Malta
07 Feb 2018
In order to stand out from competitors, Malta has resorted to innovative regulation, says to Joseph Camilleri of BOV Fund Services
Image: Shutterstock
What are the main challenges facing Malta as a financial services centre?
Malta faces a number of challenges in the current financial industry, and over-regulation is one of them.
The implementation of additional measures to meet the levels set by the European directives, has put pressure on a number of local and foreign financial institutions based in Malta to comply.
The impact of the above has mainly affected small- to medium-sized funds and fund managers who incur higher regulatory costs as a result.
Jurisdictional competition is another challenge we face. Over the years, Malta has managed to compete with the likes of Ireland and Luxembourg in attracting fund setups to the island.
New jurisdictions positioning themselves as fund/fund management domiciles are entering the fray within the EU, however, this adds increased competition in attracting new business to Malta along with the already present competition from off-shore fund domiciles.
Ironically, a factor many would not classify a challenge that is the case for Malta is the economy’s full employment scenario.
Malta’s booming economy has resulted in an all-time low unemployment, which is being addressed by the importation of labour requirements from overseas, a reality that has already kicked in.
Finally, I would say the depositary solutions in Malta are somewhat limited, notably within the Alternative Investment Fund Managers Directive (AIFMD) space, although new players are joining the rest, with new depositary licenses currently in the pipeline to be issued by the Malta Financial Services Authority (MFSA).
What is Malta doing to compete and keep pace with other fund domiciles?
In order to stand out from competition, Malta has resorted to innovative regulation. Earlier this year, the MFSA issued supplementary rules for funds trading in crypto currencies, a first in the EU.
This would enable fund managers to set up crypto currency fund strategies, within the Professional Investor Fund Regime framework (a fund structure unique to Malta).
To date, we are already seeing high demand for crypto currency funds with numerous fund applicants ready to seek official MFSA approval to launch.
Whilst certain similarities to the Reserved Alternative Investment Fund vehicle in Luxembourg exist, the Notified Alternative Investment Fund vehicle is another fund vehicle unique to Malta.
A fast track solution for fund managers wanting to launch their funds via notification to the local regulator, this fund vehicle is not approved or regulated but benefits from the EU passport and must abide by the full requirements as imposed by the AIFMD.
The presence of Management Company platforms (ManCo) on the island also helps Malta compete with other fund domiciles.
These ManCo platforms offer a range of services to “out of scope” alternative investment fund managers in the EU, particularly in the UK, as well as to those funds falling within the UCITS space.
What regulations are the main focus in Malta’s fund services environment? And what challenges are they posing?
AIFMD was one of the main focuses in Malta’s fund environment in the recent past.
This has posed challenges to service providers, most notably fund administrators, in that fund managers captured by the regulation necessitated enhanced reporting.
As for regulatory challenges, there are a few being faced in the local fund services industry, most notably:
Foreign Account Tax Compliance Act (FATCA) and common reporting standards reporting, which are tax compliance acts for both the US and the EU respectively. Funds are required to provide information on all investing shareholders
The General Data Protection Regulation (GDPR), which is an up and coming regulation to be enforced. Its purpose is to safeguard and increase any given data subject’s rights. This is an EU wide regulation applicable to individuals only and is meant to build upon the Data Protection Act
Central Bank of Malta Reporting requirements. These are obligatory reporting obligations of any given fund’s balance of payments to the Maltese Central Bank
In order to address these challenges and the growing extent of regulation, it is imperative to plan well ahead of the implementation of such regulations.
What type of funds/clients are you expecting to see the biggest growth from this year?
The private equity space has been gaining momentum over the past year and we expect private equity funds to remain a popular choice in the coming year.
So long as access to leverage is still relatively cheap in the Eurozone and interest rates do not increase substantially, then private equity will remain a popular strategy.
The crypto currency fad seems to have also spilled over into the fund industry. We have already been experiencing increased demand for cryptocurrency funds, notably long/short arbitrage strategies.
These will most definitely kick off now that the Maltese regulators have most recently approved and implemented cryptocurrency regulations into the existing professional investor fund regime framework.
Small- to medium-sized hedge funds should continue to contribute to the growth of the Maltese fund industry given our jurisdiction’s unique Professional Investor Fund regime, which caters for small to medium-sized hedge fund that are not captured by the onerous provisions of the AIFMD.
Fund investments in hard to value assets such as immovable property and real estate have also been on the rise over the last few quarters, and we expect such fund setups to continue to grow in 2018, on the back of increased demand from fund promoters from central European countries, notably the Czech Republic and Slovakia amongst others, in the private equity and real estate space.
What will BOV Fund Services be working on over the next 12 months?
The next 12 months for BOV Fund Services sees a mix of preparation for new regulation as well as internal revamps to operational systems.
The GDPR is due to be enforced in Q1 of this year, keeping our compliance department busy in ensuring we are compliant and ready to meet such requirements.
A new online KYC platform is also being considered by our compliance department to facilitate the collation of due diligence documentation as well as enhancing the customer service relationship via a centralised network.
Within our finance department, a revamp of the core systems for the issuance of net asset values and shareholder registers are planned to take place.
