Notified Professional Investor Funds (NPIF) Framework

Collective Investment Schemes are regulated by the Investment Services Act, Chapter 370 of the Laws of Malta (“the Act”). The Act provides the statutory basis for regulating Collective Investment Schemes constituted in or operating in or from Malta.

A Professional Investor Fund (‘PIF’) is deemed to be a class of collective investment scheme which falls within the provisions of the Act and is subject to the Investment Services Rules. There are currently two types of Professional Investor Fund as follows:

• PIFs subject to the Investment Services Rules for Professional Investor Funds; and
• PIFs subject to the Investment Services Rules for Notified Professional Investor Funds.

Main Features of the Notified Professional Investment Fund (NPIF)

In terms of Regulation 5 of S.L. 370.02 – the Investment Services Act (Exemption) Regulations, Notified Professional Investor Funds (“Notified PIFs” or “NPIFs”) are a category of Collective Investment Schemes which are exempt from licensing under the Act, subject to inclusion in the List of NPIFs maintained by the MFSA in terms of S.L. 370.34 - the Investment Services Act (Notified CISs) Regulations (“the Regulations”). A Notified PIF is a PIF which has been notified to the competent authority for inclusion in the List of Notified PIFs and is included in the List of Notified PIFs maintained by the competent authority in terms of the aforementioned Regulations.

A PIF may be eligible for notification in terms of the Regulations, provided that it satisfied the following conditions:

• It is promoted to Qualifying Investors and/or Professional Investors only;
• It is managed by a Fund Manager in terms of Section 6 of this part of the Rulebook;
• At least one of the members of its governing body is resident in Malta;
• At least one of the members of its governing body is independent from the Manager, Custodian (where appointed), Fund Administrator, Due Diligence Service Provider, and founder shareholders of the NPIF;
• It appoints a Due Diligence Service Provider;
• It appoints a fund administrator in terms of Section 7 of this part of the Rulebook; and
• Adequate safekeeping arrangements are in place.

The governing body of the NPIF is ultimately responsible for ensuring that the NPIF complies on an ongoing basis with the provisions of the Act, and any applicable regulations and rules issued thereunder.

The Notification Process

The PIF, or a person duly authorised by it to act on its behalf, must submit a written request for a PIF or for one or more sub-funds of a Notified PIF to be included in the List of Notified PIFs, in accordance with the provisions of the Regulations. Before the submission of this written request for notification, the governing body of the PIF is to approve a resolution certifying that the Offering Memorandum of the NPIF satisfies the minimum criteria prescribed by the MFSA. A copy of the Offering Memorandum is to be kept at the address of the Notified PIF indicated in the offering memorandum at all times and shall be made available to the MFSA upon request.

The MFSA shall reject notifications which do not comply with the requirements prescribed in the Regulations and these Rules.

Furthermore, the notification request must be accompanied by the following:

• The notification form;
• The applicable notification fee;
• A resolution of the governing body of the NPIF; and
• A declaration by the Due Diligence Service Provider confirming that it has carried out the necessary due diligence with regards to the functionaries and the governing body of the NPIF.

Structures of the Notified Professional Investment Fund (NPIF)

A NPIF may be established as:

• An investment company with variable share capital (SICAV) under the Companies Act (Investment Companies with Variable Share Capital) Regulations;
• An investment company with fixed share capital (INVCO) under the Companies Act (Investment Companies with Fixed Share Capital) Regulations;
• An incorporated cell company (ICC) under the Companies Act (SICAV Incorporated Cell Company) Regulations;
• An incorporated cell (IC) of a Recognised Incorporated Cell Company (RICC) under the Companies Act (Recognised Incorporated Cell Company) Regulations;
• A limited partnership under the Companies Act;
• A unit trust under the Trust and Trustees Act; or
• A contractual fund under the Investment Services Act (Contractual Funds) Regulations.

