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Malta: The EU Domicile Allowing a Protected Cell Company Structure

1024 683 Jatco Insurance

Corporate

Malta is one of the very few domiciles which allow a Protected Cell Company (PCC) structure in the insurance sector. A protected cell in Malta allows a cell owner to insure directly own risk in the EEA and sell insurance to third parties in the EEA. The PCC structure can be applied to both insurance companies and insurance broker companies.

Operating model of a Protected Cell Company

A PCC operates in two parts; the company core and the cells. The core part comprises all non-cellular assets including the company’s core share capital, investments and liabilities. The core share capital may be the minimum required by law or larger depending on its activities. The core does not need to take any of the cell’s risk itself but must be solvent at all times, based on the business written by the whole company, including the cells. Once established, a PCC can form cells for third parties.

A PCC can create within its structure one or more “cells” for the purpose of segregating and protecting the cellular assets of the company from those of other cells or the assets of the core itself. The cells are independent from each other and from a legislative point of view are protected from each other. A cell is formed by the creation and issue of a class of cell shares within the cell company in respect of each individual cell. The core and its cells are to be treated as one legal entity, as the cells do not have separate legal personality. The cell is only treated as a separate entity for tax purposes. Cells contract through the PCC which acts on behalf of the cell.

The cell company and its cells may conduct business of insurance and reinsurance as principals, captives, in respect of general and long-term business and also as insurance brokers.

The Companies Act (Cell Companies Carrying on Business of Insurance) Regulations, 2004 allow a licensed Affiliated Insurance Company to be registered as or convert to a protected cell company (PCC). Transfer of cellular assets is possible subject to approval of the MFSA. However, a cell company does not require cell transfer approval in order to invest, change investment of cellular assets or make payments or transfers from cellular assets in the ordinary course of the company’s business.

Cell Management

The PCC has a single board of directors which takes responsibility for the transactions within the core and cells, and for the statutory and regulatory compliance and corporate governance requirements of the company as a whole. Although the board may delegate the management and administration of a cell, or parts thereof, to a cell committee which may include representatives of the cell owner, it is ultimately the board of directors of the PCC which is responsible for all cells and cellular assets.

The assets of any one particular cell are only available to the shareholders and creditors of that cell; creditors of another cell have no recourse against them. However, in the event that the cellular assets of one cell have been exhausted, the company’s core assets may be secondarily liable to satisfy any cellular liability of one of its cells.

The PCC Structure

pcc

The Benefits of the PCC

The PCC provides a number of advantages when compared to a stand-alone company. One of the key elements is that an insurance broker or insurance company can conduct business through the ownership of a cell using the core’s capital. Lower capital requirement means that each cell is only obliged to hold capital needed to protect its risks, while the own funds requirements apply to the PCC as a whole. Cells also benefit from lower running costs compared to stand-alone companies since there is no need to set up a separate company. Owners benefit from simpler administration and shared overhead costs.

Cells face lower risk since the risks within each cell will be legally segregated from other cells. Furthermore, PCCs and their cells in Malta can directly access EU markets through a single-passport route, thus avoiding fronting arrangements. Cells can also benefit from Malta’s favorable tax imputation system through which foreign shareholders can benefit from a tax refund after that year end taxation has been paid by the cell.

The authorisation process for cells is usually faster and less demanding since the management of the PCC is already known to the regulator. Entities that have not had a great deal of exposure to the business of insurance can benefit from the experience of the PCC in regulatory issues, as well as the day-to-day running of an insurance company or insurance brokerage company.

Isle of Man

Fund Administration in the Isle of Man

1024 683 Galileo Fund Services Limited

Organizational-Development-Starts-at-the-Top1

The Isle of Man, amongst many other things, is an ideal centre for the administration of niche fund and investment products. The legislation in place offers a wide variety of fund structures around which the most appropriate investment vehicle may be constructed.

Moreover, the Island has developed over many years, a robust political and financial infrastructure with an emphasis on pragmatic regulation. The purpose of this paper is to give a brief background to the Isle of Man fund environment and to focus on one particular type of popular structure available in the Isle of Man, the Closed-Ended Investment Company or “CEIC”. CEIC’s have been successfully used by many fund promoters in recent years as the vehicle of choice when establishing an investment company, be it a private unlisted company or a stock market listed company. It should be remembered that the information contained within this paper is for guidance only and interested parties should consult the relevant original legislation when structuring an Isle of Man product.

