Introduction
The Maltese archipelago is an island nation in the heart of the Mediterranean. Malta is known for its warm climate, scenic coastline and rich cultural heritage. Although only 17 miles long and nine miles across, Malta's history is over 7,000 years old. The islands have been inhabited since the Neolithic period, with evidence of early settlers and significant prehistoric arrangements, such as the Megalithic temples, which are among the oldest free-standing structures in the world. Malta's strategic location in the Mediterranean has made it a crossroads of various civilisations, including the Phoenicians, the Romans, the Arabs, the Normans, the Knights of St John, the French and, until relatively recently, the British, each leaving a lasting impact on the island's culture, its heritage and its people.
Malta is a young vibrant nation. Independence from Great Britain was secured in 1964, and in 1974 Malta became a republic. Over the past 50 years Malta has transitioned to become an open, free-market, economy with a strong focus on services as a salient driver of growth and well-being. Tourism has, for a long time, held pride of place as the forerunner when it comes to economic drivers but, more recently, especially since Malta's accession to the European Union in 2004, financial services, supported by rapidly growing professional services and information technology sectors, have grown significantly in both absolute and relative terms to reposition Malta as a blossoming European financial services hub in the heart of the Mediterranean.
Over the past 50 years Malta has transitioned to become an open, freemarket, economy with a strong focus on services as a salient driver of growth and well-being.
The Malta proposition is built around a combination of the certainty and access provided by the EU regulatory framework for financial services, a purpose-built legal framework drawing inspiration from both common law and civil law traditions, a competitive tax system for both corporations and natural persons, political stability and a Mediterranean lifestyle. These foundational building blocks, together with its ease of connectivity, low crime rate, strong digital infrastructure and highly skilled English-speaking workforce offer international businesses, investors, fund managers, expatriates, high-net-worth individuals and family offices a compelling jurisdiction to consider when seeking to establish, or expand, a European footprint.
When it comes to the regulation of financial services, it is fair to say that Malta prides itself on a robust yet business-friendly regulatory style. Nowhere is this more evident than with the recent reform to the regulatory framework applicable to single-family offices. This article seeks to explore the recent changes made to the existing regulatory framework which were aimed at streamlining the rules governing singlefamily offices, with a view to ensuring a fit-for-purpose framework that serves as an enabler through clarity, certainty of outcomes and a regulatory approach which is suitably protective of the financial system without representing an obstacle.
Although the presence of family offices is not novel to Malta, in 2021 the Malta Financial Services Advisory Council (MFSAC) under the leadership of Joseph Zammit Tabona, identified the need to innovate the platform as applicable to single-family offices to ensure that the process for the establishment of a single-family office in Malta was clearly articulated and understood. Core to the objectives of the MFSAC in this area was ensuring speed in the process and predictability of outcomes. The resulting changes introduced by the single regulator for financial services in Malta, the Malta Financial Services Authority (MFSA), ensure a specifically tailored solution to high-net-worth families seeking to establish their family office, or a branch of an existing family office, within Europe. The framework today is supported by a regulatory platform which expressly recognises the specificities and nuances applicable to families and family offices in today's world and adopts a light touch regulatory approach which strikes a balance between recognising the reduced necessity for prudential regulation for the safeguarding of consumer interests, while protecting the financial system from financial crime, abusive practices and other misconduct.
Setting the scene: the growing presence of the family office
Since the turn of the millennium, the number of global millionaires has quadrupled, this 'new wealth' is reshaping the concept of wealth itself. This reality has driven a global increase in the establishment of family offices, with 68% of all offices having been established after the start of the millennium. This trend is expected to continue in the future with demand fuelled further by what has been termed 'The Great Wealth Transfer'.1
Estimate total SFO (2024) = 8,030
Estimated to grow by 33% by 2030
Estimated wealth for families with FOs:
- ! 2019 – US$ 3.3 trillion
- ! 2025 – US$ 6.9 trillion
- ! 2030 – US$ 9.5 trillion
Estimated AUM for FOs:
- ! 2024 – US$ 3.1 trillion
- ! 2030 – US$ 5.4 trillion
According to the Deloitte Family Office Insights Series – Global Edition, 2024 Report2 there were, in 2024, an estimated 8,030 single-family offices worldwide increasing by almost one-third over the prior five years (from circa 6,130 offices in 2019). The report projects a further 33% increase over the next five years which is estimated to result in approximately 10,720 family offices by 2030 with an estimated US$5.4 trillion worth of assets under management and representing, in aggregate, an estimated family wealth of US$9.5 trillion.
