7 Reasons Why Fund Managers are Setting Up Hedge Funds in Malta

We've often spoken about the remarkable growth that the Maltese hedge funds sector has experienced over the last few years. In this post we will touch upon what we believe are the seven main reasons underpinning this growth.

An accessible regulator: one of the key drivers behind Malta's growth in this sector has been the attitude  of the local single regulator for financial services, the Malta Financial Services Authority. As an EU country, Malta adheres to all the required regulatory and anti-money laundering standards, however the jurisdiction differentiates itself by adopting an open door approach. This means that while the rules are the same, the regulator's attitude is one of working hand in hand with entrepreneurs to identify solutions that can work within the existing framework. This makes the jurisdiction particularly interesting for innovative products. In addition, face to face meetings are very easy to organize, and the regulator is sensitive to matters of urgency.

Low costs: while Malta isn't the cheapest fund jurisdiction available, it has a good claim to being the cheapest fund jurisdiction within the EU. Regulatory, legal and fund administration fees are highly competitive, and significantly lower than those in EU competitors. Set-up and maintenance costs often work out at circa 50% of what they would in other EU domiciles. This makes Malta attractive for smaller fund managers and start-ups for whom such costs are of vital importance.

A stable EU Domicile: Malta became a full EU member state in 2004. This means that the jurisdiction is regulated at the high level that one would expect in an onshore EU domicile. In addition, EU membership means that licenses issued in Malta enjoy a high level of international recognition, making marketing of products significantly simpler. This aspect will be further strengthened once AIFMD comes into force and passporting rights are introduced for EU managers. In addition, Malta also enjoys a sound track record of political stability and broad agreement about the jurisdiction's policies with resoect to financial services.

Tax: licensed funds which have more than 15% of their assets located outside of Malta (a threshold which is easy to reach for most funds) pay zero Malta tax at the fund and the investor level. In addition, Maltese fund managers benefit from a refunds system which can allow shareholders to benefit from a 5% rate of net effective tax. Tax-efficient fund and fund manager structures can therefore be set-up within the jurisdiction. Moreover Malta is FATF and OECD compliant. 

Sound legal infrastructure: Malta's legislative framework has been designed in order to be ale to accommodate the needs of the industry whilst protecting the interests of investors. Thus the jurisdiction offers all the structuring options that managers require, such as a broad selection of legal vehicles (including SICAV, INVCO, partnership, contract and unit trust), sub-funds with separate assets and liabilities and incorporated cell companies. All financial legislation is freely available in English and in many cases the binding version for interpretational purposes is the English version.

No need for local service providers: generally speaking, no Maltese service providers need to be engaged; overseas fund administrators can be used, for example. This can encourage managers to make use of the jurisdiction without severing well-established relationships. Nevertheless, it is worth noting that many funds do in fact choose to work with a local service provider, probably due to the low cost base and high levels of professionalism available.

Flexibility: Malta permits a number of useful flexibilities within its regulatory framework. Perhaps the key flexibility is that funds sold to Qualifying and Extraordinary investors are not required to adhere to any investment or leverage restrictions. This is an important factor which makes possible a number of innovative strategies. Malta also offers a low-ticket hedge fund product, the experienced investor fund, which has a minimum investment threshold of EUR 10,000. This can allow managers to attract smaller, more experimental investments.

Investment Services Law in Malta: Presentation

We've put up a handy presentation on the basic Maltese legislative framework for investment services on Slideshare providers. This should be useful for anyone looking for a succinct overview of the topic.

You can find the link here: Investment Services Law in Malta

You can read more about our firm's services in the area here: Investment Services law firm

Dr Charles Cassar
Malta Financial Services Lawyer
Chetcuti Cauchi Advocates, Malta Law Firm

Some recent work highlights

We've put up a very interesting section on our website. Basically we're highlighting some of the work that we've been engaged to handle over the last few months. This should be useful reading for anyone who is interesting in getting to know better what is going on with the Maltese financial services industry, how it's growing, and the kind of activity that takes place. Some of the material will be familiar to more regular readers of this blog, but there are various interesting bits and pieces such as work relating to the regulatory implications of social networks with a focus on securities trading activity. Some of the other engagements highlighted include, in no particular order:

• Advising on the tax and regulatory implications of a cross border loan
• Creation of PIF structures for start up fund managersAssisting own account securities, commodities and forex traders
• Obtainment of exemptions from regulation
• Set-up and passporting of investment advisory firms

I think the diversity of engagements serves to show how interesting and well-populated the local financial services industry has become. Get in touch if you'd like to discuss situations similar to the above.

Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi, Malta

Side Pockets in Malta Hedge Funds

We've put up a detailed publication dealing with side pockets under Maltese legislation on our website www.ccmalta.com. The material should be of interest to any Malta fund manager looking to use side pockets, as well as to anyone who is interested in learning more about the flexibility which Maltese hedge funds can afford.