The Constitutional position of the Isle of Man

The Isle of Man is a self-governing dependency of the British Crown and is not part of the United Kingdom. Through long-established constitutional convention, the Isle of Man has autonomy in relation to its domestic affairs, including taxation and business law. As the Island is not a member state of the European Union (as provided under Protocol 3 to the Act of Accession), EU rules only apply to the Isle of Man in relation to a limited range of matters. Tynwald, the Island’s parliament, has been in existence for over 1,000 years and is the world’s oldest continuously functioning parliament. As a common law jurisdiction, the Island’s legal traditions draw heavily on those of England providing a level of familiarity when dealing with the Island.

Regulatory environment

The Isle of Man has developed a reputation as a jurisdiction of quality through its enactment of pragmatic legislation enabling industry to operate in a business friendly environment whilst at the same time adhering to international standards of financial supervision. Fund managers, administrators, and providers of corporate and fiduciary services, are regulated by the Isle of Man Financial Services Authority (“FSA”) and to complement the licensing framework for the regulation of such entities, the Island has adopted extensive measures to prevent money laundering and the financing of terrorism.

Closed-ended Investment Companies

Legislation in the Isle of Man makes a fundamental distinction between an “open-ended investment company” and a “closed-ended investment company”. Open-ended investment companies are corporate vehicles which provide investors with a right of exit by allowing them to redeem their shares and are considered to be collective investment schemes for the purposes of Isle of Man law.

A collective investment scheme or fund is subject to regulation in the Isle of Man under the Collective Investment Schemes (“CIS”) legislation whilst a CEIC, which provides no such right of exit, is not currently subject to the same CIS regulations. To that end, a CEIC is treated in the same way as any other operating company for regulatory purposes and, as a result of this approach, there are a number of important advantages to operating such a company from the Isle of Man including:

• no regulatory pre-approval requirements for launch in the Isle of Man
• no requirement for a licensed fund manager or administrator to be appointed
• no prescriptive requirements as regards board composition
• no requirement for a separate custodian
• no restrictions on asset classes, investment strategy or leverage
• no prescriptive rules about permitted investors or minimum subscription requirements

Companies – both traditional and modern

Company legislation introduced in 2006 has given promoters wishing to use an Isle of Man investment company the choice between using a vehicle incorporated under the Companies Act 2006 or alternatively a more traditional vehicle established under the Companies Act 1931.

Key features of a 2006 Act company are:

• minimal administrative requirements
• flexible capital structure
• limited disclosure requirements
• suitably regulated registered agent must be appointed

1931 Act companies draw heavily on English corporate legislation and therefore have more prescriptive administrative and statutory filing requirements.

Solution Freedom

Listing an Isle of Man CEIC

Isle of Man CEIC’s are suitable for listing on many recognised investment exchanges and over the years have proved to be a popular choice of vehicle for listing on the AIM Market in particular. A CEIC is not required to appoint a licensed fund administrator, however an Isle of Man corporate services provider may be required to deliver statutory and on-going compliance services.

Taxation

The Isle of Man offers a tax neutral environment in many cases with no capital taxes and a zero rate of corporate tax for CEIC’s. Value added tax may, however be payable on fees levied by certain functionaries to an investment company, dependent on the jurisdiction in which they are based.

 

office site

Establishing Insurance Companies in Malta

1023 683 Jatco Insurance

chrisgravina-office-malta

Since Malta joined the European Union (EU) in May 2004, it has become an attractive domicile for establishing an insurance company or an affiliated insurance company.

A Maltese insurance undertaking is defined as a company authorised in terms of the Insurance Business Act, whose head office is in Malta, and is entitled to carry on business of insurance in a member/EEA state in exercise of a European Right.

Malta has an established regulatory framework that operates to EU standards and which accommodates insurance companies. Thus, Malta is worth considering as the location for a captive where the ability to issue policies directly into the EU/EEA may provide significant savings on fronting and collateral costs. This offers cost saving advantages to:

Multinationals with operations in EU locations;
UK corporations paying significant Employers’ Liability and Motor Third Party premiums;
Companies using captives to provide insurance to their customer base, e.g. travel, warranty, credit protection, room cancellation insurance.

The benefits of setting up an insurance company in Malta

1. Ability to write policies directly into the EU and European Economic Area – Full EU membership enables Maltese captives to dispense with the need for fronting companies into the EU/European Economic Area (EEA).
2. Effective and responsive regulation – Regulation is to EU standards while being flexible and responsive for which the most successful established captive domiciles are favoured.
3. Established financial centre – Insurance, legal and accounting expertise is all available within Malta’s highly trained professional workforce.
4. Tax efficiency – The standard rate of corporate tax in Malta is 35%, but an insurance company insuring risks outside Malta could benefit from the Malta tax refund system.
5. In addition, Malta has double taxation treaties with 60 countries.
6. Protected cell companies – PCC legislation enables a PCC to be formed in Malta whereby each cell’s assets and liabilities are legally separated.
7. Migration from other jurisdictions – The Continuation of Insurance Companies Regulations 2003 enables captives to be easily relocated from other jurisdictions which have similar legislation.

