Corporate Governance Manual for Directors of Investment Companies and Collective Investment Schemes




September 2014

1. Corporate governance in the investment fund industry
2. Role of Director of a fund
3. Appointment as a Director
4. Board size
5. Board composition
6. Board structure
7. Board proceedings
8. Information pack
9. Investment management report
10. Administrator report
11. Custodian report
12. Audit report
13. Conflicts of interest and confidentiality
14. Regulation and codes of conduct
15. Investor communications
16. The alternative investment fund managers directive (“AIFMD”)
17. European market infrastructure regulation (“EMIR.”)
18. Anti-money laundering and combating financing of Terrorism
19. Indemnity and insurance
20. Advisor to the board
21. Crisis management
22. Resignation by a director
23. Termination of a fund
24. Issues common to all directors


1.1 The global financial crisis of 2007-09 caused severe dislocations in the funds industry.

These manifested themselves mainly through unprecedented losses in asset value, but also through unexpected and prolonged limitations on shareholder liquidity, operational chaos, extremely compressed and extended time horizons, legal and regulatory paralysis, slow or poor communication from managers, and overall shareholder confusion and even panic. Many participants in the fund industry, politicians, regulators, investors and journalists believe that directors of investment funds generally failed to react properly in the context of such a crisis. Whether or not such a perception is merited, it is crucial that going forward directors of investment funds are cognizant of their role, duties and obligations. A number of jurisdictions have overhauled their corporate governance frameworks or are considering doing so. The Malta Financial Services Authority (“MFSA”) considers the role of directors to be vital to the proper operation of an investment fund and accordingly issues this Corporate Governance Manual for Investment Funds (the “Manual”).

1.2 Why is corporate governance important? Corporate governance is a tool that assures investors in a company that the company’s objectives and operations will be carried out in a manner that benefits the best interests of the company. This is true whether the company is a public or private company; a fund; a special purpose vehicle; a corporate general partner of a limited partnership or a corporate investment manager; a holding company with limited activity; or a company with extensive operational activities.

1.3 Corporate governance is structural: “Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set and the means of attaining those objectives and monitoring performance are determined.”;

1.4 But ultimately corporate governance is about engendering trust: “If management is about running the business, governance is about seeing that it is run properly.”;;

1.5 Corporate governance in the funds industry is highly contexn1al and varies widely according to the laws and regulations applicable to the fund, its investment manager and even investors. However, corporate governance in the funds industry is sufficiently developed to enable a board of directors of a fund to identify and apply good corporate governance p1inciples and practices that would enable it to understand and oversee a fund’s operations and ensure that they are carried out in accordance with the expectations of all interested parties and particularly the fund’s investors.

1.6 The purpose of this Manual is to provide general guidance to a director on bow to implement good corporate governance practice for an investment fund, including some thoughts on typical issues that affect fund directors. The guidance set out in this Manual is not intended. to be exhaustive and should not be followed as a simple check list or road map. Directors of a fund should use this Manual to develop their own “best” corporate governance practice to tit the particular context of the fund and its board.