 2009.
The Rules applicable to Investment With over 40 years of experience amongst
Managers include general requirements; its team, ZAS is able to support its clients in
conduct of business obligations; outsourcing areas of regulatory compliance, accounting,
rules; disclosure requirements to clients; directorships, as well as support services
financial Resources Requirements, such as helping clients relocating to Malta
Accounting and Record Keeping. The general with recruitment and housing. n
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 24

25. Industry
20 up the sub-advisor relationship with the “We have enjoyed booming
manager outside the EU. We have also seen
plenty of new funds established over the
business this year, mostly
past year, especially smaller launches from from South African fund
managers starting out with their personal
managers looking to mirror
seed capital.”
Malta’s focus on boutique-scale providers their domestic fund offerings
suits demand in the marketplace, Frankish or to launch completely new
argues. “The country offers lower set-up
and ongoing running costs, and smaller
products in Europe.”
managers don’t necessarily want to go to Andrew Frankish, IDS
the brand-name providers that dominate
in larger jurisdictions,” he says. “That is A couple of the island’s administration
when Malta really competes at the moment, firms have been established by providers
enabling it to nip at the heels of those from the British Virgin Islands, another
longer-established centres.” jurisdiction in which niche firms have carved
Anthony O’Driscoll, managing director out a market serving small and start-up
of Apex Fund Services in Malta, says the managers. According to general manager
number of local structures launched over Roger Buckley, Castlegate Fund Services
the past 12 months has slowed somewhat, was established in Malta after an existing
but the slack has been taken up by demand client decided to restructure its offshore
for the servicing of offshore vehicles. “We fund as a UCITS, but the firm’s main focus
continue to get enquiries about Maltese is on providing back office services in Malta
funds, but the conversion rate is lower than it for BVI funds, although it also administers
has been over the previous three years,” he locally-domiciled UCITS and PIFs.
says. “This year we have been doing more He notes that an important source of
offshore business, traditional Cayman Islands growth in Malta has been the revamp of
and Bermuda structures, than Maltese PIFs fund legislation in Switzerland, which is set
and UCITS.” to place an onerous compliance burden on
One factor, he believes, is the continuing managers of non-Swiss funds that up to
uncertainty surrounding the detailed AIFM now have not been regulated at all, even
Directive rules, but another is attitudes if they wanted to be. The AIFM Directive –
among Swiss managers, who have played a the catalyst for the regulatory changes in
significant role in the growth of the Maltese Switzerland – has also prompted managers
fund industry. “Unless they have a large of offshore funds to examine the merits of
European investor base, a lot of managers different European centres.
will continue to look at offshore vehicles,” “Malta has a number of advantages,
O’Driscoll says. “And then there’s the starting with its location,” Buckley says. “It’s
fundraising issue. Seed capital is still scarce close to the Middle East and North Africa,
on the ground for the launch of new funds.” and has marketed itself as a centre for
The test will come, he believes, once the Shariah-compliant funds, which is something
directive and its implementing measures we’re positioning to do further down the line.
are fully in place. “Once it is operational, a We decided on Malta for our European hub
lot of managers, even of the traditional US because it is an up-and-coming jurisdiction
master-feeder structures, will have to decide and well suited to smaller managers,
whether they are going to cater for European our target market. We do a lot of hand-
investors, who may want their alternative holding and walk managers through all the
investments to use an onshore domicile,” processes necessary to set up a fund.”
O’Driscoll argues. “They will have to look The newcomers from Switzerland include
at how they access European money and Geneva-based law firm Lecocqassociate,
whether they want to put in place European which decided to establish a Malta office
structures. Then the question will arise two or three years ago when investors in
whether they want to be in Luxembourg, funds run by Swiss managers became less
Dublin or a newer jurisdiction like Malta.” comfortable with funds based in the Cayman 30
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 25

27. Ex a n t e
The online one-stop shop
that’s open for business
Interview with Gatis Eglitis
For integrated brokerage and fund platform financial services sector in Europe.
firm, EXANTE, setting up in Malta last year Says Eglitis: “We can help companies that
was certainly a case of ‘New Kid on the choose to domicile their funds here fulfil their
Block’. Historically, the island has always potential by offering a global infrastructure. If
been a nation of savers. The investment they have to choose a broker or platform to
industry has necessarily developed to reflect trade global markets there’s literally no one
this fact, where the general sentiment is one in Malta except us that is able to provide all
of long-term investing with low risk appetite. the tools.
When you consider that EXANTE prides “For a hedge fund considering a domicile
itself on having cutting edge technology, a like Malta, knowing that such a brokerage
co-location infrastructure, and what is, to all Gatis Eglitis, Managing company existed would certainly add to its
intents and purposes, a highly sophisticated Partner, EXANTE overall attraction.”
trading infrastructure well suited to high However, trade execution is only half the
frequency traders, their establishment on the story. EXANTE also hosts a multi-asset fund
island was clear for all to see. platform, which operates solely online via
Speaking with Hedgeweek, Gatis Eglitis, the internet. Not only can funds trade global
one of EXANTE’s managing partners, says: markets, they can also market themselves
“The main value EXANTE brings to Malta is and their strategies to all of EXANTE’s global
really the fact that we offer something different: customers. “In that sense what we offer is
high frequency, trading-oriented. So really we truly a one-stop shop,” states Eglitis.
are filling in the missing piece of the puzzle of To emphasise, EXANTE is not only
Malta’s conservative investment environment.” interested in high volume clients running
Attending a recent Finance Malta sophisticated strategies: it is happy to
conference, Eglitis says he was surprised deal with all kinds of clients, be they local
that very few of the investment managers he or international, long-only equity or high
spoke to were investing in credit derivatives, frequency quant trader.
statistical equity arbitrage strategies, futures Says Eglitis: “Regardless of who the
etc; more plain vanilla investment strategies passenger is, they still get to enjoy riding
were the focus of their attention. This may in a Bentley. Whether clients are HFTs or
start to change. long-term conservative money managers,
As the smart money continues to flow the infrastructure is sound and gives them
from other parts of Europe, the potential for quality execution and affordable pricing.”
Malta’s investment fund industry to get more Right now, the firm has around 70
sophisticated is high. Malta has never really clients and 50 funds totalling in excess of
had a cutting-edge global broker able to meet EUR1.5billion in AUM. It has, confirms Eglitis,
the needs of aggressive investment managers already established relationships with some
such as hedge funds, who rely on leverage, of Malta’s market leaders including the
competitive prices and access to a range of island’s largest retail broker.
derivative instruments; EXANTE plugs that gap. “Whether clients are making thousands
And when you look at some of Finance of transactions a day or simply buying and
Malta’s statistics, their timing seems good: holding instruments long-term makes no
109 investment services licenses, 539 funds difference to our business model. All are
(179 new licenses) representing a 24 per welcome and the pricing is the same for
cent year-on-year growth, and EUR8.3billion everyone, regardless of whether they are
in NAV. Malta is now the fastest growing high or low volume traders.” n
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 27

