The Malta Financial Services Authority ("MFSA") has issued a Corporate Governance Manual for Directors of Investment Companies and Collective Investment Schemes (the "Manual"). The purpose of the Manual is to provide general guidance to directors of collective investment schemes (funds) on how to implement good corporate governance practice. The Manual touches upon:

  1. The role of the director of a fund in view of the particular nature of fund structures;
  2. The appointment of directors, in particular due diligence, which should be carried out not only by the investment manager or sponsor on persons who are to be appointed as director on the fund's board, but also by the directors in respect of the investment manager or sponsor, the fund and its services providers;
  3. The number of directors on the board: the MFSA recommends a minimum of three (3), and the appointment of an uneven number of directors;
  4. The composition of the board: the desirability to have directors which make up a balanced "collective skill set", and to ensure that the board includes (ideally a majority of) independent directors;
  5. The structure of the board: a chairman should be appointed and suggestions are made regarding the appointment of a "lead director" and the use of committees for specific functions;
  6. Board meetings: it is considered to be good practice, for instance to hold board meetings on a quarterly basis to review the performance and operations of the fund, while ad hoc meetings could be scheduled to deal with specific matters, and to meet in person as often as possible but at least once a year;
  7. The information pack for board meetings, which should be delivered sufficiently in advance of the meeting and which should include the following:

    1. Investment management report;
    2. Administrator report;
    3. Custodian report;
    4. Audit report (if applicable); and
    5. any other information that may be requested by the board;

    The Manual provides guidance as to how said reports may be presented and the content of such reports.
  8. Conflict of interests: essentially, the fund directors should ensure that the fund's corporate governance procedures enable compliance with the applicable laws, regulations and codes regarding conflict of interests by all service providers;
  9. Code of Conduct: while the board should ensure that the fund has adopted any codes of conduct that are mandated by law, regulation or listing requirements (if applicable), it should also consider the adoption of a voluntary code of conduct which may be available;
  10. Shareholder communications: the board should see to it that shareholders receive all legally required communications and appropriate disclosures, and obtain confirmations from the investment manager, administrator and/or legal counsel in this regard;
  11. The ultimate responsibility of the board for compliance with applicable prevention of money laundering and funding of terrorism legislation, even where outsourcing and delegation arrangements are in place, typically with the fund administrator;
  12. The need for the directors to obtain indemnity and insurance (D&O) from the fund;
  13. The ability of the directors to retain advisors to the board (at the fund's expense), at times when the board cannot rely on advisors appointed by the investment manager or the fund;
  14. Crisis management: the fund board should be as prepared as possible to handle critical events, and should ensure that it is informed and involved in the management of specific crises as soon as possible, which must be duly organised;
  15. Resignation by a director, which may sometimes be to make a statement about the particular circumstances leading to the resignation, but which requires due consideration to be given to the legal context;
  16. The involvement of the board in the termination of the fund; and
  17. Some advice is given on issues common to all directors, such as, for instance, the capability of a director to perform his/her functions (e.g. in terms of availability and competence). It is interesting to note that the Manual does not establish a "quantum" of directorships, but indicates that there is a limit above which a director would be acting irresponsibly by taking on additional directorships, which limit would be context-specific to each director (based on educational and professional experience, administrative and system support available to the director, fund industry knowledge, size and complexity of the funds, etc.). However, the MFSA expects each fund director to able to justify the number of directorships held at any given time.

The above purports to highlight some of the salient points discussed in the Manual; a copy of the Manual is available on the MFSA's website.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.