Brexit considerations for UK licenced Investment Funds, Asset Managers and Investment Firms passporting into Malta

Important dates to keep in mind

  1. Maltese collective investment schemes are to amend offering documentation and relevant agreements with UK service providers, to reflect any changes resulting from Brexit, by not later than 31 July 2019;
  2. Malta Temporary Permission Regime (“TPR”) to remain in force till 31 March 2020;
  3. TPR will only apply to clients/contracts on-boarded/entered into prior to 31 September 2019;
  4. As of 1 April 2020, UK licenced investment funds, asset managers and investment firms will be subject to laws relating to third country investment funds, asset managers and investment firms; and
  5. TPR will not cover new investors/clients on-boarded after 31 September 2019.

The Malta Financial Services Authority (the “MFSA”), Malta’s financial services regulatory body, has taken a stance of a likely no-deal Brexit scenario in issuing any guidance with regards to Brexit.

The MFSA initially issued a circular proposing the introduction of a TPR in relation to UK licenced investment funds, asset managers and investment firms (the “UK entities”) that are passporting their services or products into Malta. This was followed by the release of frequently asked questions (the “FAQs”), following a number of questions the MFSA was receiving from industry players. On the 11 July 2019, the MFSA issued its latest circular, outlining its latest position on the TPR to be applied.

The TPR will apply only if all the following conditions are satisfied:

  1. A no-deal Brexit scenario arises;
  2. The UK entities would be in possession of a European passporting right to provide services/products on a cross-border basis prior to the no-deal Brexit date;
  3. The TPR would only apply to existing clients/contracts and the UK entities would be servicing those clients/contracts that have been on-boarded/entered into up until the respective cut-off date, i.e: until 30 September 2019.

UK entities availing of the TPR may not provide/offer their services/products to any new investors/clients after the 30 September 2019.

Initial circulars highlighted that the TPR would apply for 12 months after the Brexit date. However in more recent circulars, the MFSA amended this time period, with the TPR remaining valid in Malta until the 31 March 2020.

The UK entities may continue to service existing clients/contracts with Maltese clients until the 31 March 2020. This TPR requires UK entities to undertake any of the following until the 31 March 2020:

  1. Terminate existing contracts in an orderly manner; and/or
  2. Obtain the required authorisation to provide the service/promote the product; and/or
  3. Assign the existing contract to a duly authorised entity.

After the 31 March 2020, all UK entities passporting into Malta will be treated as third country firms and the laws applicable to third country firms will apply to these UK entities.

The MFSA has issued a notification form to be completed by UK entities once the necessary legislation is enacted, which must be submitted to the MFSA by not later than 3 weeks from the no-deal Brexit date.

The MFSA released FAQs based on a number of questions that were being presented by industry players. In the FAQs the MFSA, amongst other, gave further guidance on the following:

A.  Marketing of UK UCITS and/or UK AIFs in Malta

Following a no-deal Brexit scenario, UK UCITS and UK AIFs would no longer be considered EU UCITS and EU AIFs and thus would not be able to make use of passporting rights under Chapter XI of the UCITS Directive (Directive 2009/65/EC) and Article 32 of the AIFMD (Directive 2011/61/EU).

UK UCITS will ipso facto become UK AIFs following Brexit. Being treated as third country funds, these funds would be able to continue marketing into Malta using the National Private Placement Regime and subject to the notification procedures outlined in Article 42 of the AIFMD.

B.  Management of a Maltese AIF by a UK AIFM

Malta has not implemented Article 37 of the AIFMD, with regards to the authorisation of non-EU AIFMs intending to manage AIFs managed by them in the European Union. Therefore Maltese AIFs managed by UK AIFMs must:

  1. Appoint an EU AIFM; or
  2. Convert the Maltese AIF into a Maltese Professional Investor Fund (“PIF”); or
  3. Convert the Maltese AIF into a self-managed AIF.

Any of the above changes must be implemented by the 31 March 2020.

C.  Management of a Maltese UCITS by a UK UCITS management company

Maltese UCITS that are managed by UK UCITS management companies would have to either convert into a self-managed Maltese UCITS or appoint an EU UCITS management company.

Any of the above changes must be implemented by the 31 March 2020.

D.  Maltese UCITS management companies delegating investment management functions to UK licenced entities

Delegation of the management function to a UK MiFID firm can only take place if a cooperation between the MFSA and the Financial Conduct Authority (“FCA”) is in place. The MFSA along with the European Securities and Markets Supervision Authority (“ESMA”), other EU/EEA securities regulators and the FCA, have entered into a multilateral memorandum of understanding outlining the supervisory cooperation, enforcement and exchange of information. A fund manager outsourcing and delegating to UK MiFID firms may thus continue doing so.

Furthermore, should the delegation of portfolio management services be initiated by and at the request of a Maltese client (reverse solicitation), such services would not be impacted by a no-deal Brexit scenario as these services would be provided to a Maltese client by and from a UK entity and no provision of services occurs in Malta.

E.  Maltese AIFMs delegating investment management functions to UK licenced entities

Under the AIFMD, the delegation of investment management functions to third country managers is permitted, provided certain conditions are satisfied. Such conditions include the notification to the regulatory authority of the EU AIFM and EU AIF and a memorandum of understanding between the relevant competent authorities (which is already in place as outlined in point D above).

The same principles of reverse solicitation as outlined above apply to AIFMs delegating investment management functions to UK licenced entities.