MFSA review exposes governance gaps in Malta’s fund management industry

The MFSA has published a thematic review examining how Management Companies (UCITS ManCos and AIFMs) comply with AIFMD and UCITS liquidity risk management requirements as implemented in Malta’s Investment Services Rules.

The review also evaluated adherence to internal processes around investment-limit monitoring, day-to-day portfolio management, and investment decision-making (the Investment Management process).

The focus of the review underscores process and governance weaknesses that too often sit behind polished policy documents. Liquidity risk frameworks can be generic rather than fund-specific; stress testing is sometimes infrequent, poorly calibrated, or disconnected from redemption terms; and escalation routes for liquidity events are not always operationalised or rehearsed.

In the Investment Management process, investment-limit monitoring may rely on manual checks or retrospective controls, increasing the risk of pre-trade breaches or late detection. Documentation that captures the rationale and approvals for trades can be sparse, hampering auditability and accountable challenge. Second-line independence and the quality of management information (MI) presented to committees remain uneven, weakening oversight.

Another recurring pitfall is outsourcing oversight: SLAs, KPIs/KRIs and due-diligence refresh cycles are not always proportionate to the risk outsourced, and evidence of ongoing challenge can be thin. Finally, change management and staff training can lag regulatory updates – policies “exist” but are not fully embedded in daily decision-making.

There are, however, clear signs of stronger practice. Managers that have embedded pre-/post-trade controls, minuted Investment Committee challenge, liquidity mapping aligned to dealing terms, and evidence-rich decision logs are better positioned to meet supervisory expectations and protect investors through stress. The MFSA’s review should help level-set expectations and accelerate remediation where needed.