INVESTMENT SERVICES ACT (ALTERNATIVE INVESTMENT FUND MANAGERS) REGULATIONS

SUBSIDIARY LEGISLATION 370.23

INVESTMENT SERVICES ACT (ALTERNATIVE

INVESTMENT FUND MANAGERS) REGULATIONS

22nd July, 2013 *

LEGAL NOTICE 115 of 2013.

PRELIMINARY

(1) The title of these regulations is the Investment Services

Act (Alternative Investment Fund Managers) Regulations.

(2) The purpose of these regulations is to transpose and

implement Article 4(1)(a), (b), (h), (z), (aa) and (bb), Article 25(1),

(2), (3), (4), (6), (7) and (8), Article 46(4), Article 47(4), (5), (6),

(7), (8), (9) and (10) and Article 51(1) and (2) of the AIFM

Directive.

(1)

In these regulations, unless the context otherwise

requires

"the Act" means the Investment Services Act;

"the AIFM Directive" means Directive 2011/61/EU of the

European Parliament and of the Council of 8 June 2011 on

Alternative Investment Fund Managers and amending Directives

2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009

and (EU) No 1095/2010 as amended from time to time, and

includes any implementing measures that may be issued

thereunder;

"Alternative Investment Fund" or "AIF" means a collective

investment scheme, including subfunds thereof, which raises

capital from a number of investors, with a view to investing it in

accordance with a defined investment policy for the benefit of

those investors, and which does not qualify as a UCITS Scheme in

terms of the UCITS Directive;

"Alternative Investment Fund Manager" or "AIFM" means a

legal person whose regular business is managing one or more AIFs;

"competent authority" means the Malta Financial Services

Authority established by the Malta Financial Services Authority

Act, which body shall also carry out the duties as competent

authority for all purposes of the AIFM Directive;

"Directive 95/46/EC" means the Directive of the European

Parliament and of the Council of 24 October 1995 on the protection

of individuals with regard to the processing of personal data and on

the free movement of such data;

"ESMA" means the European Securities and Markets Authority

established by Regulation (EU) No. 1095/2010 of the European

*see regulation 1(2) of these regulations as originally promulgated.

Parliament and of the Council of the 24 November 2010;

"ESRB" means the European Systemic Risk Board established by

Regulation (EU) No 1092/2010 of the European Parliament and of

the Council of the 24 November 2010 on European Union macro-

prudential oversight of the financial system and establishing a

European Systemic Risk Board and Council Regulation (EU) No

1096/2010 of the 17 November 2010 conferring specific tasks upon

the European Central Bank concerning the functioning of the

European Systemic Risk Board;

"Member State of reference" shall have the same meaning

assigned to it in the Investment Services Act (Alternative

Investment Fund Manager) (Third Country) Regulations;

"overseas regulatory authority" means an authority in a country

or territory outside Malta that is not a Member State or EEA State

which exercises any regulatory or supervisory function in relation

to financial services corresponding to a function of the competent

authority as defined in the Malta Financial Services Authority Act;

"third country AIF" means an AIF which is not a European AIF;

"third country AIFM" means an AIFM which is not a European

AIFM;

"the UCITS Directive" means Council Directive 85/611/EEC of

20 December 1985 on the co-ordination of laws, regulations and

administrative provisions relating to undertakings for collective

investment in transferable securities (UCITS), as amended from

time to time, and includes any implementing measures that may be

issued thereunder.

(2) Words and expressions used in these regulations which are

also used in the Act but which are not defined herein shall have the

same meaning as in the Act.

(3) In the event that any of these regulations conflict with the

provisions of the AIFM Directive, the latter shall prevail.

(1) When transferring personal data to a European

regulatory authority or to an overseas regulatory authority in

accordance with its obligations under the AIFM Directive, the

competent authority shall transfer such data in accordance with

Directive 95/46/EC.

(2) When receiving personal data from a European regulatory

authority or from an overseas regulatory authority under the

provisions of the AIFM Directive, the competent authority shall

retain such personal data for a maximum period of five years.

In cases where the activity of one or more AIFs in the

market for a financial instrument could jeopardise the orderly

functioning of that market, the competent authority shall have all

the powers necessary to take all measures required in order to

ensure the orderly functioning of markets.

(1) If any of the activities of the AIFMs cause or aggravate

a substantial threat to the orderly functioning and integrity of the

financial market or to the stability of the whole or a part of the

financial system in the European Union and there are cross-border

implications, and if the competent authority fails to take measures

to address such threat or if the measures taken do not sufficiently

address the threat, ESMA may, subject to the requirements set out

in sub-regulations (2) and (3), request the competent authority to

take any of the following measures, as appropriate

(a) prohibit the marketing in the European Union of units

or shares of AIFs managed by non-EU AIFMs or of

non-EU AIFs managed by EU AIFMs without the

authorisation required in Article 37 of the AIFM

Directive, or without the notification required in

Articles 35, 39 and 40 of the AIFM Directive, or

without being allowed to do so by the competent

authority in accordance with Article 42 of the AIFM

Directive;

(b) impose restrictions on non-EU AIFMs relating to the

management of an AIF in case of excessive

concentration of risk in a specific market on a cross-

border basis;

(c) impose restrictions on non-EU AIFMs relating to the

management of an AIF where its activities potentially

constitute an important source of counterparty risk to a

credit institution or other systemically relevant

institutions.

