Malta Collective Investment Schemes (CIS) - CSBGroup

Malta Collective Investment Schemes (CIS)

Investment Services in Malta are regulated by the Investment Services Act (“ISA”) (Cap. 370 of the Laws of Malta) as amended by Act XVII of 2002.  This law sets out the regulatory framework for the licensing of Investment Funds, or as defined by the Investment Services Rules, Collective Investment Schemes (“CISs”).  This process will fall under the scope of the Malta Financial Services Authority (“MFSA”) which, besides having the responsibility for the licensing process, is also responsible for the regulation and ongoing supervision of Collective Investment Schemes.

Defining Collective Investment Schemes in Malta

Collective Investment Schemes (“CISs”) are schemes or arrangements which have as their object the collective investment of capital acquired by means of an offer of units for subscription, sale or exchange and which, additionally, also possess any one of the following characteristics:

  • The schemed or arrangement operates according to the principle of risk spreading; and either:
  • The contributions of the participants and the profits or income out of which payments are to be made to them are pooled; or
  • At the request of the holders, units are repurchased or redeemed out of the assets of the scheme or arrangement, continuously or in blocks at short intervals; or
  • Units are, or have been, or will be issued continuously or in blocks at short intervals.

The MFSA may grant a CIS licence to any scheme or arrangement which does not operate on the principle of risk spreading, where the units in such scheme or arrangement are to be offered for subscription, sale or exchange to investors classified as Qualifying and/or Professional.  Any hedge fund targeting the retail market, either through a UCITS Scheme or through a Retail-AIF are thus subject to certain investment restrictions as brought about by the respective Directives and the Maltese Investment Services Rule Books.

The Licensing Process of Malta Collective Investment Schemes (CISs)

Irrespective of the Investment Fund’s form, type, and structure, a promoter who is interested in selecting Malta as a jurisdiction of choice will have to undergo the below three-stage process:

Phase 1 of the licensing process of a Collective Investment Scheme – Preparatory

The promoters are recommended to hold a preliminary meeting with the MFSA to put forward their investment fund proposal.  This meeting should be held in advance of submitting an application for a licence.  Following such meeting, the applicants will submit a “draft” application form together with any required supporting documentation as specified in the application form itself.

Upon review of the documentation provided, the MFSA may ask for supplementary information to be provided. The MFSA’s assessment of the applicant’s ‘fit’ and ‘proper’ credentials will also commence at this stage. The expected turnaround time for the MFSA to review the documentation provided to it and for it to provide feedback will generally take around three weeks.  A number of licence conditions are communicated to the applicant at this stage, adherence to which is required throughout the life of the fund.

Additionally, during such stage, the regulator will consider the nature of the proposed activity, the target investors, and the market to which the investment services are to be provided.  On this basis, a decision will be made regarding which Standard Licence Conditions (“SLCs”) should apply.  The MFSA may allow some derogation from the SLCs where the circumstances justify such treatment, as long as there is adequate protection to investors.

Phase 2 of the licensing process of a Collective Investment Scheme – Pre-Licensing

Once the draft application and supporting documents have been reviewed and the draft licence conditions have been met, the MFSA will issue an “in principle” approval for the issue of a licence.  At this stage, the Application form and supporting documentation are provided to the MFSA in their “Final” format.

Phase 3 of the licensing process of a Collective Investment Scheme – Post-Licensing

At this stage, the Applicant may be required to satisfy a number of post-licensing matters prior to the formal commencement of business.

It should be noted that the average period to obtain a licence from the MFSA would range from an 8 to 12-week period.  Such a period may vary on a case-by-case basis depending on the completeness of documentation provided upon the submission of the draft application.

Types of Investment Funds in Malta

Malta offers various types of investment funds which allows fund managers and fund promoters to choose from according to their needs and specifications. In terms of the Investment Services Act, Collective Investment Schemes may be licenced / recognised in Malta as either:

It is noted that Professional Investor Funds do not benefit from the passport benefit as brought about by both the AIFM and UCITS directives respectively.  Therefore, Funds licenced as PIFs are subject to private placement.

Malta Tax Implications for Investment Funds

As a general rule, Malta Hedge Funds are exempt from Maltese income and capital gains tax as long as fall within the bracket of non-prescribed. Read more on the Taxation of Malta Investment Funds.

 

Kindly download the FUND ESTABLISHMENT FORM and send it to [email protected]. A representative of our team will get in touch to discuss and assist with your hedge fund needs.

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