On 22 December 2022, the Malta Financial Services Authority (‘MFSA’ or ‘the Authority’) issued a stakeholder consultation on the proposed establishment of a new framework for Notified Professional Investor Funds (‘NPIFs’). The NPIF framework proposal seeks to introduce a new fund structure, complementing the existing fund frameworks in Malta. The framework will bring about lower barriers to entry for professional investor funds through a risk-based and proportionate approach.
On 28 October 2021, the MFSA issued a Discussion Paper on its Asset Management Strategy. The introduction of a NPIF regime was one of the proposals set out in Pillar III – Innovation through Regulation underpinning this Strategy. The MFSA received positive feedback in relation to this proposal, with respondents highlighting that this may contribute towards Malta’s attractiveness as a fund jurisdiction and would address the needs of a specific segment of the market. As a result, the MFSA pursued to devise a proposed rulebook envisaged to govern the proposed NPIF framework.
Highlights of the proposed Framework
- NPIFs would be subject to a notification process and therefore will not be authorised by the MFSA.
- Offering documentation and marketing material will not be reviewed or approved by the Authority.
- NPIFs will only be available to investors meeting the Qualifying Investors criteria.
- NPIFs will be subject to a minimum level of supervision and therefore adequate risk disclosures are to be made to any prospective investors accordingly.
- NPIFs would need to be set-up as third party managed funds and can only be managed by [i] locally authorised de minimis AIFMs, [ii] EU de minimis AIFMs, [iii] third country AIFMs authorised in jurisdictions which the MFSA deems to have an equivalent or comparable regime and with whom the MFSA has a signed cooperation agreement/ memorandum of understanding.
- A third-party service provider of the NPIF shall be entrusted with conducting due diligence on the NPIF at notification stage and on an ongoing basis. Such a third-party service provider can only be an MFSA -: [i] recognised fund administrator, [ii] authorised full-scope AIFM, or [iii] authorised above-threshold Corporate Service Provider.
- The appointed third-party service provider shall carry out a due diligence exercise to ensure that other service providers and functionaries, the governing body, founder shareholders, and Money Laundering Reporting Officer (‘MLRO’) of the NPIF, satisfy at the time of notification and on an ongoing basis, the fitness and properness standards expected by the MFSA.
- A NPIF shall have a MLRO appointed at all times. Such function may be delegated to: [i] the fund administrator of the NPIF, or [ii] an officer of the NPIF who has sufficient authority to fulfil the duties of the MLRO.
- One of the members of the governing body of the NPIF shall be resident in Malta and shall be responsible to leading the matters relating to compliance with regulatory obligations and reporting thereof.
- The governing body shall be required to submit an annual compliance certificate to the MFSA.
- A NPIF shall not be subject to any restrictions relating to the investment strategy, except for ‘Lending’ activity as defined under the MFSA’s Loan Funds Rules.
- The NPIF is not required to appoint a custodian but shall ensure that its assets are subject to adequate safekeeping arrangements. Such arrangements shall be outlined in the notification process and detailed in the offering documents of the NPIF.
- Fund administration services are to be provided by an MFSA recognised fund administrator.
- The MFSA consultation process is open until 31 January 2023. Feedback and comments on the proposed framework are to be submitted to the MFSA on email@example.com.
- The proposals put forward by the MFSA are not binding and are subject to changes and revisions following receipt of feedback from stakeholders.
- Further developments will be communicated by the MFSA in due course.
Our Investment Services and Funds Practice Area
Mamo TCV Advocates has experience in the structuring and licensing of collective investment schemes mainly UCITS; alternative investment funds and professional investor funds. We have advised clients on different structures which include multi-fund and multi-class funds, funds of funds, tracker funds and master/feeder structure. We have also provided assistance on the development of alternative investment policies and strategies and investment in less traditional, alternative and complex asset classes. We also assist in the notification process for Notified Alternative Investment Funds (NAIFS).
You can learn more about our scope of services in this area through this link.