Security token regulation in Malta – Collective Investment Schemes, Funds, and Professional Investment Schemes

Malta has a long history of offering traditional finance fund products; having established itself as an attractive collective investment scheme (CIS) and hedge fund domicile since its integration as an EU member state in 2004. In certain jurisdictions, navigating the security token offering regulation may seem like a minefield. However, Malta’s Financial Services Authority (MFSA) offers crypto fund managers and token issuers clear and advantageous security token offering regulation, expediting the CIS licencing process for crypto funds.

Malta’s favourable regulatory environment has attracted over 670 individual investment funds to domicile in Malta. Furthermore, Its status as an EU member state allows security token offerings and CIS deemed regulated and legal within Malta to operate in other EU member states, by extension of the European single market.

There are a multitude of factors which combine to make Malta such an attractive location to establish collective investment schemes, and naturally, these benefits apply to the growing security token offering (STO) industry. Key features which have made Malta a top location for crypto fund managers include:

 

  • Flexible Fund Licences

    A major attraction for crypto fund managers and security token offerings locating themselves in Malta is the flexibility of fund licensing options. Operators may choose to licence their security token either as a Professional Investor Fund (PIF), Alternative Investment Fund (AIF), or Undertaking for Collective Investment in Transferable Securities (UCITS).

    Each fund licencing structure offers differing degrees of legal and regulatory specifications, dependent upon the funds’ target investors. Of the 670 CIS domiciled in Malta, there are 450 PIFs, 101 AIFs and 115 UCITS.

    Of these, PIF licences are most often suited to operators of smaller funds; whereas AIFs and UCITS are generally the licences of choice for those fund managers wishing to passport their fund within the EU.

 

  • Redomiciling Funds In Malta

    Crypto fund managers looking to relocate to Malta from other jurisdictions may do so easily and efficiently; owing to a robust and tested redomiciliation procedure. Specifically, crypto fund redomiciliation in Malta carried out by the Malta Financial Services Authority (MFSA), allows crypto funds to retain their accumulated performance, rights and liabilities, and their assets prior to redomiciliation.

    Straightforward and clear fund transfer procedures; in addition to the highly regarded reputation of the MFSA have already resulted in a significant number of crypto funds migrating into Malta already.

 

  • Timely Licence Issuance

    In 2017 alone, there were over 97 new CIF licences issued in Malta, the timeliness of licence issuance being a key factor in attracting new funds to the island. Manager-led funds, referred to as Notified AIF (NAIF), have a target time-to-market of just 10 days, and Malta PIFs may take as little as 7 days to register.

    Times are similarly fast for other, more complex, fund licencing structures. UCITS and AIFs may be approved within just two to three months after submitting all relevant application documentation.

    Clear regulatory structure from the MFSA allows companies wishing to launch a crypto fund or security token offering (i.e. to tokenize their existing business) a quick and efficient medium of raising capital for further investment; a more efficient approach than lengthy venture capital funding rounds.

 

  • Investment Company Structuring

    Maltese law recognises multiple fund structures, offering flexibility for crypto fund managers. Funds and security token offerings may be set up as limited liability companies, open-ended investment companies (SICAVs), or close-ended investment companies (INVCOs).

    SICAVs have proven to be the most popular investment company structure, offering greater flexibility than INVCOs. SICAVs may be formed as a private or public company, governed by the Companies Act. As SICAVs are well placed to benefit from double taxation treaties and incur low running costs, they are the most popular choice for PIFs.

    Maltese law also makes provisions for those fund managers wishing to form a SICAV  incorporated cell company; with each cell maintaining its own licence and separate legal entity.

 

  • Tax structure

    Malta offers a facilitative fiscal environment for crypto fund managers looking to locate on the island; with crypto funds benefiting from Malta’s competitive corporate tax rate.

    Crypto funds, as with other CIS domiciled in Malta, are afforded tax exemption on their investment income and capital gains, and likewise, no tax is deductible at the non-resident advisor level.

     

  • Operational costs

    Launching a crypto fund or security token offering in Malta offers highly competitive operational costs in comparison to other European jurisdictions. Physical costs, such as human resources and office space, remain below average Western European levels.

    Supervisory and regulatory fees are similarly inexpensive in Malta. Fund administrators must apply for recognition to the MFSA, and provide a fund administration fee and an annual supervisory fee (table 1). These fees are significantly more cost-effective than other European jurisdictions offering similar services.

 

  • Service Providers

Malta is host to a growing network of over 80 fund managers, 26 fund administrators and a diverse range of leading industry service providers and legal firms.

Crypto fund managers choosing to locate in Malta will gain access to this comprehensive industry community, with the highest-quality local service providers at your disposal.

 

Crypto funds and STOs have the potential to revolutionise equity markets, providing asset owners with additional liquidity, and a digital representation of value stored securely on the blockchain. Through the provision of robust security token offering regulation from the MFSA, Malta has gained a competitive edge within the STO & crypto fund market; leading the way in establishing STOs as mainstream financial instruments.

ICO Launch Malta provides turn-key solutions for launching your STO in the world’s leading crypto fund jurisdiction. Contact us to discuss your STO requirements.

[Table. 1] – Investment Requirements at a Glance for PIFs, AIFs, UCITS and SICAVs

 

Investment Requirements
Professional Investor Funds (PIFs)
Alternative Investor Funds (AIFs)
UCITS
SICAVs
Targeted Investors

Experienced investors Qualifying investors Extraordinary investors

Professional & Qualifying investors Investors must have satisfactory financial resources, and demonstrate relevant experience.

Retail/Professional investors (typically suited towards PIFs) – May be incorporated as a public or private company.

Minimum investment

€100,000

€100,000 Third-party managed UCITS – €125,000

Self-managed UCITS – €300,000

Dependent on fund type –

e.g. minimum for PIF structured as a SICAV – €100,000

Application Fee/Registration Fee

Scheme: €2,000

Sub-funds: €1000

Scheme: €2,000

Sub-funds: €1,000

Scheme: €2,500

Sub-funds: €450

SICAVs are subject to a company registration fee of €1,750

Annual Supervisory/ Annual Return Fee

Scheme €2,000

Sub-funds: €600

Scheme €2,000

Sub-funds: €600

Scheme: €3,000

Sub-funds: €500

Annual Company Returns fee – €1,000

Custodian required?

Optional – Safekeeping measures must be implemented

Required Required – must be a licensed body sanctioned by the MFSA.

Required by extension of applicable fund license structure.

Administrator required?

Flexible – May be delegated to an MFSA approved third-party in Malta

Required – May be delegated to a third party administrator. Optional – Manager responsible for administration, except if appointing an MFSA approved third-party.

Required by extension of applicable fund license structure.

Compliance Officer required?

Required – May also act as AML officer.

Required Required

Required by extension of applicable fund license structure.

Auditor required?

Required

Required Required

Required – Annual auditing of accounts.

AML Officer required?

Required – May also act as a compliance officer.

Required Required

Required

Further Requirements

The MFSA accepts service providers from recognised jurisdictions.

Annual reporting required. Monthly statistical reporting to MFSA, annual reporting required.

SICAVs are established through the Companies Act
(SICAV Incorporated Cell Companies) Regulations, 2010.