Retail Funds

General

Retail funds, unlike Professional Investor Funds (PIFs) and Alternative Investment Funds (AIFs), are funds which are offered to the public at large and do not impose any eligibility requirements on investors.  UCITS funds are retail funds regulated by the Undertakings for Collective Investment in Transferable Securities UCITS Directive; which provides for a homogenous set of product rules aimed at facilitating and stimulating the sale and marketing of retail investment funds whilst developing a single market for financial services across the EU. They are also regulated locally through the Investment Services Act and the supplementing Rules for Retail Collective Investment Schemes issued by the Malta Financial Services Authority (MFSA). These Rules include regulatory requirements for the classes of collective investment schemes entitled Maltese Non-UCITS Schemes, Maltese UCITS Schemes, Overseas Non-UCITS Schemes and European UCITS Schemes and contain the Application Process for a Collective Investment Scheme Licence and the Standard Licence Conditions.

Collective investment schemes (CIS) are generally precluded from operating in or from Malta without having a license. The MFSA may only grant a Collective Investment Scheme license to a Retail CIS if it is satisfied that the CIS will organize and controls its affairs in a responsible manner and will comply with the provisions of the Investment Services Act, the relevant Regulations and Rules. Its directors and officers, or in the case of a unit trust or limited partnership, its Trustee(s) or General Partner(s) respectively, need also be fit and proper persons to carry out their required functions.  To satisfy the ‘fit and proper’ test, the criteria of integrity, competence and solvency must be met. The MFSA will also have particular regard to the protection of investors and the general public, the protection of the reputation of Malta taking into account Malta’s international commitments, the promotion of competition and choice and the reputation and suitability of the applicant and connected parties. The onus of proving the meeting of the required standards on an ongoing basis is on the applicant or the licensed Retail CIS, as the case may be.

UCITS V Directive introduced amongst others additional eligibility requirements for the Custodians or Depositaries of UCITS Schemes. Custodians or Depositaries have the important duties of the safekeeping of the Schemes’ assets and of acting honestly, fairly, professionally, independently and solely in the interest of the UCITS and the investors of the UCITS. To address divergent approaches between Member States as to eligibility to act as a UCITS Custodian or Depositary, UCITS V lists the institutions that may act as a UCITS depositary.  These are;

-          national central banks;

-          credit institutions; and

-          other legal entities authorised by the competent authority under the laws of a Member State.

It also introduces new requirements relating to the remuneration of key personnel involved in the management and operation of UCITS.

Maltese UCITS Schemes

A Maltese UCITS Scheme may be set up as an investment company with variable share capital (SICAV), a limited partnership whose share capital is divided into shares in terms of the Companies Act, a unit trust or a common contractual fund. Subject to certain conditions it may also be set up as an Incorporated Cell Company (ICC).

A Maltese UCITS Scheme is required to appoint a Maltese or European management company, unless it is set up as a self-managed Maltese Scheme. In the latter case, the Maltese UCITS Scheme should be constituted as an investment company with variable share capital. The management company or the self-managed Maltese UCITS Scheme may delegate the administrative function to an administrator.

The Custodian of the Maltese UCITS Scheme is required to keep under custody the assets of the Scheme and to monitor the activities of the Investment Manager or the management of a self-managed Scheme. A Fund Administrator and an Investment Adviser are also ordinarily expected to be appointed.

The Scheme may market its units to the general public in Malta. It may also market the units to the general public in any EU Member State or EEA State provided the notification procedure stipulated in the Investment Services Act (Marketing of UCITS) Regulations is followed.

The Scheme is also required to draw up a Prospectus and a Key Investor Information Document (a short document on each scheme containing key information for investors).

The Scheme shall be informed within two months of the submission of a complete application, on whether authorization of the UCITS has been granted.

European UCITS Schemes

A European UCITS Scheme can be constituted as a unit trust, common contractual fund or investment company, harmonized in accordance with the UCITS Directive and authorized by a European regulatory authority of an EU Member State or EEA Member State. To market and promote their units in Malta, either directly or indirectly through intermediaries, such Schemes will be deemed to be carrying on an activity in Malta. However, they may be exempt from the requirement of holding a licence as they may exercise a passport right in terms of the UCITS Directive provided they follow a specified notification procedure. This procedure entails the receipt of a notification letter from the European regulatory authority of the EU Member State or EEA State which includes amongst others;

- information on the arrangements made for marketing by the European UCITS of its units in Malta, including where relevant in respect of share classes;

- an indication that the units of the European UCITS will be marketed by the management company that manages the European UCITS;

- the latest version of its fund rules or its instruments of incorporation and its prospectus in Maltese or English.

