Speaking of Malta as an onshore domicile does not sit comfortably on the tongue. The traditional offshore domiciles—Bermuda and the Cayman Islands to name but two—are swelteringly hot and are home to beautiful beaches too. Malta, particularly in July and August, is like this. Accepting the idea that such a place could exist as a part of Europe geographically and the EU politically is like trying on a pair of shoes for the first time; it just doesn’t fit.
Speaking of Malta as an onshore domicile does not sit comfortably on the tongue. The traditional offshore domiciles—Bermuda and the Cayman Islands to name but two—are swelteringly hot and are home to beautiful beaches too. Malta, particularly in July and August, is like this. Accepting the idea that such a place could exist as a part of Europe geographically and the EU politically is like trying on a pair of shoes for the first time; it just doesn’t fit.
Yet Malta is such a place. The island became a fully-fledged member of the EU in 2004 and of the eurozone in 2008. Adopting EU rules and regulations brought Malta to the mainland, at the behest of both government and the financial services industry, according to Kenneth Farrugia, who is the chairman of FinanceMalta.
He says: “Before Malta became an EU member, it was an offshore finance centre. All of Malta’s legislation was based on the offshore positioning of similar island states and domiciles. I’d say the regulatory culture was very much reflecting the UK regulatory culture.”
In the 1980s, Malta welcomed a new government to office. “One of the main priorities of the new government was for Malta to become a member of the EU, which meant that they had to overhaul the positioning, and with that the legal and regulatory framework,” says Farrugia. “That was quite a laborious process as the new government worked very closely with the industry to draft the new legislation. Actually, investment services spearheaded some 14 pieces of legislation, which I think opened the way for the level of financial services as we know it today.”
Malta’s financial funds industry has grown as a result of Malta’s EU membership. In 1995, there were five collective investment schemes. Today, Malta is home to more than 500 funds.
“Clearly, the catalyst for the growth of the industry is very recent, it’s post-membership,” says Farrugia. “I think it took a few years for our membership to sink in with the other members. Post-membership, I remember going to the likes of Italy and they didn’t even know that Malta was a member of the EU. There was that sort of visibility gap. But in 2006/2007, we stated seeing an acceleration and exponential growth in some of the key sectors. Funds was and still is the fastest growing sector.”
This growth has increased year-on-year, according to FinanceMalta. The combined net asset value of funds in Malta reached 7.8 billion euro at the end of June 2011. Service providers have also set up in Malta post-membership, as they bid to capitalise on its growing funds industry.
Six custodians and approximately 70 fund managers currently operate in Malta. The Malta Financial Services Authority (MSFA) has licensed 24 fund administrators, which include HSBC, Amicorp, Custom House and TMF, according to FinanceMalta.
FinanceMalta explains: “As fund managers and administrators worldwide are reviewing their set-ups and operating environments which are increasingly dominated by higher taxes and regulatory costs, Malta is being seen as complementary jurisdiction to Luxembourg and Ireland for fund servicing and domiciling.”
In the regulatory upheaval since 2008, the Alternative Investment Fund Managers Directive (AIFMD) has taken aim at offshore domiciles, according to commentators. The directive, once implemented, could shut the doors of Europe to funds that aren’t domiciled in a European jurisdiction, so that European money would be protected from funds in domiciles with less than satisfactory regulatory frameworks.
“The thrust of this directive to ring-fence business in the European marketplace is misguided,” says Farrugia. “I believe that offshore jurisdictions and onshore European jurisdictions can co-exist. It’s not the case that it’s a free-for-all in these jurisdictions. They are coming to realise the importance of having good governance within their industry, good regulation and good oversight. We cannot just simply point the finger at offshore jurisdictions.”
He adds: “In terms of the EU, I think this thrust to try to ring-fence business—that if you want to do business in the EU, you have to be domiciled in the EU—will have its ill-effects. This is sort of the law of unintended consequences. There are quite a lot of funds in the Cayman Islands and other jurisdictions that are in turn investing in Europe. Now if you close the doors, ultimately European economies will feel the brunt of that.
The threats that offshore jurisdictions face from legislation such as AIFMD could force many funds to re-domicile to places such as Europe, according to some commentators. But Farrugia disagrees.
He says: “We’ve seen structures whereby the fund manager has decided that it wants to focus on European investors so they decided to re-domicile. But ultimately, if you don’t have European investors, there is no need for you to have a European platform, because you’ll be focusing on other markets. Hopefully the regulatory framework for hedge funds will gain the strong brand belief that UCITS has, because that will be a reason for non-European financial institutions to set up funds in Europe. All of this talk about significant re-domiciliations has happened to a degree.”
Professor Joe Bannister, the chairman of the MFSA, says that AIFMD may not be the cause of recent re-domiciliations to Malta.
He says: “The scope of the hedge fund directive is very good, but maybe it is a bit weighty, particularly on the service providers, but that’s ongoing and has yet to be implemented. At the moment, we see a lot of offshore funds coming onshore to Malta. We have good re-domiciliation legislation, and this has worked very well in funds.”
