On 12 June 2024, the Malta Financial Services Authority (“MFSA”) published a consultation document through which the MFSA is seeking stakeholders’ views on extending the Non-Professional Investor Funds Framework to include Self-Managed Non-Professional Investor Funds (“Self-managed NPIFs”) as well as general features which a self-managed NPIF framework may have.
Introduction
The proposed requirements for Self-Managed NPIFs introduce a comprehensive framework aimed at ensuring robust governance, due diligence, and regulatory compliance. Similar to third-party managed NPIFs, self-managed NPIFs should be subject to a notification process. This means that we are expecting that such self-managed NPIFs should obtain their notified status by the MFSA within 10 working days of filing a duly completed notification request.
In essence, a Self-Managed NPIF should be subject to the requirements applicable to third party managed NPIFs, with the exception of the following:
- Initial Capital Requirements
One of the cornerstone requirements is the maintenance of an initial paid-up share capital of at least €125,000, or its equivalent in another currency. The Net Asset Value (“NAV”) must consistently exceed this threshold. This alignment brings the capital requirements of Self-Managed NPIFs in line with those of licensed Self-Managed Professional Investor Funds (PIFs).
- Investment Committee
At least 3 Investment Committee members would be required to be appointed (including at least one Portfolio Manager, who can also be a member of the Investment Committee and/ or member of the Board of Directors).
Due Diligence by the Service Provider
The role of the Due Diligence Service Provider (“DDSP”) is pivotal in the new framework. Under the existing NPIF structure managed by third parties, the DDSP evaluates the suitability of the third-party manager, who must be authorised by either the MFSA, an EU/EEA state, or a comparable third country. However, for Self-Managed NPIFs, the DDSP's focus shifts to assessing the fitness and properness (including competence) of the Portfolio Manager and Investment Committee members.
Further Requirements for Self-Managed NPIFs
While Self-Managed NPIFs will adhere to the same requirements as those managed by third-party managers, they will also be subject to additional criteria including:
Additional documentation would need to be submitted at the notification stage
Confirmation through the notification form that the NPIF’s initial paid-up share capital is at least €125,000 or its currency equivalent.
A competence assessment form to provide additional checks on DDSPs’ competence to conduct competency assessments of the portfolio manager/management function and investment committee members.
A DDSP attestation form to ensure that the DDSP provides information on the assessments and their completion to the NPIF’s governing body, which would then be required to endorse the form.
Confirmation from the Portfolio Manager that he/she:
- Operate in accordance with the investment objective and policy described in the NPIF’s offering document and the investment guidelines issued by the Investment Committee;
Report to the Investment Committee regularly on any transactions effected on behalf of the Self-Managed NPIF;
Provide the Investment Committee with any information they may require from time to time;
- Has appropriate resources available to ensure on-going access to the market information required to make investment decisions.
Confirmation from a Portfolio Manager based overseas that their activities carry no regulatory implications in the jurisdiction they are operating.
Self-managed NPIFs must comply with Article 3(3) of the AIFM Directive, and accordingly must submit the relevant regulatory reporting to the MFSA. This requirement represents a departure from the current NPIF framework, where only an abridged return is required.
The self-managed NPIF must establish terms of reference regulating the procedures of the Investment Committee.
Implications and Conclusion
By aligning capital requirements with those of licensed PIFs, mandating robust governance structures, and enhancing due diligence practices, these changes aim to create a more secure and transparent investment environment, while extending the flexibility of Malta’s funds regime to now also include notified self-managed PIFs.
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