MFSA Launches Framework for Notified PIFs

The Malta Financial Services Authority (MFSA) has introduced a framework for Notified Professional Investor Funds (NPIFs), following consultation documents issued in December 2022 and May 2023.

This framework is part of the Authority’s strategic initiatives in asset management and therefore reference should be made to:

• Investment Services Act (Notified CISs) Regulations
• Investment Services Rules for NPIFs and related Due Diligence Service Providers and
• related annexes
• Guidance Note on Fitness and Properness Standards for Due Diligence Service
• Providers of NPIFs
• Reporting Guidelines for Notified Professional Investor Funds

The Regulator highlights the following from the launch of the NPIF framework:

Amendments existing rulebooks

These amendments include an adjustment to the definition of ‘Professional Investor Fund’ within the glossary of fund rules. The revised definition broadens its scope to encompass NPIFs, defining Professional Investor Funds as a special class of collective investment scheme subject to the Investment Services Rules. Additionally, amendments to various fund rulebooks are required to facilitate the conversion to and from NPIFs.

Reporting

According to Section 3 of Part B of the Notified PIF Rules, Notified PIFs are obligated to regularly submit reports to the MFSA regarding their investment strategy and portfolio composition. This reporting is to be done through a dedicated Annex. While Notified PIFs managed by local de minimis Alternative Investment Fund Managers (AIFMs) are exempt from this requirement, those managed by EU small AIFMs and third-country managers must submit “Annex 2 – AIF – Specific Information to be reported (Article 3(3) and Article 24(1) AIFMD)” (referred to as ‘Annex 2’). The MFSA has provided a dedicated Guidance Note on reporting, including instructions on how to complete the mentioned annex.

Independence of Auditor

After the publication of a feedback statement, a stakeholder expressed concern about the perceived generality of the statement emphasising the importance for an appointed auditor to avoid involvement in providing other services to the same fund, aiming to ensure necessary independence. In response, the MFSA clarified that while it is crucial for auditors not to serve as both auditors and due diligence service providers for the same NPIF, it should not be misconstrued as a blanket prohibition on auditors providing services to funds. The MFSA emphasised the need for prior approval for any auditors appointed in relation to an NPIF and provided further clarification in the updated Rules. The context for this clarification arose from a stakeholder query regarding the independence of an audit firm (or a related company) serving as the Due Diligence Service Provider for an NPIF and potentially also acting as the auditor for the same fund.

Third Country Managers

Third-country AIFMs that are authorised in a jurisdiction with a bilateral cooperation agreement or memorandum of understanding on securities with the MFSA, and that the Authority deems to be subject to regulation at a level equal or comparable to that in Malta, are permitted to manage NPIFs. In the absence of such agreements, the MFSA may accept other forms of agreements or memoranda of understanding that it considers acceptable. The MFSA emphasises the need for clarity in assessing whether a third-country regulatory regime is of an “equal or comparable level” to the local one. Criteria for assessment include authorisation, internal arrangements, fitness and properness, capital requirements, ongoing reporting, and anti-money laundering/counter-terrorist financing arrangements. Selected fund managers from specific jurisdictions (Switzerland, the UK, Guernsey, and Jersey) listed in the NPIF Notification Form require no further approval. However, applicants seeking to appoint a manager authorised under an unlisted regulatory framework or jurisdiction must obtain relevant approval from the MFSA before submission, providing details and representations for assessment on a case-by-case basis.

About the Author

This article has been authored by Dr Chanelle Meli, Regulated Industries and Compliance Advisor. Contact us here or on info@csbgroup.com for more information.