Nevertheless, whenever a European UCITS Scheme is sold exclusively on a one-to-one basis to persons in Malta, by Investment Services Licence Holders or European investment firms/European Management companies passporting into Malta, the Scheme is not required to follow the notification procedure referred to above. This applies also to when it is the investor who requests information, including marketing material, on the Scheme, and to a Scheme that is not marketed in Malta in its own right but is available for linking to unit linked policies which are themselves marketed in Malta.

A European UCITS Scheme is required to satisfy the MFSA that adequate measures have been taken to ensure that facilities are available in Malta for making payments to unit holders, repurchasing and redeeming units and making available the information which the European UCITS Schemes are obliged to provide.

Application Process

The application process for obtaining a Collective Investment Scheme License generally includes the holding of a preliminary meeting of representatives of MFSA and the promoters, where guidance is given on the regulatory requirements and the Applicant provides a comprehensive description of the proposed activity. Afterwards, the promoters submit a draft Application Form, together with supporting documents, which will be reviewed and commented upon. A decision will be made regarding which Standard Licence Conditions should apply. In the pre-licensing phase, the Authority will issue its ‘in principle’ approval for the issue of a licence, and the Applicant will be required to finalise any outstanding matters. Relevant lists of the documentation required are provided for in the MFSA Rules for Retail Collective Investment Schemes.

Retail CIS constituted in the form of an umbrella fund (i.e. with sub-funds) may also apply in order to establish additional sub-funds. Retail CIS constituted in the form of an umbrella fund or multi class (i.e. without sub-funds) may also apply in order to issue an additional class of shares/units. The MFSA Rules for Retail Collective Investment Schemes also provide for application fees and annual supervisory fees and for the surrender of a Collective Investment Scheme Licence.

Application Fees

Standard License Conditions

These provide rules for Malta based Retail UCITS Collective Investment Schemes regarding;

 -          Service Providers (i.e. Manager, Administrator, Investment Adviser, Custodian, Auditor);

 -          Compliance Officer and Money Laundering Reporting Officer;

 -          Investment Objectives, Policies and Restrictions;

 -          Prospectus;

 -          Constitutional Document;

 -          Promotion;

 -          Side Letters;

 -          Distribution of Income;

 -          Valuation of Assets or Issue of Units;

 -          Permissible Investment Instruments;

 -          Key Investor Information Document;

 -          Exercise of Passport Rights by the Scheme;

 -         Other general rules and supplementary conditions.

Listing on the Malta Stock Exchange

A Maltese UCITS Scheme that has been granted or has applied for a Collective Investment Scheme Licence may apply for admissibility to listing with the Listing Authority.

Taxation on UCITS

The tax treatment of a fund or a sub-fund of a CIS depends on its classification in Maltese law; that is, whether it is considered a prescribed fund or a non-prescribed fund.

Prescribed funds are established in Malta and have over 85% of the value of their assets situated in Malta. Such UCITS are subject to a withholding tax of 10% which is imposed on interest, discounts or premiums earned on Maltese government stocks or bonds, and bonds issued by listed companies as well as investment income payable by corporate entities. Bank interest is taxed at 15% whilst income from immovable property situated in Malta is subject to tax at the normal rate of 35%.

Non-prescribed funds are any investment funds which do not qualify as a prescribed fund; i.e. having more than 15% of the value of their assets situated outside Malta. Income and gains derived from such funds are exempt from income tax (except for profits and capital gains relating to immovable property situated in Malta which is taxed at the normal rate of 35%). Subject to certain conditions, capital gains realized on transfers or redemption of investment fund units by non-resident investors, irrespective of whether the funds are prescribed or not, are exempt from Maltese tax. Dividends distributed by a fund whether these are reinvested or otherwise, to non-resident investors are not subject to tax in Malta. An exemption from stamp duty applies in respect of transfers of securities by licensed funds and in respect of transfers by investors of the units of a licensed fund.

Contact
For further information on UCITS funds, please contact Laragh Cassar on 00356 2122 4276 or laragh@camillericassar.com