Special Funds (Control of Assets) Regulations, 2003

L.N. 366 of 2003

SPECIAL FUNDS (REGULATION) ACT

(CAP. 450)

Special Funds (Control of Assets) Regulations, 2003

IN exercise of the powers conferred by paragraph (b) of sub-article

(1) of article 50 of the Special Funds (Regulation) Act, the Minister of

Finance and Economic Affairs, acting on the advice of the Malta

Financial Services Authority, has made the following regulations

Part 1

Preliminary

(1) The title of these regulations is the Special Funds Citation and

commencement.

(Control of Assets) Regulations, 2003.

(2) These regulations shall come into force on the 1 st January,

2004.

(1) Any reference in these regulations to the Act is a Interpretation.

reference to the Special Funds (Regulation) Act, 2002, and subject to

the provisions of sub-regulation (2) of this regulation, the provisions of

article 2 of the said Act shall also apply to these regulations.

(2)

In these regulations unless the context otherwise

requires-

“assets” means movable and immovable property of any kind;

“control of assets” means the holding or control of assets

belonging to, or on behalf of a customer, by a person hereinafter

referred to as the subject person, acting in the course of rendering

a service under the Act, and includes custody of assets;

“custodian” means a Retirement Fund Administrator

maintaining custody of the fund’s assets or a Retirement Fund

Custodian qualified in accordance with regulation 14 of these

regulations;

“customer” means any person, scheme or fund whose assets

are held under the control of a subject person;

“fund” means a Retirement Fund as defined in article 2

of the Act;

“Retirement Fund Custodian” means a person duly registered

with the Authority to act as a Retirement Fund Custodian in terms

of sub-regulation (1) of regulation 3 of the Special Funds

(Registration of Retirement Fund Custodians) Regulations, 2003;

“subject person” means a person who is in possession of a

registration under the Act to act as a Retirement Scheme

Administrator, a Retirement Fund Administrator or as a Retirement

Fund Custodian.

(3) For the purposes of regulations 9 and 20 of these

regulations, “group company” in relation to a subject person, means

any body corporate which is the subject person’s subsidiary or parent

company, or a subsidiary of the subject person’s parent company; and

the terms “parent” and “subsidiary” shall be construed in accordance

with sub-article (2) of article 2 of the Companies Act.

Part 2

General

(1) A subject person having the control of assets belonging

to a customer in the course of rendering a service under the Act to such

customer, shall hold such assets solely for and on behalf of and in the

interest of the customer.

(2) Notwithstanding anything stated in article 1894 of the

Civil Code or in the agreement entered into between the subject person

and the customer or the fact that a customer’s assets held under the

control of a subject person are registered in the name and title of or are

otherwise vested in the subject person, such assets shall be deemed to

constitute a distinct patrimony, separate from that belonging to the

subject person and from that of other customers the assets of whom are

also held under the control of the subject person.

(3) Except as expressly provided in the agreement entered

into between the subject person and the customer and notwithstanding

the Provisions of the Civil Code, the control of assets belonging to a

customer by a subject person shall not give or be deemed or construed

to give to the subject person any rights over such assets nor shall it

create any form of loan between the subject person and the customer

and this notwithstanding the nature of the assets or the rights or

obligations of the subject person in relation to the assets.

(1) A customer whose assets are held under the control of a Customer enjoys

subject person enjoys a right of ownership in such assets notwithstanding right

in assets

that they may be registered in the name and title of or are otherwise

vested in the subject person. Where such assets are held by the subject

person as part of a common pool of identical assets or are otherwise

held in a clients’ or common account, the customer enjoys an undivided

share in ownership of all the assets held collectively by the subject

person in such a pool or account.

(2) The records, accounts and other statements held or issued

by the subject person in terms of sub-regulation (3) of regulation 7 of

these regulations shall, saving any proof to the contrary, constitute

evidence of their contents and of the right of ownership of the customer

as provided in sub-regulation (1) of this regulation.

(1) The creditors of a subject person shall have no claim or Assets held under

right of action on or against the assets held under the control of the control

to the rights of

subject person for and on behalf of and in the interest of any customer creditors of the

subject person.

and such assets shall not be affected in any manner by the provisions of

laws and regulations in force regulating the insolvency or bankruptcy

of the subject person.

