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

Chetcuti Cauchi Advocates | View firm profile

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:

Notified Alternative Investment Funds

About the Authors:

Dr Maria Chetcuti

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

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

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.

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