Malta AIFMD Capital Requirements: Background
An AIFM seeking authorization from the MFSA is required to comply with a number of conditions, in relation to matters such as risk management, liquidity management, conflicts of interests and remuneration. In addition, AIFMD also imposes detailed capital requirements. This publication outlines the AIFMD's rules on capital requirements.
Capital and own fund requirements
The AIFM may be managed either externally by a separate external AIFM, or internally by the AIF itself. Both situations create different impacts on the capital and own funds required. An external AIFM is required to hold initial capital of €125,000 whilst an internal AIFM's capital requirement is set at €300,000. For both structures, when the value of AIFMs portfolio exceeds €250m, the AIFM must provide own funds of 0.02% of the amount by which the value of portfolios surpasses that €250m threshold. However, it should be noted that a cap of €10m is set for initial capital and own funds.
Over and above these requirements, AIFMs must also hold additional funds to counteract any professional liability risks or professional indemnity insurance sufficient to cover such risks. The AIFM must here therefore choose between an 'insurance route' and a 'non-insurance' route. If the AIFM chooses the non-insurance route, the level of these additional funds will equal at least 0.01% of the value of portfolios of AIFs managed. If the AIFM chooses to cover professional liability risks through professional indemnitiy insurance, the coverate (limit) of the insurance for an individual claim must at least equal 0.7% of the value of the portfolios of AIFs managed, and the covereage (limit) of the insurance for claims in aggregate per year must at least equal 0.9% of the value of the portfolios of the AIFs managed. If the 'insurance route' is chosen, the AIFM is not required to hold capital to cover professional liability risks, although of course the AIFM would need to pay the relevant insurance premium and would be required to retain any deductible as capital, plus, potentially, capital sufficient to cover any exclusions to the policy.
Additional financial resources may also be required by the MFSA which the AIF must comply with. In the scenarios of this additional finance being required, the AIF will be given adequate notice in writing.
Conclusion
Capital requirements act as a safeguard for AIFMs to have a safety net to fall back on in case of failure or liquidity problems. Though the capital and own funds requirements may seem stringent, the Directive does recognize the need to adjust these requirements for smaller AIFMs falling under the de minimis regime.