28. Committed to excellence
MamoTCV Advocates is a tier-one law firm in Malta with a strong international practice and
actively involved in all areas of commercial law, with a particular focus on financial services.
The Financial Services Department within the firm is committed to providing bespoke
legal solutions to credit and financial institutions, investment firms, family offices and other
stakeholders in the financial services industry. Our mission is to deliver high-quality services in
structuring and implementing investment proposals, operations and products in a pro-active,
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international network with a view to offering comprehensive and integrated services to clients.
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Securities Law Gaming & Lotteries Taxation
Financial Intermediaries EU Law Litigation & ADR
MamoTCV Advocates
Palazzo Pietro Stiges,
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Valletta VLT 1436, Malta
T: (356) 2123 2271 / 2123 1345
F: (356) 2124 4291 / 2123 1298
www.mamotcv.com E: info@mamotcv.com

29. M a m o T c v A d v o c at e s
Local fund regime could
run in parallel with AIFMD
Interview with Joseph Saliba
In May this year, two draft versions of the Another fundamental decision for the MFSA
Directive’s Level II measures came into to consider will be whether to strictly follow
circulation, with the European Commission’s the Directive’s approach of seeking merely
draft differing in several areas compared to service (manager) regulation without directly
ESMA’s advice to the Commission. This is regulating funds or retain the existing
not helping managers, who are increasingly product (fund) regulation.
looking for clarity from their service providers. “My suspicion is that regardless of
Joseph Saliba is a partner at Malta-based whether the manager falls under the
law firm Mamo TCV Advocates. Whilst Directive or not, funds established in Malta
a lot of the firm’s clients (managers) are will still require a license from the MFSA,”
based in the EU and will be required under Joseph Saliba, Partner, Mamo says Saliba “which seems a sensible
their domestic laws to align themselves to TCV Advocates approach, provided we manage to strike the
the Directive, other clients are established right balance between adequate regulation
in Switzerland, and these are keen to and flexibility.”
understand its scope. Currently, managers have a choice to
Swiss investment managers are facing the make in response to Europe’s shifting
prospect of equally tough regulation at home regulatory sands: staying out, fully in or
and the Directive will eventually reach and hit partially in the EU. The Directive will allow
those who manage or market funds in the EU. them to continue to market their funds under
What might sway their decision on whether national private placement regimes until
to restructure their operations in jurisdictions 2018, with the potential danger, however,
like Malta will inevitably hinge on whether that some individual EU Member States (like
the EU grants Swiss managers the right to France) might simply choose to close down
market their funds with a passport akin to the these regimes before 2018.
Directive’s; a prospect of which Swiss clients Non-EU managers or managers running
seem to keep high hopes, says Saliba. non-EU AIFs, will also be able to passport
As for how the Directive will likely impact their funds into Europe possibly from 2015
Malta’s existing regime, Saliba says: “There onwards by getting authorised and fully
are no official pronouncements yet from the complying with the Directive, but also subject
MFSA on changes to the island’s regime. to the satisfaction of additional conditions
The first round of consultations is expected such as the establishment of cooperation
to start after summer, when we’ll have more and tax sharing agreements with the
clarity of MFSA’s intentions.” targeted Member State/s of distribution.
Saliba estimates that a material number Saliba says that managers for whom
of foreign managers of existing Maltese non- European distribution is core business, the
retail funds “will likely fall below the minimum best solution will probably be to establish
thresholds (EUR100million increased to themselves an EU presence, and to
EUR500milliion for unleveraged funds)”. concentrate their operations in one European
Going forward, Saliba thinks the MFSA domicile: “This will enable them to take full
will need to consider whether to have two advantage of the fund passport without
separate regimes running in parallel. Namely: having to adhere to additional conditions.
• A full version of the Directive for bigger Malta should be an ideal candidate
managers and their funds. jurisdiction for these managers, given
• A similar version of the existing regime for the tax, cost and other advantages it has
managers falling below the threshold. to offer.” n
Malta Hedgeweek Special Report Sep 2012 www.hedgeweek.com | 29