In essence, side pockets are a mechanism which allows for the segregation of problematic assets e.g. assets which cannot be valued in an accurate manner. A side pocket involves the transfer of problematic assets to a new class of shares within the fund, i.e. a side pocket, and are thus separated from the main pool of assets.

You can find a lot more about the topic on our website 

Charles Cassar
Financial Services Lawyer, Malta
Chetcuti Cauchi Advocates, Malta Law Firm

Malta Highly Qualified Persons Rules: CCA Secures Approvals

Our firm has over the last few months successfully concluded a number of applications under the new Malta Highly Qualified Persons Rules which seek to encourage the growth of the Maltese financial services and i-gaming sectors by introducing attractive tax rates for individuals operating within these industries and having particular skill sets. Essentially if the relevant conditions are satisfied the relevant individual can benefit from a flat rate of tax of 15%.

You can find more information about this on our website by following the link here: Malta Highly Qualified Persons Rules.

Get in touch if you think you may be eligible. 

Charles Cassar

Chetcuti Cauchi Advocates - Malta Financial Services Law Firm

Legal 500 features the Maltese forex domicile

Legal 500 are featuring our article on the growth of Malta as a forex jurisdiction. The article touches upon the factors driving growth in the forex industry as well as the future prospectes of the Maltese forex industry. You can read the full article by following the link: Forex in Malta

Get in touch if you'd like to learn more about the topic.

Dr Charles Cassar,
Chetcuti Cauchi Advocates, Malta forex law firm

Hedge Fund Management in Malta: HFM Week Interview

I was recently interviewed by HMF Week, a leading hedge funds publication, with respect to the prospects and challenges facing Malta's funds industry, with a specific focus on the management of funds from Malta. The full text of the interview can be found on our website. You can also find the original interview here.

Here's a snippet of the full interview:

HFM: Malta has long had a solid reputation as a destination for fund managers and their investment vehicles – how has this strengthened?

CC: Throughout this year the jurisdiction has attracted plenty of positive press, with Bloomberg, Business Insider, HFMWeek and the Financial Times all making very positive statements about Malta. The country is now a well-established fund jurisdiction that can host a variety of investment strategies and a broad range of fund sizes and structures. I think this is the key change we’ve seen over the past couple of years – whereas before it was commonplace for people to speak about Malta as an emerging domicile, nowadays it is pretty much tried and tested.

Charles Cassar, Malta Funds Lawyer
Chetcuti Cauchi Advocates, Malta

Malta fund platform structures: a comparison

In a previous post I spoke about the introduction of the Recognized Incorprated Cell Company structure and how it could be an interesting new option for platform providers. As a firm we are now seeing increasing interest in the use of this structure (as well as continued interest in the set-up of Malta hedge funds in general). We have therefore prepared a publication which analyzes in further detail the nature of this structure, and are also providing a comparison table that highlights the differences between RICCs and other vehicles that can be used as fund platforms. You can find the publication on our website. This should be useful reading both for operators interested in setting up Malta RICCs as well as fund managers looking to understand better any structure in which they may have a plug-in arrangement.

Charles Cassar, Funds Lawyer
Chetcuti Cauchi Advocates, Malta

What is Best Execution?

The requirement of 'Best Execution' is one of the more ambiguous requirements imposed on investment services providers. Essentially, service providers are required to execute transactions on terms most favourable to their clients, but how does one determine this? The question is a complex one and there is no easy answer. In order to shed some light on the issue, we have uploaded a publication on our website www.ccmalta.com. You can find the publication by clicking on this link: Malta best execution requirements. The publication deals with various useful question such as the criteria to be considered when determining best execution and the entities to which the requirement applies.

I hope you find this publication useful. As always, feel free to get in touch if you have questions.

Dr Charles Cassar
Malta Financial Services Lawyer
Chetcuti Cauchi

FinanceMalta 'Insight' Magazine features our Forex article

FinanceMalta's 'Insight' Magazine has featured our article on the growth of the Maltese Forex industry: 'Forex businesses choose Malta as their domicile'. Here's an extract from the full article:

... well-run forex businesses are increasingly concerned with demonstrating and evidencing their reputability, especially in light of recent ESMA warnings against unregulated operations. Malta allows these businesses to obtain a licence in accordance with high European standards, which is bound to be an important boost as clients become increasingly aware of the importance of sound regulation. Secondly, the fact that the business is run in accordance with the European rule book can open up interesting opportunities for cross-border passporting of services, which can lead to significant cost savings.


As a firm we continue to see new engagements and interest in this area on a regular basis, and are confident  that the island can continue growing the sector in the future. Get in touch if you would like to learn more, or visit our dedicated forex page.


Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi, Malta

Private collective investment schemes in Malta

One structure that is not often discussed in Malta is that of the private collective investment scheme, colloquially referred to as the 'family and friends fund'. The reason for this likely is that, being unlicensed funds, these structures do not benefit from the same simple zero tax treatment as other Maltese funds. The structures also have a number of limitations as to number of investors, and relationship between the investors and the manager, for example. Nevertheless it is useful to be aware of this option. We've uploaded a publication on our website www.ccmalta.com where you can find more information on the structure.

