Malta Fund Management Companies (Cat2)

Malta Fund Management Companies (Cat2)

WHAT IS AN INVESTMENT SERVICE?

The governing legislation within the Laws of Malta, the Investment Services Act 1994, defines an investment service as “any service falling within the First Schedule to the Act when provided in relation to an Instrument”.  Such definition also includes the collective portfolio management of assets of a collective investment scheme when provided in relation to an instrument not falling within the category of the Second Schedule of the Act itself.

MANAGEMENT COMPANIES: SERVICES COVERED BY THE FIRST SCHEDULE OF THE ISA, 1994

A Category 2 (CAT 2) licence holder is authorised to provide any Investment Service and to hold and control Clients’ Monies or Customer Assets.  Nonetheless, the CAT 2 licence holder is not authorised to operate a multilateral trading facility, deal for their own account, and/or underwrite / place instruments on a firm commitment basis.

The First Schedule of the Investment Services Act lists the below investment services which apply to Category 2 (CAT 2) licence holders.

RECEPTION & TRANSMISSION OF ORDERS IN RELATION TO ONE OR MORE INSTRUMENTS

The reception from a person of an order to buy, sell or subscribe for one or more instruments and the transmission of that order to a third party for execution.

EXECUTION OF ORDERS ON BEHALF OF OTHER PERSONS

The licence holder may act on behalf of other persons in the buying, selling or subscribing for one or more instruments.

MANAGEMENT OF INVESTMENTS

The licence holder may manage, or agree to manage, assets belonging to another person if such assets consist of instruments which are listed in the Second Schedule of the Act.  This also includes the collective portfolio management of assets belonging to a collective investment scheme.

TRUSTEE OR NOMINEE SERVICES

The licence holder may act as trustee or nominee holder of an instrument, or of the assets represented connected in an instrument.  The licence holder may also hold instruments or assets, in connection to a trustee or nominee.

INVESTMENT ADVICE

The licence holder may provide investment advice and or personal recommendation to investors, and/or prospective investors.  Personal recommendations should be provided based on the circumstances and appetite of the person being provided to and should be in the following forms:

  1. To buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular instrument;
  2. To exercise, or not to exercise, any right conferred by a particular instrument to buy, sell, subscribe for, exchange, or redeem a particular instrument;
  3. To select one or more instruments by reference to which benefits are wholly, or partly, payable under a contract of insurance falling within the meaning of the Second Schedule of the Insurance Business Act.

Additionally, the licence holder may also act as agent for such investors in transactions relating to one or more instruments as defined by Section 2 of the Investment Services Act.

Placing of instruments without a firm commitment basis

The licence holder may market newly-issues securities, or unlisted securities already in issue, to specified persons.  Such persons should not be existing holders of the securities’ issuer or in the form of a public offer.

What is an instrument under schedule 2 of the ISA in Malta?

The Second Schedule of the Investment Services Act lists a number of instruments which apply to CAT 2 licence holders.  Such instruments may be in the following forms:

  1. Transferable Securities which are negotiable on the capital markets;
  2. Money Market Instruments such as treasury bills and certificates of deposits;
  3. Units of Collective Investment Schemes;
  4. Derivative Contracts relating to securities, currencies, interest rates, yields, and financial indices;
  5. Derivative Contracts relating to commodities;
  6. Derivative instruments for the transfer of credit risk;
  7. Contracts for Difference (CFDs) for the security of profit, or loss avoidance;
  8. Certificates, or other instruments, which confer property rights in respect of any instrument falling within the Second Schedule of the Act;
  9. For exchange acquired or held for investment purposes.

Categories & Licensable activities for Malta Management Companies

Article 3 of the Investment Services Act, 1994 of the Laws of Malta specifically states that in order to provide an investment service under the Act would require a valid investment services licence.  Such licence is required whether such service is being provided either in Malta or from overseas.  With respect to the provision of services from overseas, Article 3(2) of the Act classifies as illegal to use Malta as a base without having the applicable licence with the required substance in Malta.

When a Category 2 licence holder is providing the services of collective portfolio management, its licence will indicate whether it relates to the provision of fund management services to UCITS Schemes, Alternative Investment Funds (AIFs) and/or De Minimis Funds.

INITIAL SHARE CAPITAL FOR CAT 2 LICENCE HOLDERS

Article 26 of Capital Requirements Regulation (CRR) defines “Initial Share Capital”.  The initial share capital of a CAT 2 licence holder should only include Common Equity Tier 1 items which may be composed of any of the following:

  1. Capital instruments provided that the conditions laid down in Article 28 / 29 of the CRR are met;
  2. Share premium accounts as per Article 4(1) of the CRR;
  3. Retained earnings as defined in Article 4(1) of the CRR;
  4. Accumulated comprehensive income as defined in Article 4(1) of the CRR;
  5. Other reserves as defined in Article 4(1) of the CRR.

It is further noted that as for the period 1st January 2014 to 31st December 2021, perpetual non-cumulative preference shares – including the related share premium accounts – issued on, or prior to, 31st December 2011 shall qualify as Common Equity Tier 1 items.

FEES FOR MALTA MANAGEMENT COMPANIES & BRANCHES

Fees for a newly-licensed management company are made up of a one-time application fee and an ongoing supervisory fee as depicted below.

Application Fee   Annual Supervisory Fee
€5,000

€4,500 for revenues of up to €250,000;

Additional €400 per tranche of €250,000 up to a revenue of €5,000,000

In addition to the above, EU UCITS Management Companies, EU AIFMs and European Investment Firms operating in terms of MiFID with the intention to establish a Branch in Malta are subject to the below fees.

Type Application Fee Annual Supervisory Fee
EU UCITS €1,250 €4,000
EU AIFMs €1,250 €4,000
EU Investment Firms operating in terms of MiFID and authorised to receive and transmit orders in relation to one instruments and/or place instruments without a firm commitment basis but not to hold Clients’ monies or Customer Assets €750 €1,200
EU Investment Firms operating in terms of MiFID and authorised to hold and control Client’s monies or customer assets but not to operate a multilateral trading facility, deal for their own account, underwrite, or place instruments on a firm commitment basis €1,000 €3,000
EU Investment Firms authorised to provide any investment services as laid by MiFID and to hold and control Clients’ Monies or Customer Assets €1,650 €3,600

 

With offices in Malta, Switzerland and the UK, CSB Group has been into the financial services industry for over 30 years with investment services professionals available to assist in any enquiries.  Kindly contact us on [email protected].

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CSB Group
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