The growing popularity in the use of family offices as a mechanism through which family wealth is held, preserved and managed may be attributed to several factors, including rising wealth concentration, successful generational wealth transfers, large-scale sales of family-owned businesses and a growing demand for tailored investment strategies and services.
>25% of FOs have multiple branches
>10% plan to set up a foreign branch
FOs Europe HQ – – 90% have a branch inside the region
FOs Asia Pacific HQ – – 61% have a branch outside the region
While family offices will, typically, be based in the country where the family primarily resides, many choose to establish regional branches in other jurisdictions to expand their reach, access new opportunities and manage costs and lifestyle choices.
Understanding the Malta framework
The MFSAC was set up in January 2021 with the core remit to define a long-term strategy for financial services in Malta and to oversee its implementation. An environment suitable to accommodate the needs of single-family offices was expressly identified within the strategy and, following the launch of the strategy in 2023, a working group was set up for this express purpose.
The work in this area culminated in the publication of a series of revisions to regulatory rulebooks published by the MFSA, particularly those regulating private trust companies (PTCs) and notified professional investor funds (NPIFs), both in the context of single-family offices.
The private trust company
A PTC in Malta is a company established to act as a trustee for a specific trust or trusts, in relation to a specific settlor(s) for the benefit of a single family. Unlike a public trustee, a PTC does not offer trust services to the public but serves the private wealth management needs of a particular family, providing a bespoke and flexible approach to trust administration. Unlike public trustees that require the procurement of a comprehensive licence which will be issued by the MFSA after satisfactory completion of the pertinent licence application and vetting processes, trustees managing family trusts under a PTC structure benefit from a simplified licensing and ongoing compliance requirements. PTCs are not subject to any minimum corporate capital requirements and are not required to submit a business model, business strategy or details of the intended financial service activity, flow execution or settlement. Governance obligations are also lighter, with no statutory requirement for internal audit, a risk management framework or officer, or a dedicated compliance function or officer.
PTCs are, in principle, available to hold and manage assets settled by settlors for the present and future needs of family members or their dependants. Pursuant to recent amendments, the legal framework governing PTCs has generally been updated to reflect modern family dynamics and the evolving circumstances in which individuals may be recognised, in society, as belonging to a family.
The definition of 'family member' and 'family dependant' has, as a result, been refined and extended to accommodate contemporary family structures. Specifically, the relevant rules have been extended to expressly also recognise for this purpose:
- individuals who are in a stable and committed relationship with the settlor and who live in a joint household with the settlor; and
- individuals with whom the settlor has descendants by consanguinity, adoption or affinity.
In addition, the definition now also extends beyond 'family member' and 'family dependant' in the conventional sense to include also 'family clients', which by definition may comprise former family members, key employees of a family office, former key employees and non-profit or charitable organisations funded exclusively by one or more family member, dependant or family client. The extended definition finds application when a PTC has: (i) been established and acts in the context of a single-family office; (ii) the trust/family office has aggregate net assets in excess of €50 million; and (iii) provided that there is an intention for a portion of the assets to be invested in a Notified Professional Investor Fund.
This extract from the article 'A refreshed approach: Malta updates its proposition for family offices', by Conrad Cassar Torregiani and Elena Grima Tortell, is taken from the 36th issue of The International Family Offices Journal, published by Globe Law and Business.
Footnotes
1 The Great Wealth Transfer is the forecasted hand-off of nearly $84 trillion dollars of assets over the next 20 years. See www.forbes.com/sites/josephcoughlin/2024/06/26/the-greatwealth-transfer-is-happening-but-not-in-the-way-you-think/.
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