Read more about Maltese private collective investment schemes here: link.

The contractual structuring options for Maltese funds

Malta has recently seen the introduction of legislation catering for the structuring of funds via contractual arrangements. This creates an interesting new option for the formation of fund vehicles with the formation of a separate and new legal entity, which may be useful in certain scenarios. We have uploaded a detailed publication addressing this new option on our website here: contractual funds under Maltese law. The publication discusses various relevant matters such as the question of legal personality, the formation process, and dissolution. This should be useful reading for anyone interested in knowing more about hedge fund structuring options in Malta.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi, Malta

RICCs - a new opportunity in the Maltese funds sector

The Companies Act (Recognised Incorporated Cell Companies) Regulations (“the Regulations”) (L.N. 119 of 2012), issued in the Government Gazette on 17th April 2012, have introduced a new legal structure, namely, the Recognised Incorporated Cell Company (RICC) as a possible alternative to the ICC SICAV. This is an important development that introduces new structuring options for the Maltese funds industry, and will likely improve ease of access to the jurisdiction for smaller players in the industry. We've put up an introduction to the topic - you can find it here

Dr Charles Cassar

Financial Services Lawyer

Chetcuti Cauchi, Malta

Insurance Managers in Malta: an Introduction

I've already had the opportunity of writing briefly about Malta's growing captives industry in a previous post. There's also plenty more information on the industry on our website practice page. However today we want to speak about a sector which is intimately related with, and in some sense a necessary prerequisite, to this growth: the insurance management sector. Insurance managers provide a variety of essential services to the industry and are particularly important in the context of captive business. Our website now features a handy publication that can serve as an introduction to the area. You can find the publication here.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

What is a 'recognized jurisdiction'?

The term 'recognized jurisdictions' features quite broadly in the Maltese funds regulatory regime. The term may sound innocuous enough, but it has a number of important implications which need to be taken into account when structuring funds in Malta. We've just uploaded a detailed publication on our website analyzing the term in extensive detail. You can find the publication here. As usual, get in touch if you have questions about hedge funds in Malta, Maltese investment services set-ups, or any other aspect of Malta's financial services sector.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

QROPS in Malta

There's every reason to expect pension funds to take off in a significant way in Malta now that the jurisdiction has obtained HMRC recognition and the first few QROPS funds have been launched. I intend to write more extensively on this topic some time in the near future, but in the meantime you can read more about the topic by following this link to our website: click here. You can read more about what is compelling QROPS to choose Malta as their home by follow this link.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi

The Malta Depositor and Investor Compensation Schemes - analysis

We've just uploaded a detailed report on the Malta depositor and investor compensation schemes. These are important pillars of the Maltese financial system Here's a sample of the text:

Depositor and Investor Compensation Schemes have been introduced as a means of safeguarding depositors and investors from the losses that might be incurred if a credit institution or an investment firm is unable to fulfill its obligations and repay money owed to or belonging to its clients upon demand...

You can read the full article here.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi

HFM Week - Malta Special

HFM week have just published my article on the likely impact of the AIFMD on the Maltese hedge funds industry in the Malta special report. In the article I argue that while AIFMD poses some challenges to the local industry, overall the directive is more of an opportunity than a threat, especially thanks to the new passporting regime. Hedge funds all over the world are likely to be reconsidering their domicile options for the next few years and Malta's various attractions are likely to allow it to further cement its position as a market leading hedge funds jurisdiction.

You can find the text of the article on our website here.

You can find the original article here.

Get in touch if you would like to discuss the article of the Maltese hedge funds regime in general.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi

Malta to bring Sun and Sea to Harrods, London

Malta will be showcased prominently at the prestigious Harrods store in London throughout March this year. Malta's presence at Harrods is expected to attract attention from the City as more and more investors seek more favourable investment destinations like the European Island of Malta.

Chetcuti Cauchi will be hosting a seminar on Malta's role as a gateway to doing business in Europe and North Africa.

Getting a Maltese Investment Services license: a Case Study

As part of my work I continually speak with people who are interested in doing business in Malta or through Malta. One of the recurring themes of these discussions is that people know about Malta and know that there are some interesting opportunities here, however few know what this means in real, tangible terms. Therefore today I want to present a case study which details, in a practical manner, the process by means of which a business can obtain an investment services license in Malta and offer its services throughout Europe. At every stage, I highlight the input that we would typically provide. Note that the specifics of the project are fictitious (in the interests of confidentiality), but I hope this will serve as a clear and useful example.

