Implementation of the UCITS IV Directive in Malta

Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulation and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS IV) was approved by the European Parliament in January 2009 and has come into force throughout the EU Member States on 1st July 2011.

UCITS IV and Maltese Law

On 28th June 2011, the following Legal Notices transposing certain requirements of the UCITS IV Directive were implemented in Malta by publication in the Maltese Government Gazette:

1. Investment Services Act (Marketing of UCITS) Regulations, 2011;
2. Investment Services Act (UCITS Mergers) Regulations, 2011; and
3. Investment Services Act (UCITS Management Company Passport) Regulations, 2011.

The Investment Services Act (Market of UCITS) Regulations, 2011 outline the procedures applicable to Maltese UCITS wishing to market their units in other EU or EEA Member States and to European UCITS which wish to market their units to investors in Malta. They also stipulate the information requirements to be provided by Maltese UCITS or European UCITS to their respective investors and establish the regulatory jurisdiction between the authorities in the respective home and host Member States in the case of UCITS funds marketing their units on a cross-border basis.

The Investment Services Act (UCITS Mergers) Regulations, 2011 establish the regulatory requirements that would apply in the context of domestic and cross-border mergers. The regulations also address the costs and entry into effect of UCITS Mergers, the consequences thereof, as well as the merger of master and feeder UCITS structures.

The Investment Services Act (UCITS Management Company Passport) Regulations, 2011 outline the procedures relating to obtaining regulatory approval for a Maltese UCITS management company to establish a branch or to provide services on a cross-border basis in a foreign Member State or EEA State, or for a European management company to establish a branch or to provide management services on a cross-border basis in Malta. Furthermore, the Regulations stipulate which regulatory authority has jurisdiction to take action in the case of breaches of the relevant requirements by a UCITS management company providing services on a cross-border basis or through the establishment of a branch in a Member State or EEA State other than its home Member State.

Amendments to the Investment Services Rules for Investment Services Providers

The Malta Financial Services Authority has also amended the Investment Services Rules for Investment Services Providers. These amendments have effectively reorganises Part B of the said rules and split it into two parts, namely Part BI applicable to Investment Services Providers including custodians of Schemes set up as UCITS Schemes, and a new Part BII applicable to UCITS Fund Managers.

Part BII lays down the standard licence conditions applicable to Maltese UCITS Management Companies and includes the contents of Directive 2009/65/EC as well as the UCITS Implementing Directive 2010/43/EU on matters such as:

• organisational requirements;
• conflicts of interest;
• conduct of business;
• risk management; and
• contents of agreements between a depositary and a management company.

One notable amendment to these Rules is Appendix 11 which outlines the rules on risk management, counterparty risk exposure and issuer concentration which are to be satisfied by UCITS Fund Managers on an on-going basis in respect of managed UCITS. This Appendix transposes Articles 40 to 45 of Commission Directive 2010/43/EU as well as the Guidelines issued by ESMA on Risk Measurement and the Calculation of Global Exposure and Counterparty Risk for UCITS and the Guidelines to competent authorities and UCITS management companies on risk measurement and the calculation of global exposure for certain types of structured UCITS.

Implementing Measures

The UCITS IV Directive (2009/65/EC) is further supplemented by the following Level II and Level III Implementing Measures:

Level II

1. Commission Directive 2010/42/EU of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards certain provisions concerning fund mergers, master-feeder structures and notification procedure;
2. Commission Directive 2010/43/EU of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards organisational requirements, conflicts of interest, conduct of business, risk management and content of the agreement between a depositary and a management company;
3. Commission Regulation (EU) No 583/2010 of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards key investor information and conditions to be met when providing key investor information or the prospectus in a durable medium other than paper or by means of a website; and
4. Commission Regulation (EU) No 584/2010 of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards the form and content of the standard notification letter and UCITS attestation, the use of electronic communication between competent authorities for the purpose of notification, and procedures for on-the-spot verifications and investigations and the exchange of information between competent authorities.

Level III

1. Guidelines on Risk Measurement and the Calculation of Global Exposure and Counterparty Risk for UCITS *CESR/10-788+
2. Guidelines to competent authorities and UCITS management companies on risk measurement and the calculation of global exposure for certain types of structured UCITS *ESMA/2011/112+;
3. Template for the Key Investor Information Document *CESR/10 – 1321+;
4. Guide to clear language and layout for the Key Investor Information Document *CESR/10-1320+;
5. Guidelines on the Transition from the Simplified Prospectus to the Key Investor Information Document *CESR/10-1319+;
6. Guidelines on the Selection and presentation of performance scenarios in the Key Investor Information Document (KIID) for structured UCITS *CESR/10-1318+;
7. Guidelines on the methodology for calculation of the ongoing charges figure in the Key Investor Information Document *CESR/10-674+;
8. Guidelines on the methodology for the calculation of the synthetic risk and reward indicator in the Key Investor Information Document *CESR/10-673+.

Amendments to the Investment Services Rules for Retail Collective Investment Schemes

The Authority has also updated the Investment Services Rules for Retail Collective Investment Schemes to reflect the provisions of Directive 2009/65/EC and also to bring the Rules in line with the Investment Services Act (Contractual Funds) Regulations, 2011 and the Companies Act (SICAV Incorporated Cell Companies) Regulations, 2010.

The most important amendments to these Rules are the following:

1. Introduction of new rules regulating the Key Investor Information Document (KIID), which are complemented by the Guidelines issued by ESMA on the Key Investor Information Document and on the transition from the Simplified Prospectus to the Key Investor In-formation Documents, referred to under the Level III Implementing Measures above.
2. Reorganisation of the section dealing with self-managed schemes set up as Maltese UCITS. In this regard, a new Appendix VIII has been introduced which outlines the supplementary licence conditions applicable to self-managed Maltese UCITS Schemes and transposes in part the provisions of Implementing Directive 2010/43/EU.
3. A new section has been introduced to provide for the supplementary conditions applicable to retail collective investment schemes which qualify as Feeder UCITS and Master UCITS. This section serves to transpose the applicable provisions of Directive 2009/65/EC and Implementing Directive 2010/42/EU.
4. The current Appendix VI on Commitment Rules for Commonly Traded Financial Derivatives has been revised.
5. A new Appendix VII prescribing the supplementary licence conditions applicable to schemes set up as money market funds is being proposed. This Appendix implements provisions of Directive 2009/65/EC as well as the Guidelines on a common definition of European money market funds *CESR/10-049+.

NOTE: The information contained in this document is for general reference and information purposes only, and is not to be relied upon as legal advice. Specific legal advice should be sought on the application, interpretation and applicable derogations to the above rules.