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Joseph Camilleri, Executive Head Business Development & Corporate Services at BOV Fund Services, talks to Finance Monthly about Malta’s fund industry, Brexit and the hurdles that the fund services sector is faced with in a scenario of on-going regulatory developments.

 

Within the context of a highly regulated fund industry, how is Malta coping in ensuring that it keeps pace with bigger fund domiciles?

I trust we’d all agree that the fund industry is increasingly becoming overcrowded with regulation, well intended as that may be. We’d also agree that such poses challenges to all stakeholders, be they investors, investment managers, service providers and fund domiciles too of course. Malta is in no way an exception to this.

The challenges may seem somewhat bigger and more difficult to address if the domicile is a relatively new and upcoming one; particularly if the domicile has built its fund and fund management industry on the small and medium sized funds and fund managers, as is the case for Malta, which by the very nature of their size, are impacted to a larger extent by the over-regulation in the industry.

Notwithstanding the above statements hold true, Malta has in my view, weathered the storm in a convincing manner. The key word here is “adopting” rather than adapting to new regulation, and ensuring that its pre-emptive stance pays dividends. The island’s positioning as a fund domicile has seen it consolidating its strengths in particular niche areas which it has continued to develop over the past few years. All of this further underpinned by the pro-active mindset of stakeholders (service providers in particular) in ensuring compliance to new regulations through the timely provision of additional services to the industry, in a cost competitive backdrop.

Malta’s fund industry has established itself as a domicile of choice to many start-up hedge fund managers. Its highly competitive package, the pro-business approach and accessibility of Malta’s single regulator, the robust yet flexible regulatory framework for deminimis (out-of-scope) funds in terms of the AIFMD, the efficient process for licensing, as well as the presence of several service providers on the island, within the context of a cosmopolitan lifestyle have and are attracting several investment managers to our shores.

Within the AIFMD realm, Malta too has identified its own niche segments: the past couple of years have been characterised by full scope AIFMs, whether based in Malta or other EU member states, structuring fully compliant AIFs having diverse strategies. Most notable, we have seen a growing number of AIFs being set up investing in real estate and other real assets, we have seen Private Equity funds being set-up, as well as the emergence of loan funds. Thus funds that require depo-lite services, as opposed to fully fledged depositary services, have been very conspicuous in Malta’s development of its fund industry.

The recently introduced Notified Alternative Investment Fund (NAIF) has thereagain been an innovative and positive contributor to the growth of the industry in the AIFMD space. Full scope AIFMs across the EU now can have their fund structures, SICAVs, Contractual Funds, Limited Partnerships, or Unit Trust Funds up and running within 10 working days of notifying the regulator. A far cry from passing…

 

How do you see the Brexit realities impacting Malta’s fund and fund management industry?

Difficult to tell given that the Brexit realities are still an unknown. The shape of things to come post conclusion of negotiations between the parties is still to be seen. Having said that, we’re already seeing major cities within the EU taking rather aggressive approaches in an attempt to position themselves in time (particularly should all go the hard Brexit way) to attract London-based businesses their way.

To a degree, I tend to think that attempts at unseating London as Europe’s main financial services centre is rather delusional. There’s likely to be a repositioning of course, yet London is London and will remain a major player, not necessarily very different to what it is today.

The way Malta is looking at Brexit is quite different; rather than adopting a vulture approach, as seems to be the case for the other EU contenders for the top spot in financial services, Malta’s approach is a softer one - one that augurs for a strengthening of the legacy relationship between the UK and its former colony Malta.

Malta is in fact in an ideal position to act as a bridgehead for UK-based businesses (and not limitedly to financial services businesses at that) to access the wider EU market.

There are various reasons why Malta sees it differently; apart from the legacy relationship mentioned earlier, there are other realities that are worth mentioning that render the relationship one based on mutual respect and understanding:

- English being an official language of Malta.
-The island’s membership and active participation in the Commonwealth.
-The British business ethics deeply rooted in Malta’s own conduct of business.
-The similarities in the socio-political make-up of the two countries.