The Project

Mr Smith and Mr Jones are long time friends. Mr Smith is a mathematician with several years experience working as a currency trader at a Swiss bank; he is also fluent in IT. Mr Jones is a former athlete with many connections in the hedge funds industry. Smith has developed, in his spare time, an algorithmic trading system that consistently beats the market. Jones encourages Smith to take this further, and promises to invest in the project. The two plan to market the product as a solution to hedge fund clients looking to allocate a portfolio of their assets to currency trading. They consider the software itself to be their secret sauce however, and will not license it directly to clients. Instead their plan is for clients to deposit moneys in account that they (Smith and Jones) hold: the algorithm will then perform the trades. They plan to charge an annual management fee as well as a performance fee.

Determining the relevant license
The first step will be that of determining the applicable license. Foreign exchange acquired for speculative purposes is an instrument under the Investment Services Act, therefore an Investment Services License will be required. Their business will involve their 'holding or controlling' the moneys of their clients, therefore they will need a Category 2 Investment Services License.

Knowing which license they need tells Smith and Jones a lot of important information about the costs that the project will entail, such as their regulatory fees (application fee, license fee, supervisory fee and contribution to investor compensation scheme). They can now plan and budget accordingly.

How we help: guidance in relation to the selection of the appropriate license, advice on likely license conditions associated with the license, mapping out of project plan and timeline

Operational set-up
Next, they need to determine the exact nature of their operational set-up in Malta. Jones lives in London and cannot move to Malta because of family commitments; plus in London he can be close to the fund managers. Smith, on the other hand, will take up residence in Malta. They will locate servers in Malta as well. Neither of them has any experience in a compliance role, so they will hire a local lawyer as a compliance officer. Initially they plan to start small, but plan to hire one or two local professionals within six months from commencement.

How we help: input on likely levels of local presence required, advice on rules regarding operational set-up and internal organization, assistance with hiring processes, introductions to reputable local service providers and professionals

Meeting the regulator
Jones and Smith now organize a meeting with their future regulator, the MFSA. More specifically they meet the authorisations unit, the team within the regulator which is dedicated purely to handling new applications. During the meeting they get the opportunity to discuss their business model and to address any preliminary queries in an open and informal manner.

How we help: organization of meetings, negotiation with and representation before the regulator, drafting of formal communications


Preparing the application

Now comes the exciting part where all the form filling, drafting and number crunching happens. The application consists in the filing of a number of documents including: a business plan, financial projections, due diligence documents, detailed financial projections. These need to be drafted to a high standard and must provide the MFSA with a coherent picture of the business.


How we help: drafting of all relevant documentation - typically we will source 'building blocks' from our clients which we then help to expand and build up to the high standards expected by the regulator






Post-submission



The documents are ready and a draft submission takes place. The MFSA now commences its review. This is a thorough process - the business model will be analyzed for feasibility and adherence with local legislation, the adequacy of internal organizational arrangements will be scrutinized, and due diligence will be conducted on Jones and Smith.






During this stage a dialogue will take place with the regulator, with some back and forth communication being commonplace. The MFSA will not, except in exceptional circumstances, refuse an application outright - if there are issues, these will be flagged (e.g. some area of the business is unclear) and an opportunity given to address them.






How we help: continuous follow-up with authorities, addressing regulatory queries


In Principle Approval

The regulatory review is complete and 'in principle approval' is issued. This is a document stating that the MFSA will issue the license provided that certain stated conditions are adhered to. In this case (and in most cases) these are simple requirements; form the companies, file signed original versions of the application forms, pay the licensing fee, etc. Smith and Jones have done their homework well, and the remaining conditions are easy to satisfy at this stage.


How we help: assistance with the fulfilment of all 'in principle approval' conditions.

Issuing of the License

The conditions stated in the In Principle approval are adhered to and a note to this effect is sent to the MFSA. Shortly thereafter the license itself is issued. Once the license is issued, an application for 'passporting' is filed with the MFSA, indicated the jurisdictions in which the company will offer its services. This is processed within a month (there is a statutory time limit) and the company can now start to collect client moneys and invest them.

How we help: filing of passporting applications, post-licensing compliance consultancy services, company administration and maintenance services

Our Investment Services Practice

My firm’s expertise and familiarity with local regulatory processes and comprehensive licensing and compliance service has positioned Chetcuti Cauchi Advocates as the Malta law firm of choice for discerning operators seeking a one-stop shop financial services solution provider in Malta. I hope the above gives readers a clear idea of what this kind of process looks like in real terms. Get in touch if you want to discuss further. You can find more information by following links to our website here:

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

Residence in Malta: the recent amendments

The rules governing the take up of residence by high net worth individuals in Malta have just undergone some important changes. We've put up an article on our website detailing the changes to the rules: this is essential reading for anyone interested in Maltese residence and immigration law matters. Read the full article by following the link here. While you're there, you may want to have a look at our immigration & relocation law practice page. Ours was one of the first law firms to focus on immigration & relocation for HNWI individual and if you're interested in relocating to Malta you should find plenty of useful information. Follow this link.