The benefits of using an Affiliated Insurance Company in Malta

1. Solution to market limitations: Captives can provide cover for risks that is not available or affordable in the traditional insurance market.
2. Improved and flexible risk management: Policies are custom-designed and specially tailored to the needs of the insured.
3. Reduced risk financing expenses: Lower transaction costs and administration expenses compared to traditional insurance programmes. Companies can also retain underwriting profit and investment income earned on loss reserves.
4. Better cash flow management: Companies have control over the payment or premiums and the timing and the payment of claims. They can direct the flow of funds to and from the captive according to their own investment strategy. This leads to a more efficient use of capital.
5. Direct access to reinsurers: Companies can buy excess loss protection on a wholesale basis rather than on a retail basis (traditional insurance policy). They benefit from better conditions and the opportunity of negotiating price and contract terms directly.
6. Coordinated risk management: Multinational companies can use a captive to manage risks at group level and centralize their insurance programmes. This translates into improved risk awareness and cost-transparency.
7. Protection from price fluctuations: Pricing swings occur periodically in the traditional marketplace. Companies using a captive can negotiate a premium established on the basis of their own loss experience. Other market factors and loss experiences of other insured parties have no effect.
8. Potential tax advantages for Captives: Malta tax refund system that could be beneficial to foreign investors.

Furthermore, the growth of the insurance sector, has attracted a significant increase in the number of insurance managers in Malta. Most insurance managers offer a full range of products and services which encompass every aspect of alternative risk management, from initial consulting, to program structuring and formation, to ongoing administration and regulatory compliance for insurance companies.

Malta-NAIF

Notified Alternative Investment Funds: Malta’s novel investment product

1024 512 Fiduciary Management

malta

During the post-AIFMD era, whereby most jurisdictions seem to have fallen into a regulatory hibernation with reference to funds, Malta has once again proven to be abreast of developments. The Malta Financial Services Authority (‘MFSA’) has recently announced the launch of a new framework applicable for notification of Alternative Investment Funds (the ‘Notified AIFs’) which will be promoted to Qualifying or Professional Investors (as defined below).

The new framework will be applicable to collective investment schemes which are not in possession of a licence issued by the MFSA, in terms of the Investment Services Act (Chapter 370 Laws of Malta), and are managed by a full-scope Alternative Investment Fund Manager (‘AIFM’), authorised and regulated under Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers (‘AIFMD’). In respect of such a collective investment scheme, an AIFM, which is in possession of either (i) a licence granted by the MFSA under the Investment Services Act or (ii) a management passport under Article 33 of the AIFMD, shall make a notification to the Regulator undertaking responsibility for it and for the fulfilment of its obligations. Third country AIFMs will be able to submit a request for notification of an AIF once passport rights under the AIFMD have been extended to their country of establishment.

Under the novel regime, the Notified AIFs may be established as either closed-ended or open-ended and can avail themselves of any legal structure from the wide spectrum already in place, catering for both corporate and unincorporated forms (e.g. SICAV, INVCO, Incorporated Cell Company, Incorporated Cell of a Recognised Incorporated Cell Company, contractual fund etc.). However, the following types of collective investment schemes shall fall outside the scope of the notification process: (1) funds which do not fall under the definition of ‘AIFs’, (2) self-managed AIFs, (3) AIFs which are sold and promoted to investors other than those who fall under the definition of ‘Qualifying’ or ‘Professional Investors’ (see below), (4) AIFs managed by third country AIFMs (pre-passport), (5) loan funds and (6) AIFs that invest in non-financial assets such as antiques, works of art etc. (currently real estate funds are excluded from the notification process as well but this will most probably be amended as per MFSA’s preliminary feedback).

