Introducing the ‘Notified AIF’ Regime
Earlier this year, the Malta Financial Services Authority (“MFSA”) announced the launch of an innovative new breed of investment fund regime for Alternative Investment Funds (“AIFs”), namely the Notified AIF.
Notified AIFs will not require ‘licensing’ by MFSA and will not be subject to on-going MFSA supervision
The inherently light regulatory touch and corresponding approval mechanism of the new framework applicable for the ‘notification’ of AIFs represents a clear manifestation of the MFSA’s ongoing drive to simplify Malta’s fund offering and bolster efficiency of the authorisation process to the extent that Notified AIFs will not require ‘licensing’ by MFSA and will not be subject to on-going MFSA supervision.
In the wake of voluminous regulatory reforms implemented both at EU-level and locally over the course of recent years, the move has ostensibly been very well received by financial services practitioners and key industry players alike. As at the time of writing, the first Notified AIF has already been set up and included in the ‘list of Notified AIFs’ maintained by the MFSA and the new Notified AIF is touted to become one of the primary EU fund vehicles of choice for the industry over the course of the coming 3-5 years.
The new Notified AIF regime is rooted in the provisions of the AIFM Directive and will be available to AIFs promoted to qualifying or professional investors which are externally managed by a Maltese or EEA passported full-scope AIFM (Alternative Investment Fund Manager).
Accordingly, the key feature of the new structure is the reliance on the AIFM’s regulatory status whereby the investment manager assumes full responsibility for the Notified AIF as well as for the fulfilment of its ongoing obligations, meaning that the Notified AIF itself will not be subject to ongoing prudential regulation.
Within 10 business the MFSA will proceed to include the AIF in the publicly available list of Notified AIFs
For this reason, the ‘notification’ process is not available to ‘self-managed’ AIFs (AIFs which have not appointed an external investment manager). Similarly, the Notified AIF regime may not be used by Loan Funds and AIFs investing in non-financial assets, such as antiques, works of art, classic cars, real estate and physical commodities.
Following an internal approval process undertaken by the AIFM, the latter will submit a formal notification request to the MFSA within 30 days, which request must be supported by:
- A compliant prospectus prepared on the basis of a ‘proforma’ document made available by the MFSA;
- A resolution of the AIF’s governing body certifying the AIF’s prospectus as compliant;
- AIFM self-certification confirming that it has the necessary competence and experience to manage and monitor the AIF;
- A joint declaration from the governing bodies of the AIFM and the AIF respectively undertaking responsibility for the AIF and its continuing compliance with the AIFM Directive; and
- A declaration by the AIFM confirming that it has carried out the necessary due diligence in respect of the AIF’s governing body and service providers.
Within 10 business days from the date of submission of the relative notification pack, the MFSA will proceed to include the AIF in the publicly available list of Notified AIFs in good standing on its website.
Clearly, the new regime has shifted significant liability and additional obligations onto the AIFM to the extent that when establishing a Notified AIF, the ‘notifying’ AIFM assumes responsibility for, inter alia, ensuring that appropriate due diligence assessments are carried out in respect of the governing body and service providers of the AIF and that such due diligence records are updated at least annually. Moreover, the AIFM is tasked with ensuring that the Notified AIF appoints a Money Laundering Reporting Officer (MLRO) and must also report to the MFSA on a quarterly basis with a complete list of investors in the Notified AIF, details of subscriptions and redemptions and an indication of the due diligence measures applied by the Notified AIF on its investors.
Despite this added responsibility assumed by the investment manager, it is widely acknowledged that the benefits of time- and cost-efficiency inherent in Notified AIFs far outweigh any negative aspects or additional liabilities placed on the AIFM.
Consistent with the regulatory innovation with which our funds industry has come to be synonymous, the new Notified AIF regime was rolled out in parallel with a regulatory exercise to consolidate and streamline the entire suite of fund regimes comprising Malta’s fund offering, with a view towards improving the overall competitiveness of the Maltese funds market and enhancing the efficiency of the authorisation process by simplifying the supervisory process.
The efficiency and ‘speed to market’ inherent in the Notified AIF regime coupled with the safety of the underpinning AIFMD provisions, is expected to attract considerable interest from fund operators and should effectively bolster Malta’s position as a centre of excellence for the asset management industry.
This Article was first published on Money Magazine, November 2016.