The Investment Services Act (the “Act”) established the framework for licencing Investment Fund Managers and also transposes the legislation issued by the EU in terms of investment services, including the Markets in Financial Instruments Directive (“MiFID”), the UCITS Directive and, most recently, the AIFMD. Such firms can only provide investment service and to hold or control clients’ money or customers’ assets if they are in possession of a Category 2 licence. One should, however, note that they are not authorised to operate a multilateral trading facility, to deal for their own account or to underwrite or place instruments on a firm commitment basis.
An applicant seeking to set up an AIFM must obtain authorisation from the MFSA and will be required to satisfy a number of conditions:
- The MFSA is satisfied that the AIMF will continue to meet its legal obligations;
- The AIFM has sufficient capital and own funds;
- The AIFM’s business is carried out by persons of experience and good repute;
- The qualifying shareholders are suitable towards ensuring sound and prudent management;
- The AIFM’s head office is located in Malta.
The MFSA will inform the applicant for an AIFM licence as to the outcome of its application within a maximum of 3 months from receipt of the application. A successful applicant will be entitled to begin to carry out the investment management and other functions authorised in terms of its licence immediately upon the issue of such licence. It will also be entered in a central register kept by the European Securities and Markets Authority (“ESMA”) and its authorisation would be valid in each Member State of the EU.
External AIFM may manage more than one fund, including UCITS which were authorised under the UCITS Directive. Furthermore, AIFMs may also be authorised to carry out discretionary portfolio management services and non-core services comprising investment advice, safe-keeping and administration in relation to the shares/units of collective investment schemes and the reception and transmission of orders in relation to financial instruments.
An external AIFM must have initial capital amounting to at least €125,000 and where the value of the portfolios of the AIFs under management exceeds €250m, the AIFM must also provide an additional amount of own funds equal to 0.02% of the amount by which the value of the portfolios of the AIFM exceeds the €250m threshold (though a cap of €10m is set for the total value of initial capital and own funds required to be held). AIFMs must also maintain additional own funds to cover professional liability risk. Alternatively, it may hedge against this risk by holding adequate professional indemnity insurance.
The AIFMD framework provides for a lighter or de minimis regime for small AIFMs. De minimis AIFMs are managers which, whether directly or indirectly, manage portfolios of AIFs whose assets under management collectively do not exceed the following amounts: While the AIFMD allows Member states to choose merely to register rather than authorise de minimis AIFMs, the MFSA’s policy in the interest of investors is to require de minimis AIFMs to seek authorisation a de minimis Category 2 Licence Holders. Once authorised as such, a de minimis AIFM will be exempt from complying with the provisions of the AIFMD with the exception of certain reporting requirements towards the MFSA as regards:
- the investment strategies of the AIFs under management;
- the main instruments in which the AIFs under management are trading; and
- the principal exposures and most important concentrations of the AIFs under management.
Notwithstanding its right to be treated as a de minimis AIFM, any AIFM whose assets under management fall below the above thresholds may choose to opt in to the AIFMD framework. This would render it subject to all of the obligations applicable to full-scope AIFMs but would also enable it to make use of the EU passporting rights deriving from the AIFMD. 3.3 Entities outside the Scope of the AIFMD Certain entities, such as holding companies and occupational retirement firms, are entirely excluded from the scope of the AIFMD. For a full list of exempted entities, reference should be made to the Investment Services (Exemption) Regulations.
In general terms, AIFMs are required to continue to meet the conditions for authorisation at all times thereafter. They are also required to comply with certain other general conditions similar to those imposed on UCITS fund managers.
Apart from their general operating conditions, AIFMs are also subject to specific requirements in terms of Remuneration, Conflicts of Interest, Risk Management and Liquidity Management.