Custody and Depository Services

An established and reputable international banking centre and ranked in the global top ten in terms of sound banking systems, Malta continues to offer numerous opportunities for specialised banks and niche players. The financial centre is currently catered to by a handful of custodians, but with new credit institutions turning their focus on Malta, custody services are set to grow.

The provision of custody and depository services, as defined by the Undertakings for Collective Investment in Transferable Securities Directives (UCITs) and Alternative Fund Manager Directives (AIFMD), has been a hot topic in Malta for the past few years with a booming fund industry and only a handful of specialist credit institutions offering services.

Although global banking and financial services company Deutsche Bank has a presence on the island, the majority of Malta’s current custody and depository service providers fall into boutique-scale in international terms – which has thus far suited the demands of the marketplace. Players such as domestic Bank of Valletta (BOV), Austrian Sparkasse, Mediterranean Bank and recent addition Swissquote, all provide highly specialised services safekeeping financial and other assets for funds and provide monitoring and oversight functions over funds’ managers and portfolios. At the end of 2013, Malta had seven MFSA-licensed custodians. However, by the end of 2014 regulator MFSA reported it was seeing an increase in applications from both new international custodians as well as existing Malta-based entities looking to expand their activities.

With the fund industry developing rapidly, industry professionals in Malta see it as inevitable that custody and depository services will grow too. If the successful cluster strategy taken by the jurisdiction is anything to go by, things will be looking brighter in 2015-16. Malta launched the industry by building a solid structure for fund vehicles, which started clustering around 2005, what followed was a cluster of fund administrators in 2007 and subsequently fund managers around 2009. The last piece of the puzzle is at the cusp of finding its place, with the beginnings of a cluster of specialised custodians.

Custodian Requirements

A Custodian is required to have the business organisation, systems, expertise and experience deemed necessary by the MFSA to carry out its functions. The nature and extent of required resources (particularly with regards to the local staff complement) will largely depend on the number, nature and extent of mandates to be taken over by the Custodian. There are no prescriptive requirements relating to the nature of office premises and IT systems, including in regard to links with the Head Office, which the local branch is expected to have in place, as the regulator considers these to be operational issues which are best left up to the company to decide. The rental of office space on an office-sharing basis is permitted provided appropriate arrangements are in place to safeguard the confidentiality of documentation. As for services provided by the branch’s Head Office, the MFSA would expect the branch to have adequate communication and reporting arrangements in place to ensure services are being properly performed as well as to enable it to report to the regulator as may be required.

Read more about Licensing of Custody Operations and the key features of Licences.


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