Licencing of Custody Operations

Custodians of collective investment schemes require a Category 4 Investment Services Licence issued by the regulator, the MFSA, under the Investment Services Act (Chapter 370 of the Laws of Malta):

  • Category 4a: for custodians servicing any type of collective investment scheme
  • Category 4b: where the custodian only acts as depository of Alternative Investment Funds (AIF) under the conditions set out in Article 21(3) last paragraph of the AIFMD (Directive 2011/61/EU) or which are subject to the so-called ‘depository lite’ regime under Article 36 of the AIFMD.

Key Features of Category 4a Licence

A Category 4a licence holder may be established in Malta as follows:

(a) a credit institution, constituted and licensed under the Laws of Malta

(b) a branch, established in Malta, of a credit institution authorised in an EEA State

(c) a branch, established in Malta, of a third country credit institution which is subject to prudential supervision requirements at least equivalent to the requirements applicable to Maltese credit institutions

(d) a company, incorporated in Malta, which is wholly owned by a credit institution, provided that the liabilities of the Licence Holder are guaranteed by a credit institution and the credit institution is either a Maltese credit institution or is a foreign credit institution which is subject to prudential supervision requirements at least equivalent to the requirements applicable to Maltese credit institutions

(e) a company incorporated in Malta which is wholly owned by a Maltese or foreign institution or company which is deemed by the MFSA to be an institution or company which provides unit-holders with protection equivalent to that provided by a Licence Holder fulfilling the requirements of (a), (b), (c) or (d) above and provided the liabilities of the company acting as custodian are guaranteed by the institution or company and the institution or company has a minimum paid-up share capital of EUR 5 million or its equivalent in foreign currency

(f) an investment firm in Malta or a branch of an investment firm established in another EEA State subject to capital adequacy requirements in accordance with Directive 2013/36/EU and Regulation (EU) No 575/2013 including capital requirements for operational risks, and authorised in accordance with Directive 2004/39/EC and which also provides the ancillary service of safe-keeping and administration of financial instruments for the account of clients in accordance with point (1) of Section B of Annex I to Directive 2004/39/EC; such investment firms shall in any case have own funds not less than the amount of initial capital referred to in Article 28 (2) of Directive 2013/36/EU.

Key Features of ‘Depository Lite’ Licence

A Licence Holder in possession of a Category 4b Investment Services Licence is eligible to act as a custodian to one of the following:

(a) Alternative Investment Funds (AIFs) which:

  • have no redemption rights exercisable during the period of 5 years from the date of the initial investments; and
  • which, in accordance with their core investment policy, generally do not invest in assets that must be held in custody according to Article 21(8)(a) of the AIFM Directive; or
  • which generally invest in issuers or non-listed companies in order to acquire control of such companies according Article 26 of the AIFM Directive; or

(b) Third country AIFs managed by an EU AIFM, which are marketed in the EU/EEA in terms of Article 36 of the AIFM Directive.

A Category 4b Investment Services Licence Holder shall be either one of the entities which is eligible to obtain a Category 4a Investment Services Licence or alternatively one of the following entities:

  • A Category 2 Licence Holder (excluding fund managers)
  • A Recognised Fund Administrator

The Authority expects a Category 4b Investment Services Licence Holder to ensure compliance with the applicable SLCs outlined in Part BIV of the Investment Services Rules for Investment Services Providers. In particular, provision is made in the Rules for the depository’s exemption from strict liability in terms of the provisions of the AIFMD, as outlined in Section 4 of this Guide.

 

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