AIFs and the new structure – the Notified AIF

  • By:Corrieri Cilia Legal
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Investment services in Malta are regulated by the Investment Services Act (the Act). The Act establishes the framework for two types of licenses: Investment Services Licenses and Collective Investment Schemes Licenses. It also transposes the legislation issued by the EU in terms of investment services, including the Markets in Financial Instruments Directive (MiFID), the UCITS Directive and, more recently, the Alternative Investment Fund Managers Directive (AIFMD).

The regulatory body responsible for investment services in Malta is the Malta Financial Services Authority (MFSA). The MFSA licenses, regulates and supervises investment service providers and collective investment schemes. It also issues various sets of dedicated Investment Services Rules, which lay down the requirements and conditions relative both to initial licensing and to license holders’ on-going operations.

An AIF is defined in the Act as “a collective investment scheme, including sub-funds thereof, which raises capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors, and which does not qualify as a UCITS Scheme in terms of the UCITS Directive.” An AIF is, therefore, a special class of collective investment scheme which is not licensed as a UCITS fund. UCITS or “undertakings for the collective investment in transferable securities” are investment funds promoted to the general public in Malta, and the general public in any Member State or EEA State by means of notification procedure. Since such funds are promoted to the general public, they are highly regulated and subject to rigorous investment and leverage restrictions.

The AIF may be self-managed or appoint a single external Alternative Investment Fund Manager (AIFM). Where an external manager is appointed, such manager may be established in Malta or outside of Malta. An AIFM is a legal person whose regular business is the management of one or more AIFs. In order to regulate AIFMs, the EU passed the AIFMD [Directive 2011/61/EU], which prescribes rules for the authorisation, operating conditions and transparency obligations to be applied to AIFMs and for the marketing of AIFs to professional investors throughout the EU. It requires all EU AIFMs to be authorised by the regulatory authority of the Member State in which they are incorporated. The transposition of the AIFMD in Malta has been effected under the Act and an applicant seeking authorisation by the MFSA as an AIFM will be required to satisfy a number of conditions. The MFSA will inform the applicant for an AIFM license as to the outcome within a maximum of 3 months from receipt of the application. Record of the issued license will also be entered in a central register kept by the European Securities and Markets Authority (“ESMA”) and its authorisation would be valid in each Member State of the EU.

If established in Malta, the proposed manager should be in possession of a Category 2 Investment Services License qualifying as an AIFM. Alternatively, an AIF may appoint a European AIFM in accordance with the Investment Services Act (Alternative Investment Fund Manager Passport) Regulations, 2013.

Where the fund is self-managed, the responsibility for the management of the assets of the fund lies with the Board of Directors and would make the AIF subject to AIFMD obligations as far as management is concerned. The fund would need to satisfy the MFSA that it is capable of organizing and controlling its affairs in a responsible manner and has adequate operational, administrative and financial procedures and controls to ensure compliance with all regulatory requirements. It must also provide the MFSA with all the information it may require from time to time. Furthermore, in cases where the fund is self-managed, the fund must have at least one Director who is an individual resident in Malta.

The units or shares of AIFs may be marketed in other Member States or EEA States by means of the passporting procedure provided in the applicable rules as transposed from the AIFM Directive. AIFMs applying for authorisation under the Directive must submit a notification file to the relevant competent authority comprising various required items of information. In Malta, the MFSA must, within 20 working days after the date of receipt of a complete notification file, transmit the same to the European regulatory authority of the Member State or EEA State where the AIFM intends to market the AIF.

Recently, on the 11th of February 2016, the MFSA announced the launch of a new investment fund structure – the Notified AIF. A Notified AIF may be established in any legal form allowed for collective investment schemes under Maltese law. Furthermore, the AIFs falling within the scope of the notification process shall be managed by a full-scope AIFM, which will assume full responsibility for the Notified AIF and for the fulfilment of the obligations of the Notified AIF.

The notification process is expected to include the following stages:

  • the approval of the prospectus by the AIF’s own governing body
  • after the approval, it can be dated, and the AIFM must present the notification to the MFSA within thirty days from this approval date
  • the inclusion of the AIF on the Notified AIF list within ten business days
  • the finalisation and dating of the prospectus.

MFSA also published a list of documents, together with a proforma prospectus template, which are to be submitted as part of the notification process of the AIF.

Unlike most of the investment funds previously available under Maltese law, a Notified AIF would not need to be authorised or approved by the MFSA. Additionally, the Notified AIF will not be subject to ongoing supervision. However, the MFSA will make available and maintain on its website an updated list of all Notified AIFs that are in good standing. EU and EEA AIFMs may submit a notification to the MFSA for an AIF to be included on the list. Third country AIFMs will be able to submit a request for notification of an AIF once the country where these have been established has been granted passporting rights pursuant to the AIFMD. Within 10 business days from the date of filing of all the necessary documentation, the MFSA will proceed to include the AIF in the list of Notified AIFs.

This new alternative investment fund structure will be promoted to qualifying or professional investors. Qualifying Investors are those which fulfil a number of criteria, which include; investing a minimum of €100,000 in the AIF and making a declaration in writing to the AIFM and the AIF that they are aware of and accept the risks involved. Professional investors are those who possesses the experience, knowledge and expertise to make their own investment decisions and properly assess the risks that they incur (e.g. investment firms, insurance companies, and other authorized or regulated financial institutions are considered as professional investors). Since these investors are able to make their own investment decisions, they would not be eligible to benefit from the full range of protections granted under MiFID [Directive 2004/39/EC] and the Prospectus Directive, when they enter into transactions.

This new fund structure is likely to further establish Malta’s reputation as a jurisdiction of choice for managers and investors alike.

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