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MFSA issues Shariah Fund Guidance Note
The MFSA has published a Guidance Note for Shariah Compliant Funds. The document explains how the legal and regulatory framework established under the Investment Services Act would apply to Shariah-compliant funds established under Maltese law. Taxand Malta identifies what issues businesses should be paying particular attention to.
The MFSA stated that Malta's principles-based regulatory regime lays emphasis on the disclosure of all information that the investor needs to know before taking the investment decision and on the transparency of the investment management process itself. This allows a high degree of freedom on the choice of investment strategies and asset allocation policies adopted by investment funds, subject to conditions that vary according to the level of experience and investment expertise of the target investor.
The Guidance Note establishes that, whether set up as Professional Investor Funds, UCITS or non-UCITS Retail Funds, Shariah Funds may be regulated in the same manner as non-Shariah Funds. The level of disclosure and the applicable conditions would be the same as those that are applicable to the respective category of retail or professional funds. The Guidance Note requires that funds presenting themselves as Shariah compliant are required to disclose all the relevant details in this respect in the fund prospectus or offering document as well as in their financial statements as part of their ongoing obligations.
The Guidance Note also explains the role of the Shariah Advisory Board in relation to that of the fund manager to ensure that the financial soundness of the manager's decisions is not conditioned by non-financial considerations. It is however also the manager's responsibility to ensure that the fund actually does satisfy the relevant Shariah principles and requirements as disclosed in the offering document.
Anyone interested in setting up a Shariah Compliant Fund has the assurance that Malta's current legislation caters for such funds. However particular attention should be given when drafting the fund prospectus or offering document and it is also advisable to hold preliminary meetings with the regulator prior to the submission of any application.
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