It is thus of no surprise that we are seeing London-based operators teaming up with ManCo and Super ManCo platforms in Malta to explore alternative solutions for different Brexit scenarios that would allow them access to the EU market. Others are setting up their own “lean” fund management operations in Malta, as UCITS managers or AIFMs, to carry out the risk management function for their fund vehicles, whereas the day-to-day portfolio management activities are outsourced back to base, in London.

Malta’s way of looking at the opportunities coming out of Brexit are of the win-win sort; and it is precisely this that is elevating Malta’s stature in the eyes of UK-based operators.

 

What are the major challenges for a company like BOV Fund Services in a scenario of on-going regulatory developments?

There are various facets to regulation: some see regulation as a safeguard to investors, others to the system itself, some see it as an overkill and an unnecessary money drain.

Whichever line one might take, it is indisputable that regulation presents both challenges and opportunities for service providers, particularly fund administration companies. BOV Fund Services is in this space, and it too is not immune to such.

Regulation has predominantly meant additional and extensive reporting. In view that most fund data is held by fund administrators, it follows that the latter are in such scenarios are best placed to provide additional services to funds and their fund managers, thereby enabling these to comply with the newly introduced obligations.

This has been true for AIFM Annex IV reporting, FATCA, CRS and others. So has regulation impacted all fund administrators in the same manner? The short answer to this question is no. There have been winners and losers in the game; the winners where those service providers that ensured a level of preparedness in good time. The ones losing out on the other hand have been the laggards, those that considered the aforementioned regulations as the Managers’ and the funds’ problems. In effect, such regulations place obligations, sometimes onerous ones, of the funds and their managers.

Yet, fund administrators that evaluated the regulations as their draft versions were published, that understood the implications, and that geared themselves up to provide timely solutions in a cost competitive environment, not only ensured that their clients were compliant as from d-day, but they also consolidated the loyalty from their client base as well as created new revenue streams for themselves.

BOV Fund Services is in this second category. It has invariably sought to be ahead of the curve in terms of assessing the likely requirements of its client base emanating from new regulation. It invested heavily in its IT infrastructure and entered into agreements with system providers to automate reporting.

This has ensured that the company consolidate further its market leadership in Malta as the island’s number 1 fund administration firm (in terms of Assets Under Administration as well as number of Malta-based funds administered by the company), within a context of crowded market of 27 fund administration firms operating from Malta.

 

What has the AIFMD meant to your clients in the alternative space?

Essentially there are three categories of clients that we service, and for whom the AIFMD and its implications came to the fore.

When the initial draft of the AIFMD was published, it was quite evident as of those early days, that the directive had two core outstanding features:

- Albeit purporting to be intended to address systemic risk, it was largely perceived as being an EU protectionist measure, and
- It was bound to negatively impact small-sized alternative fund managers and fund domiciles that catered for this segment of the market.

Malta’s financial regulator, the MFSA, thanks too to the listening ear, lends to the local operators in Malta, wisely decided to defend its territory. As mentioned earlier, Malta had by then attracted a relatively large community of international small and medium sized fund managers to structure their fund vehicles in Malta. It was thus imperative that the goose that laid the golden eggs be safeguarded from the overarching burden that the new regulation was set to bring to the table.

In effect, rather than replacing the old with the new, MFSA introduced a new fund regime, the Alternative Investment Fund rule book, as distinct from the already existing Professional Investor Fund rule book. This latter regulatory platform for alternative funds, with its inbuilt flexibility within a robust framework, had enabled hundreds of fund managers (several of whom small-sized) structure their alternative strategies, ranging from hedge funds, to private equity, real estate, fund of funds, distressed debt, high frequency trading funds to a myriad of others.

It was inconceivable that this segment should be burdened by the heavy regulatory baggage that the AIFMD promised to introduce. In view that the directive’s provisions become mandatory for alternative managers having in excess of Euro 100 million in AUM (leveraged funds), it followed that those below the threshold should be given the opportunity to retain the status quo in terms of the regulation they were subjected to.

Now that the directive has been up and running for a number of years, it is clearly evident that retaining the PIF regime was a wise decision: alternative funds subject to this rule book continue to grow year-on-year.

