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
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
