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NAIF - an AIFMD-Compliant Fund with quick access to the market

March 2017 - Finance. Legal Developments by Chetcuti Cauchi Advocates.

More articles by this firm.

Since the advent of the Alternative Investment Fund Managers Directive (‘AIFMD’), fund managers have been facing a double regulatory burden as a result of having both fund managers and funds subject to prudential regulation which led to overlapping and possibly inconsistent regulatory requirements affecting funds.

In order to address such situation and to be in line with the spirit of AIFMD – which was intended to regulate the fund manager and not the fund, the Malta Financial Services Authority (‘MFSA’ or ‘Authority’) has once more shown that innovation is key to Malta financial services industry. During the second quarter of this year the MFSA launched the Notified Alternative Investment Fund (‘NAIF’) regime, thus placing itself once more as a financial services centre of choice, which is innovative and sensitive to the needs of the industry giving it both a local and EU dimension.

A NAIF may be established in Malta in terms of the Investment Servcies Act (List of Notified AIFs) Regulations, 2016 and by the Investment Services Rules for Investment Services Providers.

A NAIF is able to offer its units to professional investors as described in Annex II of Directive 2004/39/EC and/or qualifying investors, be either open-ended or closed-ended and established in any form permitted under Maltese law; namely SICAVs (investment companies with variable share capital) INVCOs (investment companies with fixed share capital), limited partnerships, unit trusts, common contractual funds or incorporated cells. Due to the nature of the NAIF regime at this stage a NAIF cannot be self-managed, or set up as a loan fund or real-estate fund.

Under the NAIF regime, unlike existing fund regimes, notified AIFs will not need to be licensed, authorised or approved by the MFSA nor will they be subject to any ongoing regulation. Thus Malta licenced Alternative Investment Fund Managers (‘AIFM’) or EU AIFMs in possession of a management passport in terms of Article 33 of the AIFMD, are in a position to establish such notified AIFs without the need of having the MFSA’s authorisation. In future, it is envisaged that third country AIFMs will also be able to submit a requests for a notified AIFs once such third country AIFMs are granted passporting rights pursuant to the AIFMD.

Such regime has therefore addressed a fundamental matter concerning every European fund manager – the speed to market its funds to investors.

In order for an AIFM to be in a position to commence marketing a NAIF or a sub-fund of an existing NAIF, the AIFM following discussions and guidance from the legal advisors, will submit the statutory documents to the MFSA as part of the notification procedure. The MFSA will include the NAIF or a sub-fund in the List of Notified AIFs (‘List’) within ten (10) workings days from filing. Once included in the List the NAIF or its sub-fund can be marketed to investors. The MFSA reserves the right to remove a NAIF from its List at its discretion and has also listed instances when an AIFM may request the MFSA to remove a NAIF or a sub-fund of a NAIF from the List.

The NAIF regime has a number of advantages: The MFSA does not require a licence or authorisation for a NAIF or any of its sub-fund(s), and the NAIF or any of its sub-fund(s) will be placed on the MFSA’s List within ten (10) days from the receipt of a completed notification pack.  The NAIF regime has reduced the timeframe within which an AIFM can market its funds, thus giving the AIFM more flexibility. Since the AIFM is authorised to market through the AIFMD marketing passport, it will allow the AIFM to market its NAIF on a cross-border basis to professional investors.

The NAIF framework is quicker, easier to understand and more cost effective than other comparable regimes within the EU. The fact that the fund itself is not regulated can be greeted as a sigh of relief by asset managers who felt that the industry was suffering from regulatory fatigue and over regulation. In Malta an AIFM may setup its operations and make use of Malta’s effective and EU compliant regulatory regime, take advantage of Malta’s over 70 double tax treaties, have access to the regulator, a strong and competent work force and other third party service providers who will be in a position to assist the AIFM during the early and latter stages of its operations. The NAIF can be an excellent tool and product for AIFMs to use and develop in order to be able to market to investors in a short and efficient time span and thereafter do what AIFMs do best.

For additional information about AIFMD, we kindly invite you to read the following:

Malta Notified Alternative Investment Funds

About the Authors:

Dr Maria Chetcuti Cauchi

Co-founding partner, Maria is the partner in charge of the Corporate law & Regulated Business Units of the Firm.

On a day to day basis, Maria’s team advises an array of clients on regulatory issues, compliance matters, commercial and finance transactions and corporate governance issues in general. Maria has vast experience of start-ups, corporate restructurings, takeovers, mergers, privatisations, and equity and debt financing structures. Maria’s team regularly handholds banks and financial services companies on the procedure to set up in Malta, the compliance and regulatory aspects of their business including client intake and due diligence, ongoing compliance procedures, reporting and general regulatory observance matters.

Maria’s pet subject centres around the application of traditional notions of Intellectual Property and Financial Services Law to the online world, as well as the conversion of brick and mortar notions to cyberspace. These mostly include projects with a fusion of technology law and investment/finance law, such as payment gateways, gaming operations, e-money institutions and ICT online operators.

Mr Nicholas Warren

Nicholas graduated from the University of Malta in 2004 in the field of Banking & Finance. He obtained his ACCA qualification in 2009 and also obtained a Diploma in Islamic Finance from CIMA. He is currently reading for a Master’s Degree in Strategic Planning from the Herriot Watt Edinburgh University.  Within Chetcuti Cauchi, Nicholas acts as Senior Manager to the corporate and accounting department whilst also lending advisory expertise to the financial services regulatory team.