Investment Services Act

Suppliment tal-Gazzetta tal-Gvern ta’ Malta, Nru. 17,982, 13 ta’ Ottubru, 2006

L.N. 239 of 2006

INVESTMENT SERVICES ACT

(CAP. 370)

Investment Services Act

(Performance Fees) Regulations, 2006

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

(1) of article 12 of the Investment Services Act, the Prime Minister and

Minister of Finance, acting on the advice of the Malta Financial Services

Authority, has made the following regulations>-

The title of these regulations is the Investment Services Act Citation.

(Performance Fees) Regulations, 2006.

(1)

In these regulations, unless the context otherwise Interpretation.

requires>

“the Act” means the Investment Services Act<

“accounting period” means the financial period determined

by reference to the accounting reference date, this being a specified

date in a calendar year<

“the competent authority” means the Malta Financial Services

Authority appointed under article 2A of the Act<

“equalisation” means an accounting method designed to

ensure the equal treatment of unit holders irrespective of the timing

of their investment<

“NAV” means the net asset value<

“performance fee” means a fee based on performance

determined by reference to the growth in net asset value over a

given period<

“professional investor fund” means a collective investment

scheme formed in accordance with, or existing under the laws of

Malta, duly licensed by the competent authority as a professional

investor fund<

“relevant index” means an index which is published in an

appropriate manner and which is an appropriate benchmark to

measure a scheme’s performance, by reference to a scheme’s

investment objective and asset allocation<

“scheme” means a collective investment scheme.

(2) Words and expressions which are also used in the Act

shall in these regulations have the same meaning as in the Act.

These regulations shall apply to schemes formed, set up or

established in accordance with, or existing under the laws of Malta,

whether formed, set up or established before or after the coming into

force of these regulations and licensed under the Act>

Provided that these regulations shall not apply to schemes licensed

as professional investor funds.

A performance fee may only be adopted on the basis that it is>

(a) fair and reasonable< in determining the reasonableness

of such fee, consideration should be made to the other applicable

fees to a scheme<

(b) easy to understand and calculate<

(c)

clearly disclosed and explained to investors<

(d) paid at a reasonable frequency< and

(e)

payable only in the form specified in regulation 5.

(1) Performance fees may be payable on>

(a) new high NAV per share over the life of the scheme,

where the starting price is the initial offer price or any other

benchmark if this is higher, or

(b) the out-performance of a relevant index.

(2) In the event of paragraph (a) of sub-regulation (1) of

this regulation>

(a) no performance fee shall be paid or accrued until the

NAV per share exceeds the “water mark”, that is, the highest of

either the previous highest NAV per share on which the

performance fee was paid (if any), the initial offer price, or any

other benchmark. The performance fee shall only be payable on

the increase over the “water mark”< and

(b) where a relevant index exists, such index should be used

as a benchmark as is referred to in paragraph (a) of this sub-

regulation. In the case of such index being the “water mark”, the

performance fee shall only be payable on the amount by which the

scheme out performs the index.

(3) In the event of paragraph (b) of sub-regulation (1) of

this regulation, the index must be relevant to the scheme. The

performance fee shall only be payable on the amount by which the

scheme out performs the index. Any underperformance of the index in

preceding periods since launch shall be recouped before a fee becomes

due in subsequent periods>

Provided that a performance fee shall not be payable if its

NAV per share is below its initial offer price.

The prospectus shall contain clear disclosure on the Disclosure of

performance fee in

performance fee, particularly>

prospectus.

(a) details on the calculation of the performance fee,

including the accrual basis and details of when the fee is actually

paid, the calculation period for determining the fee and the first

such period<

(b) a risk warning that the increase in NAV which is used

as a basis for the calculation of performance fees, may be comprised

both of realised gains as well as unrealised gains as at the end of

the calculation period, and as a result, performance fees may be

paid on unrealised gains which may subsequently never be realised

by the scheme<

(c) a risk warning that performance fees may incentivise

the manager and, or advisor to the scheme to take higher risks in

its investment decisions or advice<

(d) details regarding any maximum amount or percentage

of NAV that a performance fee might represent in any one

accounting period and appropriate warnings in case where there is

no maximum<

(e) worked examples showing the operation and impact of

performance fees< and

(f) details related to the treatment of unit holders, including>

(i) reference to any method, such as equalisation, which

is to be adopted by the scheme with the objective of ensuring

equal treatment of unit holders, irrespective of the timing of

their investment in or redemption from the scheme, as well

as a description of the methodology to be used in this regard<

or

(ii) where no such method is to be used, disclosure to

this effect, together with an explanation of the potential

inequalities which could arise.

(1) The scheme or its manager or administrator as applicable,

shall adopt appropriate controls and structures for the on-going

supervision of the procedures and processes in the calculation and

payment of performance fees.

(2) The custodian of a scheme shall ensure that performance

fees are payable in accordance with regulation 5 of these regulations

and shall also verify the calculation of the performance fee.

The competent authority may from time to time issue

guidelines in terms of article 6 of the Act for the better carrying out of

the provisions of these regulations.

Schemes which at the time of publication of these regulations

have a performance fee structure in place, shall be required to comply

with these regulations as from the accounting period commencing

following their coming into force>

Provided that schemes whose next accounting period commences

within a period of less than eight weeks from the date of coming into

force of these regulations, shall be required to comply with these

regulations as from the commencement of the subsequent accounting

period.

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