(2) In the event of any such insolvency or bankruptcy or

related order or resolution, or in the event that the Authority so requires,

the subject person or any administrator or receiver or other officer

appointed to represent it by any court or otherwise, shall on demand of

any customer or of the Authority, immediately transfer the control,

possession and title to all assets held by or in the name of the subject

person on behalf of the customer to another subject person or to such

other person as may be instructed by the customer or by the Authority.

(3) In the event that any assets held under the control of the

subject person are, at the request of any creditor of the subject person,

made subject to any precautionary or executive act or warrant granted

by any Court in terms of the Code of Organization and Civil Procedure, Cap. 12.

the customer on whose behalf such assets are being held or the Authority

may, by application to the Court, request the release of the assets from

such act or warrant and the Court shall, on production of evidence as it

may deem fit, accede to the application without undue delay.

(1) The delivery of the assets of a customer to a subject Applicability of the

Duty on Documents

person and from a subject person to a customer or another subject person and Transfers Act,

for the purpose of the control of assets in terms of these regulations and

Act.

shall not be deemed to constitute a chargeable transfer for the purposes

of the Duty on Documents and Transfers Act, and for the purposes of

sub-article (1) of article 5 of the Income Tax Act, where the delivery of

such assets does not constitute a change in the beneficial owner of the

assets.

(2) For the purpose of this regulation, beneficial owner

means a person who is the real owner of, or who is otherwise beneficially

entitled to the assets held under control by the subject person, as is

provided in regulation 4 of these regulations.

Part 3

Control of Assets

(1) A subject person having the control of assets belonging

to a customer shall safeguard such assets and the interest of the customer

therein.

(2) The subject person shall carry out such functions and

duties as shall be required in accordance with these regulations, the

terms and conditions of the agreement entered into with the customer,

the conditions of registration which may be required by the Authority,

and such other requirements as may be laid down by the latter from

time to time.

(3) The subject person shall maintain proper and adequate

records and accounts of all customers’ assets held under control. The

records and accounts shall identify the customers to whom such assets

belong and shall clearly indicate that the assets of every customer are

separate and distinct from the assets belonging to the subject person

and from other customers’ assets held by the subject person. The records

and accounts shall, upon due notice being given to the subject person,

indicate where any pledge or other right over assets held under the control

of the subject person has been given by the customers to any third parties

and where any order by any Court has been made in connection with

such assets.

(4) The subject person entrusted with the control of assets

belonging to customers shall, to every extent reasonably possible,

segregate in a proper manner the assets of every customer from the

assets belonging to the subject person and from the assets of other

customers:Provided that the subject person may, in accordance with

the terms and conditions of the agreement entered into with the customer,

the conditions of any registration, and such other requirements as may

be laid down by the Authority and without prejudice to the customer’s

right of ownership over the assets held under control, place and keep

such assets in a common pool of identical assets or otherwise deposit

them in a clients’ account or in a common account.

(5) The subject person shall make appropriate arrangements

for the protection of customers’ assets held under control and shall ensure

that such assets are placed under adequate systems to safeguard such

assets from damage, misappropriation or other loss and which permit

the delivery of such assets only in accordance with the terms and

conditions of the agreement entered into with the customer.

(6) Where it is not reasonably possible for the subject person

to carry out any of the duties specified in this regulation due to the

nature of the assets and of the arrangements whereby control is exercised,

the said duties may be varied with the written consent of the customer

or in accordance with the terms and conditions of the agreement entered

into with the customer, the conditions of registration which may be

required by the Authority, and such other requirements as may be laid

down by the latter from time to time.

(1) A subject person having the control of assets belonging Liability of the

to customers shall be liable for any loss or prejudice suffered by the subject person.

customers due to the subject person’s fraud, wilful default or negligence

including the unjustifiable failure to perform in whole or in part the

subject person’s obligations arising under these regulations, the terms

and conditions of the agreement entered into with the customers, the

conditions of registration which may be required by the Authority, and

such other requirements as may be laid down by the latter from time to

time.

(2) For the purposes of this regulation, subject person

includes such other subject person to whom functions, duties or assets

may be delegated or entrusted in terms of regulation 9 of these

regulations.

(3) This regulation shall not apply to a custodian as defined

in sub-regulation (2) of regulation 2 of these regulations.

(1) A subject person may delegate part of the functions and Subject person may

delegate functions

duties under regulation 7 of these regulations to another subject person and duties or entrust

which is qualified and competent to take the control of customers’ assets; assets

subject person.

and may entrust or deposit all or part of a customer’s assets held under

control with such other subject person.