Back to the three categories:
- The deminimis fund managers and the below threshold self-managed funds were given an option to sign up for the regulation, be subject to all its provisions, and on the upside, benefit from the EU passport. In most cases, they opted to stay put!
- A second category was made up of those that actually “went for it”, driven by one or two factors: the growth potential arising from the passport, and/or the fact that their AUM was just short of the threshold, so it was a question of time for them to adhere to the regulation.
- The third category consisted of those that were captured by the directive due to their respective AUMs (which were already in excess of the threshold). This segment had no other option but to comply, and make the most of it through the passporting rights.

In conclusion, I’d say that Malta’s regulations for the alternative strategies is such that enables acorns to grow into oak trees, without imposing upon them at the early stages of their lives, the rigours of over regulation that the AIFMD seems to be riddled with.

Website: https://www.bovfundservices.com

 

 

 

ZEDRA is an independent global specialist in Trust, Corporate and Fund services.

Based in offices across eleven key jurisdictions, the company’s 370–strong team of industry experts is dedicated to creating and delivering bespoke solutions for a diverse client base including high-net-worth individuals and their families, international corporations, institutional investors and entrepreneurs.

Norson Harris is a Director at ZEDRA Trust Company in Jersey. In addition to his duties as a Director of the Company, Norson is responsible for looking after the interest of many of the families the firm has as clients, principally in Asia. We had the privilege of speaking to Norson, who told us in more detail about his role and achievements, the hottest trends within Jersey’s fiduciary services sector, ZEDRA’s approach to its clients and what makes the company a game changer.

 

What are the current hottest topics discussed in the fiduciary services sector?

The industry is looking in detail at the implications of the Common Reporting Standards (CRS) and the potential consequences of the cross-border reporting this will involve. This includes the obvious consequences such as tax transparency, but for some clients, this also includes perceived and apparent threats to security and confidentiality.

In the immediate future, the industry is also digesting the changes to the UK Resident Non- Domiciled Regime and how this impacts on residence and significantly, property ownership in the UK.

 

What are the most commonly sought after fiduciary services in Jersey?

Traditionally, this has been companies and trusts, but increasingly we are seeing the use of more complex structures such as Private Trust Companies. There is increasing interest in Jersey Foundations and amongst some of the largest families we represent at ZEDRA, we are looking at the use of close ended investment funds to hold their diverse assets.

A lot of focus is given to the existence of private trusts in the Islands, but often overlooked is the significance of the Island to the UK economy and the corporate services provided by companies such as ZEDRA. Jersey Finance, the Island’s promotional agency reports, “Jersey is a ‘jurisdiction of choice’ for listing holding companies on the Main Market of the London Stock Exchange. There are a number of ‘high profile’ FTSE listed Jersey companies and Jersey also has the greatest number of FTSE 100 companies registered outside the UK”. Jersey supports an estimated 250,000 British jobs and is a conduit for almost £500 billion of foreign investment into the country, according to a report into the jurisdiction’s value to the United Kingdom.

 

What are the primary risks and sensitive considerations you raise with your clients?

Confidentiality remains a sensitive issue. We have all experienced the ever greater need to disclose personal information to comply with International Regulatory Standards, but for some families this is a highly charged subject. It is recognised that there are needs to monitor and identify the financial relationships and funds held in the Island and within a jurisdiction such as Jersey with a politically neutral establishment and independent judiciary; this does not present a concern. However, where this information is then shared under international protocols, such as CRS, there are genuine concerns for some families as to what purpose this shared information is to be used. This is not a taxation concern as all companies in the fiduciary and wider finance industry recognise their responsibilities in this regard. What is of more concern is whether the information will be used to exploit the family in some way, or raise personal security issues, or be used for political advantage?

 

With over 25 years of experience in the international financial services industry, you are recognised as a fiduciary expert - how are you developing new strategies and ways to help clients?

It is funny, the longer I am in the industry, I realise that the same strategies I used at the very outset of my career remain the same. Personal, discrete, attentive service remains the driver to everything we do. The structuring may change over time, but more often than not, we are asked the same things; how to protect the wealth and interests of the families we represent. When I started my career, we were more concerned with family protection as the tax code was far less defined and my average client would invariably have been a ‘Landed Family’ in the UK or an industrialist, as they would be more likely known then. The industry over time became more focussed on the tax affairs of clients and in line with the political temperature and regulatory landscape in recent years, the fiduciary sector has again refocussed and there has been a return to more traditional structuring and less emphasis on tax structuring. Whilst my career has gone full circle and I still work with entrepreneurs, the Landed Families have been replaced by some of the world’s wealthiest international families.

