On the 10th March 2015, the Malta Financial Services Authority (MFSA) issued a consultation document on the regulatory approach applicable to licensed Professional Investor Funds (PIF) and Alternative Investment Funds (AIF).

The initial transposition of the Alternative Investment Fund Managers Directive (‘AIFMD’), facilitated the gradual phasing in of funds falling under the provisions of the Directive as follows:

1. a) below threshold (de minimis) and non-EU AIFMs could establish PIFs; while
2. b) above-threshold (full) AIFMs could establish both PIFs as well as AIFs.

This meant that Malta could retain its popular PIF framework to the extent that PIFs managed by AIFMs are in full compliance with the AIFMD.

This meant that Malta could retain its popular PIF framework to the extent that PIFs managed by AIFMs are in full compliance with the AIFMD

Industry feedback received following a consultation launched by the MFSA towards the end of 2014 on proposed supplementary licence conditions to regulate the establishment and supervision of private equity funds, focussed on a request to distinguish clearly between AIFs and PIFs and to keep the two regimes separate not solely in the application of supplementary SLCs applicable to private equity funds but in general in the authorisation and supervision of funds which are not retail.

Accordingly, in order to provide clarity to the industry, the MFSA is proposing the following two options:

Option 1

Allow full AIFMs to manage both PIFs and AIFs (retaining the current position). This option aims to provide the industry with the possibility to establish any type of fund and, accordingly:

• An EU AIFM (above threshold) can establish a PIF or an AIF (provided the AIFM ensures that the PIF is AIFMD Compliant);
• An EU de minimis AIFM can only establish a PIF;
• An EU self-managed fund which is above-threshold (full AIFM) can only be established as an AIF;
• An EU self-managed fund which is below-threshold (de minimis AIFM) can be established as a PIF;
• A non-EU AIFM can establish a PIF or an AIF, subject to compliance with special provisions applicable to non-EU AIFMs managing EU AIFs.

Through this option, the PIF brand may be retained even for AIFMs that exceed the threshold. This would allow two different frameworks to serve as platforms for AIFMs irrespective of their size.

Option 2

Allow full AIFMs to manage only AIFs with the aim of introducing a clear distinction between the types of fund platforms that an EU AIFM can manage depending on its size and obligations under the Directive. It essentially entails a restructuring of the classifications by the MFSA.

This option would mean that:

• An EU AIFM (above-threshold) can only establish an AIF;
• A de minimis EU AIFM can establish a PIF;
• An EU self-managed fund which is above-threshold (full AIFM) can only be established as an AIF.
• An EU self-managed fund which is below-threshold (de minimis AIFM) can be established as a PIF;
• A non-EU AIFM can establish a PIF or an AIF, subject to compliance with special provisions applicable to non-EU AIFMs managing EU AIFs.

The MFSA indicated that it is inclined to favour Option 2 primarily because (a) maintaining a clear distinction between the PIF and AIF regime provides for greater clarity and reduces possible misunderstandings regarding the applicable requirements; and (b) possible issues with regards to the applicability of the governance provisions.

The consultation closes on the 30^th March 2015 following which the MFSA will finalise its policy decision and establish a way forward.