(2) The liability of the subject person for its own acts or

omissions under regulation 8 of these regulations shall not be affected

or reduced as a result of the subject person delegating functions and

duties or entrusting all or part of the assets belonging to a customer, to

another subject person.

(3) Where the subject person delegates or entrusts functions,

duties or assets in terms of sub-regulation (1) of this regulation to a

person which is a group company, without prejudice to the liability of

such person, the subject person shall be liable for any loss or prejudice

suffered by the customers as a result of the acts, omissions or insolvency

of such person.

(4) Where the subject person delegates or entrusts functions,

duties or assets in terms of sub-regulation (1) of this regulation to a person

which is not a group company, without prejudice to the liability of such

person, the subject person shall be liable for any loss or prejudice suffered

by the customers as a result of the acts or omissions of such person unless

the subject person can prove that such person was and remains qualified

and competent to carry out the functions and duties delegated and that

the subject person exercised reasonable care to oversee that the functions

and duties delegated were undertaken by such person competently.

(5) The liability of the subject person under sub-regulations

(3) and (4) of this regulation may be varied or reduced with the written

consent of the customer or in accordance with the terms and conditions

of the agreement entered into with the customer, the conditions of

registration which may be required by the Authority, and such other

requirements as may be laid down by the latter from time to time

Provided that the subject person discloses fully to the customer

any risks that may be associated with the nature of the arrangements

whereby control is to be exercised and that the agreement with the

customer shall clearly define the extent of liability of the subject person.

(6) This regulation shall not apply to a custodian as defined

in sub-regulation (2) of regulation (2) of these regulations.

(1) Where reasonably required by the nature of the assets

and of the arrangements whereby control is to be exercised, a subject

person may, with the written consent of the customer or in accordance

with the terms and conditions of the agreement entered into with the

customer, the conditions of registration which may be required by the

Authority, and such other requirements as may be laid down by the

latter from time to time, make use of any market system, settlement

system, de-materialised book entry system, centralised custodial

depository or similar system for the purpose of the control of assets in

terms of these regulations.

(2) Such systems as are provided for in sub-regulation (1)

of this regulation may also be used to effect all transactions including

conveyance, assignment, transfer, transmission and pledging of assets

held under the control of the subject person and the law of the country

in which the system is maintained shall apply to the validity of such

transactions notwithstanding the provisions of any other law.

(3) The agreement with the customer shall clearly define

the extent of liability of the subject person for any losses that may be

incurred by the customer as a result of the use of such systems.

The subject person shall have the right to charge fees to the Subject person’s

fees.

customer and to be reimbursed for expenses in accordance with the

terms and conditions of the agreement entered into with the customer.

(1) Without prejudice to any requirements as may be laid Termination of the

control of assets.

down by the competent authority, an agreement for the control of assets

belonging to a customer may be terminated by the customer, by the

subject person or by order of the Authority.

(2) Upon the termination of an agreement for the control of

assets, the subject person shall convey for no consideration the assets

held for the customer, as instructed by the customer or by the Authority,

without prejudice to the subject person’s right to payment of any lawfully

due fees or expenses in terms of the agreement entered into with the

customer and to any obligations arising in favour of the customer

thereunder.

Part 4

Custody of assets of Retirement Funds

The provisions of Parts 1 and 2 and regulations 7 and 10 to Applicability.

12 of Part 3 of these regulations shall apply to the custody of assets of

funds under this Part, and for the purposes of this Part, unless the context

otherwise requires, any references in Parts 1, 2 and 3 to “subject person”,

“control of assets” and “customer” shall be construed to refer to

“custodian”, “custody of assets” and “fund” respectively.

A custodian shall be

Qualifications of a

custodian.

(a)

a credit institution licensed under the Banking Act; or

(b) an entity licensed as a Custodian for Collective

Investment Schemes under the Investment Services Act; or

(c) a credit institution licensed in a country where, in the

opinion of the Authority, it is subject to an adequate level of

regulatory supervision, having an established place of business in

Malta; or

(d) such other entity acceptable to the Authority;

having the business organisation, systems, experience and expertise

deemed necessary by the Authority for it to maintain custody of assets.

The custody of all the assets of a fund shall be to a custodian

Custody of assets of

appointed by an instrument in writing with the approval of the Authority.

(1) The custodian shall take custody of all the assets of

any fund and shall safeguard such assets and the interests of the fund

and of the holders of units or participants in the fund.