Malta iGaming Webinar

Over here we usually like to talk about the Maltese financial services industry and the opportunities it offers for international business. But there's plenty of other things happening in Malta which are of interest. The iGaming sector, for example, is very big and my colleagues in the iGaming team are always very busy assisting with the creation of new businesses and advising on compliance matters.

We're holding a webinar on the 28th of February 2012 at 11.00 (GMT +1). My colleague Dr Silvana Zammit
will be the main speaker and will run attendees through a number of practical examples. Should be useful for anyone interested in the industry.

Sign up here: http://www.ccmalta.com/events/malta_igaming_webinar_licensing_process

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

The Maltese Captives Industry: a quick note

As we've said in the past, Malta's financial services offering is not just about hedge funds (although that works very well for many different reasons, some of which are highlighted here). The country is also very well geared up to serve as a domicile for insurance captives, thanks, in particular, to protected cell company legislation that is pretty much unique within the EU.

I will write in more detail about this sector in a future post. In the meantime, you can find an overview of the relevant legislation on our website. There's also a neat presentation you can have a look at. You'll need to register on our portal to get access; just follow this link. Registering on our portal is worth your while; there's a wealth of information you can get access to.

Get in touch if you want to discuss this further.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

Do I need an office in Malta?

One of the most common questions that we get asked from clients looking to obtain a Malta financial services license is whether or not they need to set up an office in Malta. This matter is not addressed in the MFSA's rules and can be a source of some confusion. In this post I intend to share some experiences on this topic.

The key thing to bear in mind is that the regulator needs to see that the business is being done 'in or from Malta'. Otherwise the question arises: why is this regulator, rather than any other, exercising jurisdiction to regulate the business? What this means in practical terms will depend on the business in question. If you propose to have a hundred traders in Mayfair but only a single individual in Malta, that will inevitably be problematic (and not only because your Mayfair traders are likely to be highly envious of their colleague's new tan). A Malta financial services license needs to be backed up by real substance; this applies across the board, whether we are talking about a fund manager, a FOREX business, an insurance intermediary etc.

So far this is all very theoretical and high level of course. In order to discuss this topic in a more tangible manner, you need to look at the nature of the business in question, and the volume and kind of transactions that it is involved in. Not every Maltese financial services license is the same. A boutique advisory firm with a small, select clientele, is one thing. A FOREX market maker with sophisticated IT systems and thousands of customers is another.

Examples will help. We've been involved a number of times in the set-up of small advisory boutiques. Given that the activity here focuses on the giving of advice, the firm will certainly require at least one advisor to be located more or less permanently in Malta. The MFSA also invariably expects the compliance function (your CO) to be Malta based in one way or another. If the business is small, this could feasibly be sufficient, more so if the local advisor is also a director.

A different example: we were involved in the set-up of a highly specialized asset management company that catered for the needs a clientele composed of hedge funds. In this case, the promoters of the business moved to Malta en masse. This is of course ideal, but is by no means necessary. Intermediary arrangements in which some of the promoters are located in Malta while others are located elsewhere are fairly common and acceptable.

Note that in no case is the actual rental or purchase of office space a requirement. Various arrangements can be acceptable, as long as the interests of clients and investors are protected.

Of course, there are no hard and fast rules here given the silence of the rules on these matters. However I hope the above has shed some light on the matter. As usual, get in touch if you would like to discuss further.

Dr Charles Cassar
Malta Financial Services Lawyer
Chetcuti Cauchi Advocates

Visit our Malta FOREX page

At Chetcuti Cauchi we were among the first to recognize Malta's potential as a hub for international FOREX business. In the past months we have had the pleasure and the privilege of assisting many of these businesses with their Malta FOREX set ups. We've advised fund managers focusing of FOREX as an asset class, intermediaries employing straight-through-processing techniques, software developers providing FOREX platforms, as well as FOREX market makers. 

We're therefore launching a dedicated page on our website which will cater exclusively to this growing market. Here you will find a wealth of information, news, publications and other useful materials. Here's the link:

http://www.ccmalta.com/legal/forex

Have a look, and feel free to get in touch if you want to know more.

Dr Charles Cassar

Financial Services Lawyer

Chetcuti Cauchi Advocates

Malta Investment Services: Demystifying the License Categories

One of the very first steps in any licensing process is the determination of the appropriate license. This is a very important step, since a mistake at this stage can saddle you with an authorisation which is not fit for purpose. The obtainment of a Maltese investment services license (the sort of license that has become much sought after by investment advisors, fund managers and foreign exchange businesses) also necessitates the determination of a suitable license category.

There are four license categories under Maltese investment services rules. Distinguishing between them can be difficult, and a detailed analysis of each category is beyond the scope of this post. What I intend to do below is to outline in broad terms what each category is best suited for.

Investment Services Category 1: this category is primarily for investment advisers and investment intermediaries that simply receive and transmit orders. The key thing here is that the business cannot hold or control client moneys, so you cannot have a client account. This category carries a capital requirement of EUR50,000.