As stated above, Notified AIFs may be marketed only to Professional and Qualifying Investors. ‘Professional Investors‘ are investors who are considered to be professional clients or may, on request, be treated as professional clients within the meaning of Annex II to Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (‘MiFID’). ‘Qualifying Investors‘ (a new regulatory term introduced by MFSA) are defined as those investors who (a) invest a minimum of EUR100,000 or its currency equivalent in the AIF – which amount shall not be reduced below this threshold at any time by means of a partial redemption, (b) declare in writing to the AIFM and the AIF that they are aware of and accept the risks associated with the proposed investment and (c) either have net assets in excess of EUR750,000 or are senior employees or Directors of service providers to the Notified AIF.

malta

As soon as the duly completed notification pack (the notification request along with a Prospectus and supplementary documentation) has been filed with the MFSA, the Authority will proceed to

include the AIF in the list of Notified AIFs within ten business days. The same period applies in case of amendment of a Notified AIF’s Prospectus as well. Such inclusion shall not be construed as licence, authorisation or approval on behalf of the MFSA whereas a list of Notified AIFs in good standing (hereinafter referred to as the ‘List’) will be maintained and updated on the Authority’s website. The procedure used for the notification of AIFs shall also be used for the notification of additional sub-funds.

Since the new framework essentially places reliance on the AIFM’s regulated status, it follows that the said AIFM has increased powers and responsibilities placed on its shoulders to offset the lack of direct prudential regulation with reference to the investment product. In view of such reliance policy, the AIFM, prior to submitting a request for the AIF’s inclusion in the List, is required to perform the ‘fitness and properness’ test on both the service providers as well as the governing body of the AIF and may therefore veto any appointment thereof on such grounds. Furthermore, any rights (other than any rights to income or capital) of any founder or similar shares must be transferred to and exercisable only by the AIFM upon inclusion of the AIF in the MFSA’s List.

The attractive tax regime currently applicable to licenced collective investment schemes (based on the dual classification into prescribed and non-prescribed funds) will be extended to the Notified AIFs as well, thus easing the investors’ minds. This decision was hailed by the industry as it put an utterly appealing package deal on Malta’s investment table, placing the country once again in the vanguard of pioneering jurisdictions.

Euro

The Notified AIF regime puts Malta on a level playing field with Luxembourg, a long established fund domicile. The latter has recently introduced the Reserved Alternative Investment Fund (RAIF – or fonds d’investissement alternatif réservé, FIAR) framework. Whereas a detailed comparison between the two regimes is outside the scope of this article, reference should be made to the main difference between the two products. Whereas the notification to the MFSA constitutes a sine qua non for the establishment of a Notified AIF, upon the receipt of which it will be included in the respective List maintained and updated on the Regulator’s website as per above, RAIFs are not registered with the Luxembourg supervisory authority (the Commission de surveillance du secteur financier, CSSF). They are established through a notarial attestation of their constitutive documents, which must then be deposited with the Register of Trade and Companies (‘RCS’) in order to be published in the Mémorial, the official Luxembourg State Gazette.

Malta has made the wiser choice here as the inclusion of the Regulator in the whole procedure (even within such limited scope as has been described above) may add another layer of protection in the eyes of the potential investors, thus providing the sought after safeguards for such investment endeavours. If one takes into consideration other regulatory discrepancies as well (e.g. the requirement for appointment of local depositary for RAIFs whereas lack of any such requirement for Notified AIFs), then the scales are unambiguously tilting towards Malta as an AIF domicile alternative.

It is expected that requests for inclusion in the List will start being received by the MFSA from around the middle of the second quarter of 2016.

Malta’s Notified AIF framework will unequivocally be a game-changer in the funds world. This is due to the fact that, whereas the AIFMD was meant as a predominantly management regulation ensuring adequate supervision (and regulation) of AIFMs, rather than the funds themselves, the industry’s bitter experience was a profound regulation overlap between the manager and the product (thus raising compliance costs and ultimately impeding investment on behalf of professional investors who, due to their higher level of sophistication should be granted more leeway). Malta, boasting a track record when it comes to a pro-investor mentality (evidenced e.g. through the preservation of the PIF alongside the NF regime), has once more proven itself to be a true regulatory torchbearer uniquely positioned to cater for the investment industry.

The Notified AIF regime puts Malta on a level playing field with Luxembourg, a long established fund domicile. The latter has recently introduced the Reserved Alternative Investment Fund (RAIF – or fonds d’investissement alternatif réservé, FIAR) framework. Whereas a detailed comparison between the two regimes is outside the scope of this article, reference should be made to the main difference between the two products. Whereas the notification to the MFSA constitutes a sine qua non for the establishment of a Notified AIF, upon the receipt of which it will be included in the respective List maintained and updated on the Regulator’s website as per above, RAIFs are not registered with the Luxembourg supervisory authority (the Commission de surveillance du secteur financier, CSSF). They are established through a notarial attestation of their constitutive documents, which must then be deposited with the Register of Trade and Companies (‘RCS’) in order to be published in the Mémorial, the official Luxembourg State Gazette.