 

You joined ZEDRA a year ago - what were your goals in driving change within the company?

I was actually approached the previous year by Barclays Private Bank & Trust Company to help with the positioning of the sale of the Barclays Offshore Fiduciary Group, which ultimately became ZEDRA. My goal then, which continues today, is to ensure the families we look after are supported in the transition from being owned by a global banking giant to an independent fiduciary group, whilst at the same time launching the ZEDRA identity.

This also required providing support and direction to the staff of the Jersey Company and the wider Group as we began not only the rebranding and launch of ZEDRA but helping to define and develop the new culture of the Company.

 

How would you evaluate your role and its impact over the last year or so?

I suspect my role individually has been quite minor, but I have been supported by an incredible team of industry practitioners and some very creative people. At the beginning of 2016, no one knew the name ZEDRA, but over the last 12 months, the global recognition of the brand and what it represents, has been quite remarkable. We are seeing an enormous amount of interest in the work we do and we are at the moment receiving a lot of attention from industry advisors looking to build relationships with ZERDA.

Regrettably, my global impact has been less complimentary as I believe I have travelled some 250,000 miles in the last two years.

 

What further goals are you currently working towards with the company and do you have a particular vision for the future of its services?

ZEDRA continues to expand both in our jurisdictional reach, but also in the number of staff globally that we now employ.  This allows the Group to develop its brand identity but also its corporate culture, all of which is very exciting. ZEDRA’s credo as a group is ‘Do More. Achieve More.’ and our goal is to provide those services that our families and clients need from us to support their own ambitions. As a consequence, we have deliberately told the teams at ZEDRA that we are happy to explore and consider all sensible prospects and business enquiries, thus creating an intuitive and flexible environment for clients from all around the world and in all sectors.

 

What challenges would you say you and the firm encounter on a regular basis? How are these resolved?

As with any launch, especially where a number of companies are brought together, trying to develop a corporate culture is critically important. It is essential to communicate with all employees as to what is happening and what the future looks like from a corporate perspective. In all such scenarios, there are early adopters and other members of the company who will be a little more reluctant to embrace the change. This is more so when one considers that for some of the staff at ZEDRA, their entire employment history may have been with Barclays previously.

Staff recruitment is always difficult, especially in the offshore world, but from discussions with a number of the recruitment agencies we employ, we are seeing enormous interest from people wishing to work for ZEDRA. We are doing something exciting and we strive to be the ‘employer of choice’.

 

What would you say are the company’s top three priorities towards its clients?

Understanding our client’s ambitions and concerns, developing close personal relationships with them and acting professionally and with integrity in everything we do.

 

What has been your biggest professional reward so far? And how will this help you achieve further for your clients in future?

I think being recognised by my peer group in the industry has been remarkably rewarding. I have been very fortunate to have received a number of awards over the years, but I recognise that these have been as a result of close collaboration with my colleagues and staff without whom it would have been a lot less interesting and rewarding. An exciting part of my role is to ‘pass the baton’ to the next generation of practitioners  who will continue to support me in my relationship with my clients, but who in the longer term (I am not quite done yet) will go on to lead their own relationships.

 

What lies on the horizon for the firm in 2017, and what big changes do you expect in the coming year?

ZEDRA will continue to consolidate our existing business within the Group and grow the offices to support our clients’ needs. We will also look to further jurisdictions to add to our global offering to ensure we meet those very exacting standards we set for ourselves and to meet the expectations of our clients.

 

Is there anything else you would like to add?

It may seem trite, but it really is a team effort to build and grow a diverse financial services Group like ZEDRA. We have been enormously fortunate to have the support of the Sarikhani and Nielsen families as our new owners. The massive contribution from all of the staff across the Group in this first year has been key in the success of ZEDRA but we must also recognise the patience and loyalty of our clients, without whom, it would not have been possible.

 

 

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