Investment Services Category 2: this category is best suited for fund managers, wealth managers and stock brokers. This category permits licensees to hold and control moneys, meaning that it is ideal for those businesses which exercise some form of discretion over the management of client money or which execute transactions. This category carries a capital requirement of EUR125,000.

Investment Services Category 3: this is the most sophisticated of the license categories and is suitable for multi-lateral trading facilities, market makers and firms which place instruments on a firm commitment basis. This category permits the conduct of all activities except fund custody. Firms are of course permitted to hold and control client money. Category 3 carries a capital requirement of EUR 730,000.

Investment Services Category 4: this category is reserved for businesses offing custody services to funds. This category carries a capital requirement of EUR 730,000.

Of course, if one reads into the detail of the rules, there are additional layers of complexity to the categorisation process in the context of Maltese investment services licenses. However the above should serve as a handy guide which covers the basics of investment services category selection.

Get in touch if you have questions.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

Malta gets the nod from Financial Times

There's more good press for Malta, with the Financial Times joining Bloomberg and Business Insider in highlighting Malta's efforts at building a financial centre of good repute. Titled 'Mediterranean Revival', the article highlights some of the various initiatives that are going on in Malta, such as the new High Net Worth Individuals Scheme and the Highly Qualified Persons Rules, which Jean-Philippe discussed in an earlier post. The article focuses on the various attractions of the Malta property market. While it does criticize certain aspects of the property market, the overall tone is positive.

Read the full article here.

Getting a Malta Financial Services license - what's it like?

Thanks to its low base costs and access to EU, Malta is attracting many smaller start-up firms. The jurisdiction is therefore seeing the arrival of smaller fund managers, investment boutiques and FOREX funds. This means that for many of my clients, their application for a Malta financial services license is their first encounter with a financial regulator.

Stepping into a regulated environment for the first time can be a daunting experience, but with proper preparation and guidance, it need not be. Therefore today I will try to provide a brief overview of the process that an applicant is expected to go through in order to obtain a Malta financial services license.

Preparing the documentation

Key to every licensing process is the preparation of high quality documentation that can demonstrate the well-preparedness of the applicant to the regulator. Thus, business plans, projections and other documents will need to be supplied to the MFSA for getting. Information about the individual promoters also needs to be provided as the MFSA will need to be satisfied that the promoters are fit and proper i.e. they have the qualities of integrity, solvency and competence that are expected from individuals running a financial business. Applicants need to be prepared to submit very high quality documentation; Malta is business friendly but regulators do not compromise on standards.

Meeting the regulator

The MFSA encourages face to face meetings. In fact we always advise or clients to make it a point to meet the regulator before proceeding with their applications. Responsiveness to applicants is one of the MFSA's strong points, and meetings can typically be secured in a matter of days (even within 24hrs, in urgent cases). Meetings are conducted in a friendly and informal atmosphere; the aim is not to discourage applicants, but to identify any possible challenges and discuss plans going forward.

Post-submission dialogue

Once documentation has been submitted, a two way dialogue process with the regulator begins. The MFSA will typically raise a number of queries or require certain clarifications. The regulator will very rarely respond to an application with an outright no (we have never had this experience), but is strict about standards and will expect applicants to be similarly diligent.

In principle approval

Once the regulator is satisfied with the documentation, an 'in principle approval' is issued. This is a document stating that, all things being equal, the license will be issued. Typically this document indicates a number of basic requirements that need to be ticked off, such as the formation of the relevant companies and the signature of agreements with third party service providers. Generally these are minor matters that can be settled in a few days.

Time-frames

This is of course the million dollar question! If an applicant is well prepared and pro-active, a two/three month period from submission should suffice. Nevertheless, preparedness of the applicant is key here. Malta has many things going for it, but it is not a 'quick fix' solution. Applicants should also make sure they budget for the time it takes for passporting procedures to be completed.

Post-licensing

Once the license is obtained, the licensee can start to offer its services. The licensee is required to adhere to a number of post licensing conditions, designed to ensure it is well run and its clients protected. Post-licensing conditions are a big topic, and I'll touch upon them in a future post.

Get in touch if you would like to learn more.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

Malta hedge funds generate more press buzz

It's very encouraging to see the hard work put in by local professionals and regulators being rewarded by a string of positive reviews focusing on the Malta hedge funds centre. It is indeed no longer correct to speak of Malta as a fledgling financial services jurisdiction; the country is very much a bona fide mature centre that can cater for the needs of a variety of industries and hosts some top names and professionals.