Malta has made the wiser choice here as the inclusion of the Regulator in the whole procedure (even within such limited scope as has been described above) may add another layer of protection in the eyes of the potential investors, thus providing the sought after safeguards for such investment endeavours. If one takes into consideration other regulatory discrepancies as well (e.g. the requirement for appointment of local depositary for RAIFs whereas lack of any such requirement for Notified AIFs), then the scales are unambiguously tilting towards Malta as an AIF domicile alternative.

It is expected that requests for inclusion in the List will start being received by the MFSA from around the middle of the second quarter of 2016.

Malta’s Notified AIF framework will unequivocally be a game-changer in the funds world. This is due to the fact that, whereas the AIFMD was meant as a predominantly management regulation ensuring adequate supervision (and regulation) of AIFMs, rather than the funds themselves, the industry’s bitter experience was a profound regulation overlap between the manager and the product (thus raising compliance costs and ultimately impeding investment on behalf of professional investors who, due to their higher level of sophistication should be granted more leeway). Malta, boasting a track record when it comes to a pro-investor mentality (evidenced e.g. through the preservation of the PIF alongside the NF regime), has once more proven itself to be a true regulatory torchbearer uniquely positioned to cater for the investment industry.

Disclaimer: The content of this article is intended to provide a general guide to the subject matter and should in no way be construed as advice. Specialist advice should be sought about your specific circumstances.

insurance-brokers-small

Insurance Brokers in Malta

1024 547 Jatco Insurance

Valletta-3

The Malta Financial Services Authority (“MFSA”) handles the registration and enrolment of insurance intermediaries including insurance brokers. The carrying out of insurance intermediaries activities is regulated under the Insurance Intermediaries Act, 2006 (the “Act”). Once the MFSA has issued its licence, the insurance brokerage companies would be enrolled in the MFSA “Brokers List”.

The MFSA also maintains registers of persons carrying on the insurance intermediaries activities of insurance brokers in the ”Brokers Register”. The qualifications required for a person to be entitled to be registered in the Brokers Register are as follows:

1. the applicant shall be an individual;
2. the applicant shall be a fit and proper person to be so registered and to ensure the company’s sound and prudent management;
3. the applicant shall possess the qualifications and fulfils or complies with the requirements as determined by the Act.

Furthermore, such registered broker must be a director or an employee of an enrolled company to be able to carry out insurance intermediaries activities.

As per the Act, Insurance Brokerage can be defined as professional activities of persons, acting with complete freedom as to their choice of lawful insurers, who bring together, with a view to the insurance or reinsurance of risks or commitments, persons seeking insurance or reinsurance and insurers or reinsurers. Insurance brokers carry out work preparatory to the conclusion of contracts of insurance or reinsurance and, where appropriate, assist in the administration and performance of such contracts, in particular in the event of a claim. Insurance brokers shall do everything which is reasonably possible to satisfy the insurance requirements of their clients and shall place the interests of those clients first.

Insurance Brokers in Malta operate under a very strict regulatory regime which requires insurance broking companies to have a minimum share capital of €58,234; to have in place a professional indemnity insurance cover of at least €1 million; to operate a “Business of Insurance Broking” bank account and to hold a fidelity bond of at least €11,467 where applicable.

An insurance broker company in Malta may also be converted to a Protected Cell Company (PCC) in terms of the Companies Act (Cell Companies Carrying on Business of Insurance) Regulations, 2010. Jatco Insurance Brokers PCC Ltd was converted to a PCC in September 2013, and was the first insurance brokerage company worldwide to obtain the licence for an insurance brokerage cell. The Company now has three insurance brokerage cells operating under its structure.

Foreign investors who would like to establish an insurance brokerage company or cell in Malta, will take advantage of a favourable regime which incorporates all EU financial services legislation. Consequently, operators will benefit from the single market passporting rights under freedom of services and freedom of establishment.

The benefits of having an insurance brokerage company or cell in Malta

1. Ability to intermediate policies directly into the EU and European Economic Area – Full EU membership enables Maltese brokers to dispense with the need for fronting companies into the EU/European Economic Area (EEA).

2. Effective and responsive regulation – Regulation is to EU standards while being flexible and responsive for which the most successful established insurance domiciles are favoured.

3. Established financial centre – Insurance, legal and accounting expertise is all available within Malta’s highly trained professional workforce.

4. Tax efficiency – Tax refund system that could be beneficial to foreign investors.

5. Malta has double taxation treaties with over 60 countries.

6. Migration from other jurisdictions – Regulations enable the easy relocation from other jurisdictions which have similar legislation.

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