Islamic Finance

2011: An Island’s Perspective

By Dr Antonia Zammit, Investment Services & Funds Practice, Ganado & Associates, Advocates, Malta (15/12/2011)

The year 2011 was a turbulent one for the world at large, both on an economic level as well as on the political front. The current state of the single European currency and its consequent political repercussions has had an impact on the financial services industries in Europe.

Although Malta has noted the cautious approach to investment, the island’s small, open economy has not only survived the ongoing, global recession but, to date, has remained unscathed. This is not mere luck but was achieved by the solid, local banking system and the great efforts and resources ploughed into the economy by the authorities and local industry throughout the last decade, which has turned Malta into an attractive and stable financial services hub.


Malta currently has a competitive edge over a number of other established European fund domiciles, the reason being that the investment services and funds industry in countries like Ireland were severely hit in 2011 due to the failure of their banking regime and the economic recession. Consequently, their financial services industries as well as their reputation were negatively impacted.

Malta’s Fund industry is still relatively small when compared to Luxembourg and Ireland yet, throughout last year, it continued to experience constant growth. There was an overall increase of 36 per cent in the number of collective investment schemes domiciled in Malta in 2011.  The number of Professional Investor Funds (‘PIFs’) licensed by the MFSA grew by 42 per cent, whilst an increase of 18 per cent was reported in respect of licenses  granted  to  Undertakings  for  Collective  Investment  in  Transferable  Securities (‘UCITS Funds’).  The industry also experienced a significant increase in the total net asset value of the Collective Investment Schemes. There are currently 419 PIFs licensed by the Malta Financial Services Authority (the ‘MFSA’), 59 UCITS Funds and 31 Non-UCITS Funds, adding up to a total of 509 Collective Investment Schemes licensed in Malta. There were 13 Investment Managers licensed in 2011 adding up to a total of 81 fund managers.  Malta must therefore exploit its advantageous position throughout the next few months before other jurisdictions hit by the downturn regain momentum.

Regulatory and Legislative Updates

In order to maintain the growth and stability witnessed last year, one of the primary focuses of the authorities in Malta is the constant review and updating of the regulatory and legislative regime in relation to the financial services sector.

Towards the beginning of 2011 the law regulating SICAVs was updated. A SICAV under Maltese law is the corporate vehicle most commonly used when setting up collective investment schemes. There was the enactment of regulations which introduced the law governing incorporated cell companies in SICAVs, whereby each cell in an umbrella type of structure is considered to be a separate corporate vehicle. This amendment, as well as other recent amendments made to the SICAV Regulations , which made it possible for the shares in a SICAV to be pledged as well as transferred, have all added to making the mechanics of this corporate vehicle more attractive than it already was.

It is now also possible for special purpose vehicles to be set-up with the primary purpose of investing and holding assets for collective investment schemes. This type of special purpose vehicle requires authorisation by the MFSA and is obtained in conjunction with the licence of the collective investment scheme.

The benefits of introducing these new provisions have already been felt. A couple of enquiries in relation to the setting-up of collective investment schemes using this type of structure have already been made and some of these are currently awaiting licensing. This is therefore evidence of the importance the industry must continue to give to the ever changing needs, requirements and trends of promoters and the ability to offer solutions.

Employment Incentives

Another interesting amendment to Maltese law in 2011 was the introduction of tax attractive provisions whereby persons who are not domiciled in Malta but who hold an executive position in the financial services industry in Malta may now opt to have their employment income derived from such office taxed at a flat rate of 15 per cent. This beneficial 15 per cent tax rate may only be availed of if the employee derived income from a qualifying contract of employment and has an annual income of at least €75,000. The person concerned must also satisfy various other conditions in relation to their type of employment, professional qualifications and personal status. This amendment to the law was made to focus on attracting highly qualified individuals to Maltese shores.


On the 1 July 2011, the UCITS IV Directive was transposed into Maltese law. The aim of the Directive is to enhance the efficient operation of the UCITS Funds by reducing the number of funds registered in individual member states. The innovations that emerge from this

Directive include the opportunity of setting-up master feeder UCITS Fund structures; the introduction of a regime for cross border and domestic mergers of UCITS Funds; a full EU passport for UCITS managers and the simplified and accelerated passporting procedure. Even though UCITS funds have not been particularly popular over the last few years we have noted a slight increase in the demand for the setting-up of such fund structures in the last six months of the 2011.

AIFM Directive

An area that has been discussed at great length over the last year is the Alternative  Investment Fund Managers Directive (“AIFM Directive”). Even though the implementation of the provisions of this directive will not happen until 2013, due to the significant impact this new piece of legislation will have on the global investment services and funds industry, promoters must already take its provisions and their effect into account when making any decisions.  The AIFM Directive creates an EU regime for alternative investment fund managers and alternative investment funds; it provides for a passport in favour of the hedge fund managers and creates a more consistent regulatory approach across member states as well as imposing increases in transparency on alternative investment fund managers. The AIFM Directive also provides assistance to decision makers in the assessment of systemic risk. More responsibility is given to hedge fund managers and custodians which results in an increase in compliance costs.

The setting-up and launch of alternative investment funds has been made more complex and reporting obligations are thereby increased. This will result in an increment in costs in running an alternative investment fund, the cost of which will ultimately be borne by investors.

Malta should benefit from the introduction of the AIFM Directive because of its new passporting regime. Since Malta is already perceived as an attractive destination for alternative funds managers and alternative investment funds, more promoters should choose Malta as their EU domicile of choice. Yet, there are strong concerns that a number of the provisions in the AIFM Directive could prejudice Malta’s current advantageous position. To date, the number of custodians set-up in Malta is limited and this could consequently be an obstacle to some promoters since the AIFM Directive imposes that from 2017 alternative investment funds must appoint local custodians.  The authorities are aware of this issue, which would be prejudicial to Malta’s position, and the industry is putting enormous efforts in trying to attract more custodians to set up shop on the island.

Islamic Finance

The authorities in Malta have for some time now been contemplating and discussing the introduction of Islamic finance to our legal regime and developing this sector of the industry with neighbouring North African counties. Due to recent developments in this region we believe that the future in relation to Islamic finance will gain momentum and the long standing links Malta has had with the North African region - our cultural ties as well as geographical position - will help create a niche market in respect of investment in the region as well as the establishment of funds by promoters in the Arab world.


The past year was an eventful year for the world economies, yet Malta managed to keep attracting business to its investment services and funds industry. This is proof that the economy is robust and is therefore capable of sustaining a stable financial services industry even at the worst of times. Economists predict that Malta’s economy will continue to grow, however the constant bad news and lack of political consensus at EU level on economic issues is certainly not encouraging. We are all wary of Europe’s economic future and therefore it is imperative that the authorities must proceed with vigilance, keeping an eye on any potential threats to the local economy.