Third-party managed Maltese funds must appoint an MLRO by 30th April, 2013 (Updated)

Following an alignment of the interpretation of the phrase “marketing its units or shares” with the concept of marketing in the AIFMD, Maltese investment funds managed by third-party managers will now be considered to be “subject persons” under the Prevention of Money Laundering & Terrorist Financing Regulations (PMLFTR). These investment funds are expected to appoint a Money Laundering Reporting Officer (MLRO) by not later than 30th April, 2013. The same amendments to the PMLFTR Implementing Procedures also added a new chapter (Chapter 9) formally recognising AML outsourcing arrangements by funds with no physical operational set-up to their fund administrator including the possibility of appointing the MLRO of the administrator as the fund’s own MLRO.

On 4th February, 2013, the Malta Financial Intelligence Analysis Unit (FIAU) published a number of amendments to Part I of the PMLFTR Implementing Procedures of particular relevance to Maltese collective investment schemes and their administrators. The two main changes are: (a) a widening of the interpretation of “marketing its units or shares”, and (b) the formal recognition of AML outsourcing by funds to their administrator including the appointment of the MLRO of the administrator as the fund’s own MLRO.

In line with the Alternative Investment Fund Managers Directive the phrase “marketing its units or shares” is now (see Brief Background below) being interpreted to cover all instances where units or shares are placed with investors, whether directly or indirectly, by the scheme itself or by other third parties on behalf of the scheme (e.g. investment manager or distributors). This means that both internally managed funds (self-managed funds) as well externally managed investment funds (funds that appoint a manager) are to be considered as subject persons under the PMLFTR and will be required to comply with PMLFTR obligations including the appointment of an MLRO.

Recognising that externally managed investment funds would normally not have a physical operational set-up in Malta, the amended Part I of the PMLFTR Implementing Procedures expressly permit such investment funds to outsource their AML obligations to their fund administrator including outsourcing the fund’s MLRO duties to the MLRO of the administrator. The Implementing Procedures permit such investment funds to outsource to Maltese recognised fund administrator or to fund administrators situate in other EEA member states or in reputable jurisdictions. The outsourcing arrangement should be adequately documented by means of an outsourcing agreement or as part of the fund administration agreement.

Following the 4th February amendments, the Malta Financial Services Authority (MFSA) issued a circular dated 5th February, 2013 repealing its 2009 circular (see Brief Background below) and granting existing funds a transition period ending on 30th April, 2013 to align with the amended Part I of the PMLFTR Implementing Procedures.The MFSA will in due course be revising the Investment Services Rules to reflect these amendments.

Brief Background

The PMLFTR apply to collective investments schemes marketing their units or shares licensed or recognised, or required to be licensed or recognised, under the provisions of the Investment Services Act. Prior to 4th February, 2013, collective investment schemes that did not market their shares themselves directly, either through their board of directors or persons directly employed with the scheme were, pursuant to an MFSA circular issued on 22nd December 2009, not considered as marketing their units or shares and accordingly were not considered to be subject persons. Although in practice CDD continued to be carried out by the fund administrator (being a subject person in its own right), this interpretation exempted the majority of externally managed funds from AML obligations including in particular the appointment of an MLRO. By repealing this circular, this position has now been reversed.

Note: This updated news item (originally published on Feb 9, 2013 at 16:38) clarifies that the administrator’s MLRO may be appointed as the fund’s own MLRO following clarification by the FIAU.