06 Apr 2015 AIFMD: How the local implementation of AIFMD in Malta affects the ability of fund managers to work with local investors
The transposition into national law of Directive 2011/61/EU of the European Parliament and of the Council on Alternative Investment Fund Managers (the ‘AIFMD’) could prove to be a challenging legislative framework for fund managers of non-UCITS funds, both onshore and offshore. Fund managers are now required to seek authorization under a new and comprehensive European Union (‘EU’) regulatory framework which aims at providing a harmonized and stringent regulatory framework for the activities within the Union of all Alternative Investment Fund Managers (the ‘AIFMs’). The AIFMD provides the legislative framework premised on three basic scenarios which are (i) the location of the AIFM (ii) the place of establishment of the Alternative Investment Fund (the ‘AIF’); and (iii) the AIF’s target market.
The AIFMD enhanced the ability of fund managers to work with local investors mainly through the adopted transparency requirements which include reporting and disclosure obligations. On the other hand, some argue that certain imposing measures adopted in the AIFMD could pose a negative drawback for AIFMs operating in and from Malta. This is largely seen through the specific requirement of appointing a local depositary, which could prove to be an increased financial burden for the AIF and the AIFM.
Authorised EU AIFMs can continue to manage and market non-EU AIFs on a private placement basis without a passport, but with a depository-lite, in the EU until July 22, 2015, subject to the full directive provisions and may have the opportunity to obtain a full EU passport in 2015 pending the European Securities Markets Authority final decision.
Registration as an AIFM
Fund managers operating in or from Malta are currently regulated in Malta, and require a Category 2 investment services licence issued by the Malta Financial Service Authority (the ‘MFSA’). Following transposition of the AIFMD into Maltese legislation, requires Maltese AIFMs to apply for authorisation by the MFSA, and once granted in accordance with the requirements and conditions set out in the AIFMD, such authorisation will be valid for all EU member States. AIFMs performing activities before 22 July 2013 will need to take all necessary measures to comply with national law transposing the AIFMD, and submit an application for authorisation within one year of that date (i.e. by 22 July 2014). AIFMs, in so far as they manage AIFs of the closed-ended type before 22 July 2013 which do not make any additional investments after 22 July 2013, may however continue to manage such AIFs without authorisation under the AIFMD.
All managers operating in and from Malta should fully comply with the AIFMD by 22 July 2014. In this respect, licence holders must ensure that their self-assessment form is submitted to the MFSA by 31 March 2014. Still, Category 2 licence holders may use the transitional period to adapt to the AIFMD framework. During this period the MFSA will require compliance on a ‘best efforts’ basis although all licence holders must comply by the July 2014 deadline. The MFSA requires that once a fund manager upgrades its licence to an AIFM licence, the funds managed by those fund managers will all be AIFMD compliant funds. Therefore the fund manager will be expected not only to upgrade its processes but to bring the funds in line with the requirements described in the AIFMD. It is pertinent to note that the AIFMD applies to both self-managed funds and also to external managers.
Reporting to the MFSA
According to the AIFMD, AIFMs subject to the reporting requirements of Article 24(1) must report the information for all the AIFs they manage. This means that AIFMs authorised under the AIFMD must also report information on non-EU AIFs that are not marketed in the Union for the purpose of Article 24(1). All AIFMs should start reporting to the MFSA as from the first day of the following quarter after theyhave information to report until the end of the first reporting period. Therefore one can denote that the reporting obligation focusses on the country of registration of the AIF and the Member State or EEA State where the marketing \ managing is taking place rather than on the nationality of investors.
Specific Information to be reported
In accordance with the MFSA Rules, the AIFM must report the following investments:
- Principal markets;
- Principal instruments;
- Values of assets under management for all AIFs managed
- In addition to the above information, the AIFM shall also provide the following to the MFSA;
- The percentage of the AIF’s assets which are subject to special arrangements arising from their illiquid nature;
- Any new arrangements for managing the liquidity of the AIF;
- The current risk profile of the AIF and the risk management systems employed by the AIFM to manage the market risk, liquidity risk, counterparty risk and other risks including operational risk;
- Information on the main categories of assets in which the AIF invested; and
The results of the stress tests performed
Restrictions on Marketing
The AIFMD is designed to offer better protection to both local and foreign investors. Still, there is much uncertainty as to how the European market will be effected in four years’ time when the transitional provisions relating to private placement are due to come to an end. This is also due to the nature of the AIFMD, which regulates the activities of the AIFM rather than the products or the investments themselves. The AIFMD does not impose any investment restrictions or limits on leverage except for the obligation on the AIFM to set a maximum level of leverage for each fund. This must be implemented taking into account various factors, such as the type of fund and the investment strategy. Still, under the new reporting mechanisms, local authorities may impose on AIFMs leverage limits if they consider that their activity would pose a systemic risk to investors
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