The Malta Financial Services Authority has published the results of an outcomes based review covering about 16% of authorized fund managers, including self managed alternative investment funds, undertakings for collective investment in transferable securities and professional investor funds. The review found weaknesses in the selection, classification and oversight of providers handling critical functions, including portfolio and risk management, valuation, compliance, anti-money laundering and internal audit. Fund managers and their governing bodies remain fully accountable for outsourced activities and must retain sufficient internal substance to avoid becoming letter box entities. Fund managers often relied on informal or generic provider selection criteria, incomplete due diligence and industry reputation rather than detailed risk assessments. The authority also found that firms misclassified services supplied under third party agreements as in-house, inadequately assessed conflicts involving providers serving competing clients or performing multiple functions, and gave governing bodies only high level information. At least one of the investment management or risk management functions must be performed in-house, while boards should receive comprehensive provider reports and conduct documented performance assessments of key providers at least annually. Firms must also maintain their own contingency strategies, including alternative providers and fallback procedures, rather than relying solely on providers’ continuity plans. All fund managers are expected to conduct and document a proportionate gap analysis against the findings, correct identified weaknesses and make the analysis available to the authority on request. The Malta Financial Services Authority may verify remediation through future supervisory engagements.

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