(2) In addition to the functions and duties specified in

regulation 7 of these regulations, the custodian shall carry out the

functions required in accordance with the terms and conditions of the

agreement appointing it as custodian, the deed or other instrument

establishing or regulating the fund and the conditions of registration of

the fund by the Authority, and such other requirements as may be laid

down by the latter from time to time.

In the exercise of its functions, duties and responsibilities,

Independence of the

the custodian shall, act independently of the fund and, or the Asset

Manager and solely in the interest of the holders of units or participants

in the fund and of the fund itself

Provided that where the Retirement Fund Administrator maintains

custody of the fund’s assets, it shall only act upon the instructions of

the fund and, or of the Asset Manager and the fund and, or the Asset

Manager shall act upon the instructions of the custodian to the extent

required by the conditions of its registration which may be stipulated

by the Authority and by the conditions of the deed or other instrument

establishing the fund

Provided further that where the Retirement Fund Administrator

appoints a separate entity to act as a Retirement Fund Custodian, the

latter shall only accept instructions from the former.

Except as may be authorised by the Authority, a person shall

not act as a member of the board of directors of the fund or of the Asset

Manager, or similar organ or as an officer responsible for the

administration and management of the Asset Manager and at the same

time hold a similar position with the custodian.

(1) The custodian shall be liable for any loss or prejudice

suffered by, the fund, or the participants in the fund due to the custodian’s

fraud, wilful default or negligence including the unjustifiable failure to

perform in whole or in part the custodian’s obligations arising under

these regulations, the terms and conditions of the agreement appointing

the custodian, the deed or other instrument establishing or regulating

the fund, the conditions of registration which may be required by the

Authority, and such other requirements as may be laid down by the

latter from time to time.

(2) For the purposes of this regulation, custodian includes

such other persons to whom functions, duties or assets may be delegated

or entrusted in terms of regulation 20 of these regulations.

(1) The custodian may, with the consent of the fund, or in Custodian may

delegate functions

the case of the Retirement Fund Custodian, with the consent of the and duties or entrust

Retirement Fund Administrator, delegate all or part of the functions assets to another

person.

and duties under regulation 16 of these regulations to another person

and, may entrust or deposit all or part of the assets of the fund held in

custody with such other person.

(2) The liability of the custodian for its own acts or

omissions under regulation 19 of these regulations shall not be affected

or reduced as a result of the custodian delegating functions and duties

or entrusting all or part of the assets of the fund, to another person in

terms of sub-regulation (1) of this regulation.

(3) Where the custodian delegates or entrusts functions,

duties or assets in terms of sub-regulation (1) of this regulation to a

person which is a group company, without prejudice to the liability of

such person, the custodian shall be liable for any loss or prejudice

suffered by the fund or by the participants in it, as a result of the acts,

omissions or insolvency of such person.

(4) Where the custodian delegates or entrusts functions,

duties or assets in terms of sub-regulation (1) of this regulation to a

person which is not a group company, without prejudice to the liability

of such person, the custodian shall be liable for any loss or prejudice

suffered by fund or by the participants in the fund, as a result of the acts

or omissions of such person unless the custodian can prove that such

person was and remains qualified and competent to carry out the

functions and duties delegated to it and that the custodian exercised

reasonable care to oversee that the functions and duties delegated were

undertaken by such person competently.

(5) The liability of the custodian under sub-regulations (3) and

(4) of this regulation may be varied or reduced with the written consent of

the fund, and, in the case of a Retirement Fund Custodian with the written

consent of the Retirement Fund Administrator, and in accordance with the

terms and conditions of the agreement appointing the custodian, the deed

or other instrument establishing or regulating the fund, the conditions of

registration which may be required by the Authority, and such other

requirements as may be laid down by the latter from time to time

Provided that the custodian discloses fully to the fund, any risks

that may be associated with the nature of the custody arrangements,

and that the agreement appointing the custodian shall clearly define the

extent of liability of the custodian. Any such risks shall also be fully

disclosed to the fund and to the participants in the fund.

The termination of the appointment of the custodian in

accordance with the provisions of regulation 12 of these regulations

shall not come into effect prior to the appointment of another custodian,

and the conveyance of the assets held in custody by the outgoing

custodian to the new custodian.

Mitbug[ fl-Istamperija tal-Gvern — Printed at the Government Printing Press