Thus, following hot on the heels of the Bloomberg article mentioned in a previous post, we now have a Business Insider article highlighting a number of reasons for opting for the Malta hedge fund solution. The reasons highlighted by the article include the country's excellent climate, competitive tax rates, sound regulatory infrastructure and EU membership. You can read the article here:

http://www.businessinsider.com/10-reasons-to-move-your-hedge-fund-to-malta-2012-1

Bloomberg has also followed up its article with an interview with the article's author. While warmly praising the domcile, the author sounds a warning note about the possibilities of the jurisdiction losing its edge as growth reduces the available human resources and dents competitiveness, but reassures viewers that this certainly won't be a problem in the short term. Indeed, with the various incentives and projects that are underway in this regad, I would say that the country appears to be very well aware of this challenge and is doing plenty to address this scenario even in the medium and long term. You can view the interview here:

http://www.bloomberg.com/news/2012-01-05/malta-lures-connecticut-hedge-funds-with-300-days-of-sun-aided-by-eu-rules.html

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

Malta Investment Services: Gateway to Europe for Advisors and Managers

While much of the industry buzz in Malta has focused on the growth achieved in the gaming and funds sectors, the investment services industry has been quietly gaining traction without attracting similar levels of attention. By investment services I am here referring to those activities that are regulated under the Markets in Financial Instruments Directive, or MiFID.

In Malta a number of factors combine to make the jurisdiction one that is very well suited for service providers looking for a platform from which to do business in Europe. Today I will be looking at some of those factors.

The MFSA: the Malta Financial Services Authority is the single regulator for financial services in Malta. It is a single regulator responsible for the authorisation and supervision of most of the businesses that one would characterize as financial in nature. Investment advisors, fund managers, insurance principals and intermediaries and banks all fall other its jurisdiction. The key things to know about the MFSA are that; a) it is a serious regulator that expects adherence to high standards b) it is nevertheless open to innovative ideas and unorthodox strategies c) it is highly accessible and keen to meet licensees and applicants face to face. This means that Malta Investment Services businesses can enjoy an unusually open and frank relationship with their regulator.

Low costs: Malta is not the cheapest jurisdiction in the world to do business in, and those investment services providers for whom bottom line is the sole determining in choosing their jurisdiction will certainly find other territories that suit their needs better. Nevertheless, for those service providers for which high regulatory standards, and access to the EU market are important considerations, Malta is likely to be the most cost effective options. Licensing and supervisoryfees are very competitive, as are professional fees and salaries. High quality property can also be purchased at a fraction of what property of a similar qualit would fetch in any other well established European financial centre.

Access to Europe: investment services are harmonized across Europe via the MiFID. Investment services providers which are authorised to trasact business in a European country can therefore passport their services into other jurisdictions, that is, offer their services in another EU country without incurring additional regulatory burdens. The cost and efficiency benefits that this can give rise to are self-evident. Thus, within a month from the obtainment of a Malta Investment Services license, the new licensee enjoys access to the European market for financial services.

Proportionate regulatory burdens: Malta investment services providers are not subject to a one size fits all regulatory regime. Instead there are four categories of license that are available, each catering for the risks raised by different types of business. Thus the Category 1 Investment Services license caters for low risk activities such as advisory services and reception and transmission of orders, and gives rise to an EUR 50,000 capital requirement. Riskier and more sophisticated activities, such as the activity of a multi-lateral trading facility, necessitate the obtainment of a Category 3 Investment Services license, which carries a capital requirement of EUR 730,000, and so on.

The factors outlined above mean that Malta is uniquely well suited as a platform for investment services providers looking to target a European clientele. The jurisdiction provides an affordable cost base, passporting rights, and an 'open for business' regulatory environment. Get in touch with us if you would like to know more.

Dr Charles Cassar

Financial Services Lawyer

Chetcuti Cauchi Advocates

Some less well known facts about Malta hedge funds

Much has been said in the specialist press about the Malta Hedge Fund product - the Professional Investor Fund, and I assume many readers will be familiar with the basic characteristics of the product. Today I want to highlight some features that, it seems to me, are somewhat less well known but are nevertheless important and noteworthy.

Service provider flexibility: one of Malta's key distinguishing features is the freedom that is afforded with respect to choice of service providers. The authorities understand that managers have strong relationships with their service providers which they may want to preserve when changing domicile. Malta hedge funds are therefore generally allowed to appoint whichever reputable service providers they choose, whatever the domicile of the service provider may be (a list of recognized jurisdictions is kept by the regulator for this purpose, covering the majority of the likely jurisdictions.

Choice of legal structure: most Malta hedge funds are formed as investment companies with variable share capital. Although this is a proven model with an excellent track record, its universality may have more to do with habit than necessity. A number of other vehicle options exist and these may be better suited to different circumstances. Tax transparent unit trusts, for example, may be useful in situations where an underlying asset attracts a high tax at source.

Freedom to pursue unorthodox investment strategies: the Malta hedge fund product, the PIF, allows fund managers to pursue their investment strategy of choice, with no investment restrictions being imposed on Malta hedge funds which have a minimum investment threshold of EUR 75,000 and market to suitably professional investors. The jurisdictions thus plays host to a variety of investment strategies, from traditional equity long/short to funds that invest in antique watches, life settlements, and similarly unusual asset classes.

