MALTA Law and Practice Contributed by: Dr Josef Cachia Fenech Gonzi and Cherise Abela Grech, GTG Legal
fund’s profits after investors have recouped their initial investments. This performance- based incentive aligns the interests of Fund Principals with those of the investors, pro - moting diligent fund management. • Personal capital commitments: to further align interests, Fund Principals may invest their own capital into the fund. This practice demonstrates confidence in the fund’s poten - tial and ensures that Fund Principals share in both the risks and rewards alongside other investors. The MFSA emphasises robust corporate gov - ernance within the financial sector, including VC funds. The primary legislative framework is the Companies Act, which delineates the respon - sibilities of directors, shareholder rights and transparency obligations. Complementing this, the MFSA has introduced several codes and manuals to guide governance practices. • Corporate Governance Code: applicable to all unlisted entities authorised by the MFSA, this code provides principles and provisions to be applied on “best effort” basis, promot - ing responsible and efficient management for long-term success. • MFSA Corporate Governance Manual for Directors of Collective Investment Schemes: targeted at directors of collective investment schemes, including VC funds, this manual offers guidance on implementing good gov - ernance practices. It covers aspects such as the role of directors, board composition, meetings and crisis management. These frameworks underscore the importance of the following. • Board composition: ensuring that boards include directors with the requisite skills and
experience, with an emphasis on appointing independent directors to enhance objectivity and oversight. • Regular board meetings: conducting meet - ings at least quarterly to review the fund’s performance, operations, and compliance with investment strategies and regulatory requirements. • Risk management and compliance: imple - menting robust systems to identify, assess and manage risks, including financial crime prevention and adherence to anti-money laundering regulations.By adhering to these governance standards, VC funds in Malta aim to balance the economic interests of Fund Principals with investor protection, fostering a transparent and accountable investment environment. 2.3 Fund Regulation In Malta, VC funds are subject to regulation under the Investment Services Act (ISA), which provides the legal framework for investment ser - vices and Collective Investment Schemes (CIS). The MFSA is the primary regulatory body over - seeing these activities. The ISA encompasses various subsidiary legislations that address dif - ferent aspects of investment services, including the establishment and operation of collective investment schemes. As a member of the EU, Malta has also imple - mented the AIFMD, which regulates managers of AIFs, including VC funds. The AIFMD sets out requirements for authorisation, operation and transparency for AIF managers operating within the EU. Additionally, Malta has adopted the European Venture Capital Funds (EuVECA) Regulation, which provides a framework for qualifying VC funds to market their funds across the EU under
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