Finally, active business development in core markets and peripheral ones are to continue and expand, given the marked increase in business that has been registered over the past 18 months, which does not seem to be abating.
Malta faces a number of challenges in the current financial industry, and over-regulation is one of them.
The implementation of additional measures to meet the levels set by the European directives, has put pressure on a number of local and foreign financial institutions based in Malta to comply.
The impact of the above has mainly affected small- to medium-sized funds and fund managers who incur higher regulatory costs as a result.
Jurisdictional competition is another challenge we face. Over the years, Malta has managed to compete with the likes of Ireland and Luxembourg in attracting fund setups to the island.
New jurisdictions positioning themselves as fund/fund management domiciles are entering the fray within the EU, however, this adds increased competition in attracting new business to Malta along with the already present competition from off-shore fund domiciles.
Ironically, a factor many would not classify a challenge that is the case for Malta is the economy’s full employment scenario.
Malta’s booming economy has resulted in an all-time low unemployment, which is being addressed by the importation of labour requirements from overseas, a reality that has already kicked in.
Finally, I would say the depositary solutions in Malta are somewhat limited, notably within the Alternative Investment Fund Managers Directive (AIFMD) space, although new players are joining the rest, with new depositary licenses currently in the pipeline to be issued by the Malta Financial Services Authority (MFSA).
What is Malta doing to compete and keep pace with other fund domiciles?
In order to stand out from competition, Malta has resorted to innovative regulation. Earlier this year, the MFSA issued supplementary rules for funds trading in crypto currencies, a first in the EU.
This would enable fund managers to set up crypto currency fund strategies, within the Professional Investor Fund Regime framework (a fund structure unique to Malta).
To date, we are already seeing high demand for crypto currency funds with numerous fund applicants ready to seek official MFSA approval to launch.
Whilst certain similarities to the Reserved Alternative Investment Fund vehicle in Luxembourg exist, the Notified Alternative Investment Fund vehicle is another fund vehicle unique to Malta.
A fast track solution for fund managers wanting to launch their funds via notification to the local regulator, this fund vehicle is not approved or regulated but benefits from the EU passport and must abide by the full requirements as imposed by the AIFMD.
The presence of Management Company platforms (ManCo) on the island also helps Malta compete with other fund domiciles.
These ManCo platforms offer a range of services to “out of scope” alternative investment fund managers in the EU, particularly in the UK, as well as to those funds falling within the UCITS space.
What regulations are the main focus in Malta’s fund services environment? And what challenges are they posing?
AIFMD was one of the main focuses in Malta’s fund environment in the recent past.
This has posed challenges to service providers, most notably fund administrators, in that fund managers captured by the regulation necessitated enhanced reporting.
As for regulatory challenges, there are a few being faced in the local fund services industry, most notably:
Foreign Account Tax Compliance Act (FATCA) and common reporting standards reporting, which are tax compliance acts for both the US and the EU respectively. Funds are required to provide information on all investing shareholders
The General Data Protection Regulation (GDPR), which is an up and coming regulation to be enforced. Its purpose is to safeguard and increase any given data subject’s rights. This is an EU wide regulation applicable to individuals only and is meant to build upon the Data Protection Act
Central Bank of Malta Reporting requirements. These are obligatory reporting obligations of any given fund’s balance of payments to the Maltese Central Bank
In order to address these challenges and the growing extent of regulation, it is imperative to plan well ahead of the implementation of such regulations.
What type of funds/clients are you expecting to see the biggest growth from this year?
The private equity space has been gaining momentum over the past year and we expect private equity funds to remain a popular choice in the coming year.
So long as access to leverage is still relatively cheap in the Eurozone and interest rates do not increase substantially, then private equity will remain a popular strategy.
The crypto currency fad seems to have also spilled over into the fund industry. We have already been experiencing increased demand for cryptocurrency funds, notably long/short arbitrage strategies.
These will most definitely kick off now that the Maltese regulators have most recently approved and implemented cryptocurrency regulations into the existing professional investor fund regime framework.
Small- to medium-sized hedge funds should continue to contribute to the growth of the Maltese fund industry given our jurisdiction’s unique Professional Investor Fund regime, which caters for small to medium-sized hedge fund that are not captured by the onerous provisions of the AIFMD.
Fund investments in hard to value assets such as immovable property and real estate have also been on the rise over the last few quarters, and we expect such fund setups to continue to grow in 2018, on the back of increased demand from fund promoters from central European countries, notably the Czech Republic and Slovakia amongst others, in the private equity and real estate space.
What will BOV Fund Services be working on over the next 12 months?
The next 12 months for BOV Fund Services sees a mix of preparation for new regulation as well as internal revamps to operational systems.
The GDPR is due to be enforced in Q1 of this year, keeping our compliance department busy in ensuring we are compliant and ready to meet such requirements.
A new online KYC platform is also being considered by our compliance department to facilitate the collation of due diligence documentation as well as enhancing the customer service relationship via a centralised network.
Within our finance department, a revamp of the core systems for the issuance of net asset values and shareholder registers are planned to take place.
Finally, active business development in core markets and peripheral ones are to continue and expand, given the marked increase in business that has been registered over the past 18 months, which does not seem to be abating.
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