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Fund regulations

The Companies Act (Investment Companies with Variable Share Capital) Regulations 1996 (the Sicav Regulations) are being updated to cater for certain industry developments and to apply the provisions to schemes that have not established sub-funds. The amendments will lead to an increased flexibility and will further enhance Malta's competitive position in the international fund industry.

Sicavs with sub-funds and those without

The Sicav Regulations refer to Sicavs that have established sub-funds as multi-class or umbrella companies. But they do not regulate Sicavs that have issued one or more classes of shares that do not constitute sub-funds (that is, Sicavs without sub-funds). Under the new Regulations Sicavs that have established sub-funds are referred to as multi-fund companies or umbrella companies; and Sicavs that have not established sub-funds are referred to as multi-class companies. The term multi class companies will no longer capture Sicavs that have established sub-funds, but will refer to Sicavs that have issued one or more classes of shares that do not constitute sub-funds.

Sub-funds in different currencies

Under the Sicav Regulations, the term sub-fund means one class of shares to which assets and liabilities are allocated, distinct from those allocated to other sub-funds. The regulations further provide that a class of shares may only be denominated in one currency, although in the case of umbrella companies, each class of shares representing a sub-fund may be denominated in a different currency. The new Sicav Regulations address this matter by providing that one or more classes of shares of a Sicav established as a multi-fund or umbrella company may constitute a sub-fund of the Sicav, with each class of shares denominated exclusively in one currency. The classes of shares constituting a sub-fund must have the same investment objectives, policies and restrictions and must be exposed to the same portfolio of assets and liabilities. So a sub-fund may be made up of one or more classes of shares – with each class of shares denominated in one currency – and effectively the sub-fund may be denominated in more than one currency/have more than one reference currency.

Present position

Under the new Sicav Regulations, Sicav A may issue share class 1, share class 2, share class 3 and share class 4, with share classes 1 and 2 constituting sub-fund 1 and share classes 3 and 4 constituting sub-fund 2. This is not possible under the current Sicav Regulations, where only one class of shares may constitute a sub-fund of the Sicav. So share class 1 and 2 constituting sub-fund 1 and share class 3 and 4 constituting sub-fund 2 may be denominated in a different currency as follows:

New position

Classes not representing a sub-fund in different currencies

Sicavs that are not established as umbrella companies must adhere to the requirements of Article 186 of the Companies Act, which provides that the classes of shares issued by a company (including a Sicav) must be denominated in one currency. So whenever a Sicav issues more than one class of shares (which do not constitute distinct sub-funds of the Sicav), those classes must be denominated in the same currency. The new Sicav Regulations exempt Sicavs from the requirements of Article 186 and provide that Sicavs established as multi-class companies (in terms of the revised Regulations – that is, without sub-funds) may issue classes of shares denominated in different currencies, provided that a class of shares may only be denominated in one currency.

Example

Scenario 1: Sicav A (established as a multi-class company) has issued two classes of shares: Class 1 (denominated in EUR) and Class 2 (denominated in EUR). Scenario 2: Sicav A (established as a multi-class company) has issued two classes of shares: Class 1 (denominated in EUR) and Class 2 (denominated in USD), as follows:

Scenario 1: Acceptable in terms of the present requirements

Scenario 2: Not acceptable in terms of the present requirements

Under the present requirements, Scenario 1 is acceptable, but Scenario 2 is not (as all classes of shares issued by a Sicav with no sub-funds must be denominated in the same currency). Both scenarios would be acceptable under the new Regulations.

Fund manager as the sole corporate director

The current Sicav Regulations provide that a Sicav may appoint a licensed manager as its sole director. This option no longer features in the new Sicav Regulations. As a matter of policy, in view of corporate governance considerations, the MFSA will no longer allow Sicavs to appoint their manager as the sole corporate director.

Sicavs that currently have a licensed manager as sole director will be required to appoint at least an additional director to the satisfaction of the MFSA, within six months of the new Regulations coming into force.

Accounts of Sicavs that have not established sub-funds

The classes of shares issued by a Sicav that has not been established as an umbrella company (that is, has not established sub-funds) must be denominated in the same currency. Accordingly, the accounts of such Sicavs must, under Article 187(1) of the Companies Act, be drawn up in the currency of the share classes. Sicavs that have been set up as multi-class companies (as defined in the new Sicav Regulations) may issue classes of shares denominated in different currencies provided that a class of shares may only be denominated in one currency. The new Sicav Regulations exempt Sicavs from the requirements of Article 187(1). Regulation 6 of the new Sicav Regulations further provides that Sicavs set up as multi-class companies (that is, without sub-funds) that have their share capital denominated in different currencies are required to draw up their annual accounts in any one of those currencies.

New classes constitute sub-funds

Under the current Sicav Regulations, all classes of shares issued by an umbrella company constitute distinct sub-funds of the Sicav, and a class of shares constitutes a sub-fund of the Sicav. Regulation 7 of the new Sicav Regulations provides that the initial share capital of a Sicav may not be organized into one or more sub-funds. The term initial share capital refers to the initial shares issued by the Sicav to set up the scheme – that is, before shares are offered to prospective investors. Thereafter, all new classes of shares issued by the Sicav will constitute one or more sub-funds. This option will prove particularly useful for Ucits, which are required to have €300,000 initial capital under the EU Ucits III Directive.

Frank Chetcuti Dimech

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