Malta: Moving Forward

A FEW YEARS AGO  Malta gave up its status as an offshore jurisdiction to adopt that of an international financial centre for banking, insurance, investment services and funds and trust services. Various amendments to laws and practices brought Malta in line with the required standards for membership of the EU in 2004 – they also complied with requirements of the OECD and FATF. Malta is now seeing very positive effects as a result of that decision.

Trusts

There have been two major developments relating to the Trusts Act. In 1994 Malta incorporated the Hague Convention on the Recognition of Trusts allowing the free use of foreign trust laws with the concomitant protection of Maltese courts by the introduction of new provisions. Among the provisions that were introduced are those relating to protective trusts which allow the beneficial interest not to be subject to attachment by orders and liable to termination in the event of the bankruptcy of the beneficiary; the beneficiary can also be prohibited from dealing with the beneficial interest. The office of protector was also introduced, allowing settlors to minimise the risks inherent in thirdparty management of assets, especially since certain powers of the trustee can be made subject to joint decision-making.  It is also possible to trace assets which are in the hands of third parties where there is a breach of trust or where there is bad faith of the acquirer.

Continuation of companies in Malta

In 2004 the Trusts (Various Laws) Amendment Act came into force and set trusts on a more secure footing by fully incorporating the institute within the domestic legal system – inter alia, detailed tax provisions were made catering for trusts, a more extensive regulatory framework was set up for trust and other fiduciary activities and the Trust and Trustees Act (TTA) made Malta an attractive jurisdiction for the administration of trusts.

Maltese law permits the re-domiciliation of companies which can be applied even to trustee companies. If the law of the state where the trustee company is registered permits, it is now possible to effect the migration of a trustee company to Malta without the problems which dissolution and re-incorporation would entail. The company remains the same person yet its residence/nationality changes, implying a change in taxation and regulation. Alternatively a branch could be opened in Malta keeping regulation in the hands of the home authority and business can be started in Malta with minimum formality – a 45 day notice to the Malta FSA on the basis of a valid licence in an ‘approved jurisdiction’.

Whatever form of conducting business is chosen, the foreign law governing trusts set up by clients will continue regulating the trusts since Malta recognises the validity of foreign trusts. There are various mechanisms found in the new TTA which are designed so as not to upset existing trusts (ie, the intention of the settlor). Maltese forced heirship provisions, for example, only apply to Maltese domiciliaries and cannot effect foreign-law administered trusts.

Banking

Banks licensed in the Malta may now make use of their European passport to provide cross-border services in any EU and EEA member states, by, for example, setting up a branch or by direct services. Minimum formalities are required to be met by promoters interested in launching a new bank on the European market and Malta is proving to be a convenient platform for incorporation and licensing.

The EU is currently a major source of inspiration as regards innovations in the banking. A number of Austrian and Turkish banks are today operating within Malta for the purpose of international business and the trend is growing in the financial services industry.

Banks licensed in Malta can conduct various other activities which transcend the definition of ‘business of banking’ found in the Banking Act, including financial leasing, administration of securities and safe custody services and factoring. It is also possible to licence an electronic moneyi nstitution under the Banking Act, in which case, owing to the less stringent conditions attached to its license, its services must be restricted to issuing electronic money.

Investment

The ‘European passport’ provisions were also implemented into Maltese investment law. Where a foreigner seeks to exercise his establishment or (crossborder) service rights under the applicable provisions of the treaty and directive, he or she would still be bound to comply with the conduct of business rules issued by the MFSA (as part of the guidelines), but we have seen an enormous amount of interest relating to the establishment of fund management companies and hedge funds in Malta.

Various investment vehicles exist under Maltese law, but the most developed and time-tested is the SICAV. Unit trusts and limited partnerships are also available yet they rely on private law which has not yet reached the required stability/ certainty in practice.

Following recent legislation it is possible to ‘ring fence’ liabilities of various sub-funds under one SICAV (protected cells), thus facilitating the mushrooming of funds under one umbrella structure.

UCITS and non-UCITS funds follow the same application procedure for the granting of a license to act in Malta. Listing of UCITS funds is possible in Malta both for primary and secondary listing. UCITS listed in an EEA/EU jurisdiction may market their units in Malta without a licence, yet they need to notify the MFSA and must make available the fund’s rules and (both their full and simplified) prospectuses. The MFSA’s policy is to only issue a licence to Maltese UCITS if such Maltese UCITS appoint a management company licensed as a UCITS manager in Malta – this in line with the CESR’s 2005 guidelines for supervisors regarding the amending UCITS Directives (2001/107/ EC and 2001/108/EC).

Insurance

The insurance industry in Malta has grown rapidly over the past two years since Malta’s accession to the EU. Nine insurance management fi rms (including six with an international network) have been licensed by the regulatory authorities, and a growing number of insurance companies and captives are now actively managed by these firms or are in the process of licencing. Malta has implemented the EU Consolidated Life Directive, the three Non-Life Insurance Directives and the Insurance Mediation Directive. The Reinsurance Directive will be implemented automatically on the 1 May 2007.

Maltese insurance undertakings and intermediaries are now able to ‘passport’ their services throughout the EU by providing ‘services’ in other member states or by establishing a branch operation in another member state. Similarly EU based insurance undertakings and intermediaries are allowed to provide their services or establish their offices in Malta by ‘passporting’ their home licence into Malta. In all cases the process of ‘passporting’ is by notification of your home regulator.

Maltese law allows for the formation of protected cell companies for insurance undertakings, insurance brokers and insurance management companies. The law allows companies to be incorporated as protected cell companies or to convert into such companies once they are already incorporated. This conversion process will provide an additional facility locally as it will allow insurance managers to establish and manage segregated cells for smaller captive ventures or start-ups wishing to begin their corporate life in a protected company.