A quasi-retail option: PIFs are sophisticated products that are intended for investors having a high degree of financial strength and expertise. Having said that, Malta permits the creation of 'quasi-retail' professional investor funds that can be marketed to 'experienced investors'. Investors in these funds are only required to invest a relatively modest EUR 10,000 as a minimum. The trade-off is that these funds are required to adhere to certain minimum diversification and investor protection requirements, designed to ensure that the rights of investors are protected.

Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates

The Malta FOREX boom

An increasing number of businesses providing services focusing on the foreign exchange asset class are choosing Malta as their domicile. At Chetcuti Cauchi we have experienced this growth first hand, having been engaged by a healthy number of FOREX businesses to handle their licensing and compliance requirements.

What is driving this growth? First of all, Malta has been working for a couple of decades now to create a business friendly environment. FOREX businesses are therefore choosing Malta for much the same reason that hedge funds, gaming operators, investment boutiques, financial institutions and other financial businesses choose the country; approachable regulators, competitive costs, low taxes, quality professionals and Mediterranean lifestyle.

Secondly, and perhaps more importantly, Malta also has certain characteristics which may appear to be of minor importance but can be of great benefit to FOREX businesses. Let's focus first on the question of legal clarity; in some jurisdictions, FOREX businesses exist in a sort of no man's land. Malta FOREX businesses on the other hand are regulated under the Investment Services Act, 1994. This is the same legislation that implements MiFID (the EU Directive on investment services) into Maltese legislation. This can gives rise to various advantages, including passporting opportunities, high regulatory standards as well as the all important peace of mind of knowing which set of rules one is required to adhere to.

In addition, Malta also has flexible rules with respect to leverage ratios. This allows Malta FOREX businesses to cater for a broader array of investor risk appetites.

Feel free to get in touch with us if you are interested in setting up a Malta FOREX business, or would like to know more about what Malta can offer you and your company.

Dr Charles Cassar

Financial Services Lawyer

Chetcuti Cauchi Advocates

Bloomberg highlights Malta hedge funds industry

Bloomberg has just spoken in glowing terms about Malta as a hedge funds domicile in an article titled 'Malta lures hedge funds with 300 days of sun aided by EU rules'. The article observes that a number of factors are leading hedge fund managers to choose Malta as a domicile for their hedge funds, such as a renewed focus on transparency. The article also suggests that widespread worries that the EU is soon to become hostile towards hedge funds not domiciled in an EU jurisdiction may also be leading some hedge funds towards Maltese shores. The much maligned AIFMD appears may be turning out to be a blessing in disguise for the jurisdiction; the changes that it introduces are likely to trigger discussions about choice of domicile in many boardrooms, and Malta, with its various charms and attractions, will certainly top many shortlists.

The article further cements Malta's standing as a hedge funds domicile, allowing hedge fund managers that have chosen Malta to reap a rich reputational dividend. No one expects 2012 to be an easy year, but this article serves as a reminder that Malta's hedge funds industry is strong and set for another year of growth.

Dr Charles Cassar

Financial Services Lawyer

Chetcuti Cauchi Advocates

Low taxes for Malta Financial Services Executives

A welcome initiative of the Maltese government is the recent introduction of a lower tax rate of 15% chareable on income of Malta financial services executives in excess of Euro75,000 and exempting from Malta tax any income over the five million Euro threshhold.

Evidently, Malta is showing concrete signs of its commitment to its success story with the financial services industry.  Topping the already favourable regulatory framework and corporate tax regime enjoyed by the gaming industry in Malta, these recent initiatives seek to attract highly qualified financial services expatriates to relocate to Malta under employment with gaming companies licenced by the Malta Financial Services Authority.

The Highly Qualified Persons Rules 2011 apply as of fiscal year starting 1st January, 2010 and will benefit financial services specialists with technical, management and industry specific know-how that will be crucial to ensure Malta survival as a top financial services domicile.  My partners and I have had the exciting experience of witnessing the exponential growth and the privilege of assisting top regulated hedge fund managers, investment services firms, captive insurance operators, forex companies and banking institutions start up their operations in Malta in the last decade and I for one welcome this initiative with open arms given the ever increasing demand for candidates to fill top jobs opening regularly in the local financial services market market.

Amongst the high end financial services executive positions covered by these new personal tax rules are the CEO, CFO, COO, Chief Risk Office, Senior Analyst, Structuring Professional, Senior Trader/Trader., CTO, Head of Marketing, Head of Distribution Channels, Head of R&D.  These “eligible offices” must be held with companies authorised or recognised by the Malta Financial Services Authority (MFSA).

My team is currently handling of a number of applications for top management officials of leading gaming groups under these rules.  I have prepared an overview of the Malta tax guidelines for financial services executives under the Highly Qualified Persons Rules - Malta Top Financial Services Management on my law firm's website. These should answer your first questions as to whether you qualify. If still in doubt, please contact me and my team of Malta tax advisors at your convenience.

Dr Jean-Philippe Chetcuti

International Tax & Immigration Lawyer

Chetcuti Cauchi Advocates