(2) The measures adopted by the competent authority in terms

of sub-regulation (1) shall

(a) effectively address the threat to the orderly functioning

and the integrity of the financial market or to the

stability of the whole or a part of the financial system

in the European Union or significantly improve its

ability to monitor the threat;

(b) not create a risk of regulatory arbitrage; and

(c) not have a detrimental effect on the efficiency of the

financial markets, including reducing liquidity in those

markets or creating uncertainty for market

participants, in a way that is disproportionate to the

benefits of the measures.

(3) Before requesting the competent authority to take or renew

any measure referred to in sub-regulation (1), ESMA shall consult,

where appropriate, the ESRB and other relevant authorities.

(4) In both cases where Malta is the Member State of reference

of a third country AIFM or where Malta is the host Member State

of such AIFM, the competent authority shall be notified by ESMA

of its decision to request such competent authority to impose or

renew any measure referred to in sub-regulation (1). The

notification shall at least specify the following details

(a) the AIFM and the activities to which the measures

apply and their duration; and

(b) the reasons why ESMA is of the opinion that it is

necessary to impose the measures in accordance with

the conditions and requirements set out in this

regulation, including the evidence in support of those

reasons. In both cases where Malta is the Member

State of reference.

(5) ESMA shall review the measures undertaken by the

competent authority in terms of this regulation at appropriate

intervals and at least every three months and if a measure is not

renewed after that three-month period, it shall automatically expire.

Any renewal shall be carried out in the process referred to in this

regulation.

(6) If Malta is the Member State of reference in terms of the

Investment Services Act (Alternative Investment Fund Manager)

(Third Country) Regulations, of the non-EU AIFM against whom a

measure in terms of this regulation was imposed, the competent

authority may request ESMA to reconsider its decision in the

manner set out in the second sub-paragraph of Article 44(1) of

Regulation (EU) No 1095/2010.

(1) When Malta is the home Member State of the AIFM,

the competent authority shall use the information provided to it by

the AIFM in terms of Article 24 of the AIFM Directive for the

purposes of identifying the extent to which the use of leverage

contributes to the build-up of systemic risk in the financial system,

risks of disorderly markets or risks to the long-term growth of the

economy.

(2) By means of the procedures set out in Article 50 of the

AIFM Directive on supervisory cooperation, the competent

authority shall

(a) ensure that all information gathered under Article 24

of the AIFM Directive in respect of all AIFMs that

they supervise and the information gathered under

Article 7 of the AIFM Directive, is made available to

European regulatory authorities, to ESMA and the

ESRB; and

(b) provide information bilaterally to the European

regulatory authorities directly concerned, if an AIFM

under their responsibility, or AIF managed by that

AIFM, could potentially constitute an important

source of counterparty risk to a credit institution in

terms of article 2 of the Banking Act, or other

systemically relevant institutions in other Member

States or EEA States.

(3) The AIFM shall demonstrate that the leverage limits set by

it for each AIF it manages are reasonable and that it complies with

those limits at all times.

(4) The competent authority shall assess the risk that the use of

leverage by an AIFM with respect to the AIFs it manages could

entail. Where deemed necessary in order to ensure the stability and

integrity of the financial system, the competent authority, after

having notified ESMA, the ESRB and the European regulatory

authority of the relevant AIF, shall impose -

(a) limits to the level of leverage that an AIFM is entitled

to employ; or

(b) other restrictions on the management of the AIF with

respect to the AIFs under its management,

to limit the extent to which the use of leverage contributes to the

build-up of systemic risk in the financial system or risks of

disorderly markets.

(5) Through the procedures set out in Article 50 of the AIFM

Directive, the competent authority shall duly inform ESMA, the

ESRB and the European regulatory authority of the AIF, of actions

taken in terms of sub-regulation (4).

(6) The competent authority shall make the necessary

notifications to ESMA, the ESRB and the European regulatory

authority in terms of sub-regulations (4) and (5) by not less than ten

working days before the proposed measure is intended to take

effect or to be renewed. The notification shall include details of the

proposed measure, the reasons for the measure, and when the

measure is intended to take effect. In exceptional circumstances,

the competent authority may decide that the proposed measure

takes effect within the ten working days referred to in this sub-

regulation.

(7) After having sent the notifications in terms of sub-

regulations (6) and (7), the competent authority shall receive advice

from ESMA about the measure that is proposed or taken. The

advice may, in particular, address whether the conditions for taking

action appear to be met, whether the measures are appropriate and

the duration of the measures.

(8) On the basis of the information received in accordance with

sub-regulation (2), and after taking into account any advice of the

ESRB, ESMA may determine that the leverage employed by an

AIFM, or by a group of AIFMs, poses a substantial risk to the

stability and integrity of the financial system and may issue advice

to the competent authority specifying the remedial measures to be

taken, including limits to the level of leverage, which that AIFM, or

that group of AIFMs, are entitled to employ. ESMA shall

immediately inform the competent authority, the ESRB and the

Commission of any such determination.

(9) If the competent authority proposes to take action contrary

to ESMA’s advice referred to in sub-regulations (7) or (8), it shall

inform ESMA, stating its reasons. ESMA may publish the fact that

the competent authority does not comply or intend to comply with

its advice. ESMA may also decide, on a case-by-case basis, to

publish the reasons provided by the competent authority for not

complying with its advice. The competent authority shall receive

advance notice about such a publication.