Eligible Investors in NPIFs

NPIFs can only be marketed to the following investors:

A) Qualifying Investors, being investors that fulfil the following criteria:

• Invest a minimum of EUR 100,000 or its currency equivalent in the NPIF, which investment may not be reduced below this minimum amount at any time by way of a partial redemption; and
• Declare in writing to the fund manager and the NPIF that they are aware of and accept the risks associated with the proposed investment; and
• Satisfy at least one of the following:

1. A body corporate which has net assets in excess of EUR 750,000 or which is part of a group which has net assets in excess of EUR 750,000 or, in each case, the currency equivalent thereof;
2. An unincorporated body of persons or association which has net assets in excess of EUR 750,000 or the currency equivalent;
3. A trust where the net value of the trust’s assets is in excess of EUR 750,000 or the currency equivalent;
4. An individual whose net worth or joint net worth with that of the person’s spouse, exceeds EUR 750,000 or the currency equivalent; or
5. A senior employee or director of a service provider to the NPIF; and

B) Professional Investors, being investors who are considered to be a Professional Client or may, on request, be treated as a Professional Client within the meaning of Annex II to MiFID II.

The MFSA Framework for NPIFS

The Malta Financial Services Authority (MFSA) has introduced a framework for Notified Professional Investor Funds (NPIFs), following consultation documents issued in December 2022 and May 2023.

This framework is part of the Authority's strategic initiatives in asset management and therefore reference should be made to:

• Investment Services Act (Notified CISs) Regulations
• Investment Services Rules for NPIFs and related Due Diligence Service Providers and
• related annexes
• Guidance Note on Fitness and Properness Standards for Due Diligence Service
• Providers of NPIFs
• Reporting Guidelines for Notified Professional Investor Funds

The Regulator highlights the following from the launch of the NPIF framework:

Amendments existing rulebooks

These amendments include an adjustment to the definition of 'Professional Investor Fund' within the glossary of fund rules. The revised definition broadens its scope to encompass NPIFs, defining Professional Investor Funds as a special class of collective investment scheme subject to the Investment Services Rules. Additionally, amendments to various fund rulebooks are required to facilitate the conversion to and from NPIFs.

Reporting

According to Section 3 of Part B of the Notified PIF Rules, Notified PIFs are obligated to regularly submit reports to the MFSA regarding their investment strategy and portfolio composition. This reporting is to be done through a dedicated Annex. While Notified PIFs managed by local de minimis Alternative Investment Fund Managers (AIFMs) are exempt from this requirement, those managed by EU small AIFMs and third-country managers must submit "Annex 2 – AIF – Specific Information to be reported (Article 3(3) and Article 24(1) AIFMD)" (referred to as 'Annex 2'). The MFSA has provided a dedicated Guidance Note on reporting, including instructions on how to complete the mentioned annex.

Independence of Auditor

After the publication of a feedback statement, a stakeholder expressed concern about the perceived generality of the statement emphasising the importance for an appointed auditor to avoid involvement in providing other services to the same fund, aiming to ensure necessary independence. In response, the MFSA clarified that while it is crucial for auditors not to serve as both auditors and due diligence service providers for the same NPIF, it should not be misconstrued as a blanket prohibition on auditors providing services to funds. The MFSA emphasised the need for prior approval for any auditors appointed in relation to an NPIF and provided further clarification in the updated Rules. The context for this clarification arose from a stakeholder query regarding the independence of an audit firm (or a related company) serving as the Due Diligence Service Provider for an NPIF and potentially also acting as the auditor for the same fund.

Third Country Managers

Third-country AIFMs that are authorised in a jurisdiction with a bilateral cooperation agreement or memorandum of understanding on securities with the MFSA, and that the Authority deems to be subject to regulation at a level equal or comparable to that in Malta, are permitted to manage NPIFs. In the absence of such agreements, the MFSA may accept other forms of agreements or memoranda of understanding that it considers acceptable. The MFSA emphasises the need for clarity in assessing whether a third-country regulatory regime is of an "equal or comparable level" to the local one. Criteria for assessment include authorisation, internal arrangements, fitness and properness, capital requirements, ongoing reporting, and anti-money laundering/counter-terrorist financing arrangements. Selected fund managers from specific jurisdictions (Switzerland, the UK, Guernsey, and Jersey) listed in the NPIF Notification Form require no further approval. However, applicants seeking to appoint a manager authorised under an unlisted regulatory framework or jurisdiction must obtain relevant approval from the MFSA before submission, providing details and representations for assessment on a case-by-case basis.