INVESTMENT SERVICES ACT (CONTROL OF ASSETS) [ S.L.370.05 1
SUBSIDIARY LEGISLATION 370.05
INVESTMENT SERVICES ACT
(CONTROL OF ASSETS) REGULATIONS
1st November, 1998
LEGAL NOTICE 240 of 1998.
Part 1
Preliminary
Citation.
Act (Control of Assets) Regulations.
Interpretation.
Cap. 370.
2. (1) Any reference in these regulations to the Act is a
reference to the Investment Services Act, and subject to the
provisions of subregulation (2), the provisions of article 2 of the
said Act shall also apply to these regulations.
(2) In these regulations, unless the context otherwise requires -
"assets" means movables and immovable property of any kind;
"control of assets" means the holding or control of assets
belonging to, or on behalf of a customer, by a person hereinafter
referred to as the subject person, acting in the course of rendering
an investment service under the Act, and includes custody of
assets;
"custodian" means a custodian qualified in accordance with
regulation 14;
"customer" means any person or scheme whose assets are held
under the control of a subject person;
"manager" means the manager of a scheme;
"scheme" means a collective investment scheme;
S.L.370.02
"subject person" means a person who is in possession of an
investment services licence under the Act or is otherwise
authorised or approved by the competent authority or is acting
under an exemption from the requirement of such a licence in terms
of the Investment Services Act (Exemption) Regulations, and
includes a custodian.
Cap. 386.
(3) For the purposes of regulations 9 and 20, "group company"
in relation to a subject person or custodian, means any body
corporate which is the subject person’s or custodian’s subsidiary or
parent company, or a subsidiary of the subject person’s or
custodian’s parent company; and the terms "parent" and
"subsidiary" shall be construed in accordance with article 2(2) of
the Companies Act.
Cap. 345.
(4) The provisions of these regulations shall not apply to a
person in possession of a stockbroker’s licence issued under the
Financial Markets Act to the extent that the control of assets
exercised by such a person is carried out within the terms and
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conditions of such a licence.
Part 2
General
Assets held under 
control constitute a 
distinct patrimony.
3. (1) A subject person having the control of assets belonging
to a customer in the course of rendering an investment service to
such customer, shall hold such assets solely for and on behalf of
and in the interest of the customer.
Cap. 16. (2) Notwithstanding anything stated in article 1894 of the Civil
Code or in the agreement entered into between the subject person
and the customer or the fact that a customer’s assets held under the
control of a subject person are registered in the name and title of or
are otherwise vested in the subject person, such assets shall be
deemed to constitute a distinct patrimony, separate from that
belonging to the subject person and from that of other customers
the assets of whom are also held under the control of the subject
person.
(3) Except as expressly provided in the agreement entered into
between the subject person and the customer and notwithstanding
the provisions of the Civil Code, the control of assets belonging to
a customer by a subject person shall not give or be deemed or
construed to give to the subject person any rights over such assets
nor shall it create any form of loan between the subject person and
the customer and this notwithstanding the nature of the assets or the
rights or obligations of the subject person in relation to the assets.
Customer enjoys 
right of ownership 
in assets.
4. (1) A customer whose assets are held under the control of a
subject person enjoys a right of ownership in such assets
notwithstanding that they may be registered in the name and title of
or are otherwise vested in the subject person. Where such assets are
held by the subject person as part of a common pool of identical
assets or are otherwise held in a clients’ or common account, the
customer shall have an undivided share in ownership of all the
assets held collectively by the subject person in such a pool or
account.
(2) The records, accounts and other statements held or issued
by the subject person in terms of regulation 7(3) shall, saving any
proof to the contrary, constitute evidence of their contents and of
the right of ownership of the customer as provided in subregulation
(1).
Assets held under 
control not subject 
to the rights of 
creditors of the 
subject person.
5. (1) The creditors of a subject person shall have no claim or
right of action on or against the assets held under the control of the
subject person for and on behalf of and in the interest of any
customer and such assets shall not be affected in any manner by the
provisions of laws and regulations in force regulating the
insolvency or bankruptcy of the subject person.
(2) In the event of any such insolvency or bankruptcy or related
order or resolution, or in the event that the competent authority so
requires, the subject person or any administrator or receiver or
other officer appointed to represent it by any court or otherwise,
shall on demand of any customer or of the competent authority,
INVESTMENT SERVICES ACT (CONTROL OF ASSETS) [ S.L.370.05 3
immediately transfer the control, possession and title to all assets
held by or in the name of the subject person on behalf of the
customer to another subject person or to such other person as may
be instructed by the customer or by the competent authority.
Cap. 12.
(3) In the event that any assets held under the control of the
subject person are, at the request of any creditor of the subject
person, made subject to any precautionary or executive act or
warrant granted by any Court in terms of the Code of Organization
and Civil Procedure, the customer on whose behalf such assets are
being held or the competent authority may, by application to the
Court, request the release of the assets from such act or warrant and
the Court shall, on production of evidence as it may deem fit,
accede to the application without undue delay.
Applicability of 
Duty on 
Documents and 
Transfers Act and 
Income Tax Act.
Cap. 364.
Cap. 123.
6. (1) The delivery of the assets of a customer to a subject
person and from a subject person to a customer or another subject
person for the purpose of the control of assets in terms of these
regulations shall not be deemed to constitute a chargeable transfer
for the purposes of the Duty on Documents and Transfers Act and
for the purposes of article 5(1) of the Income Tax Act, where the
delivery of such assets does not constitute a change in the
beneficial owner of the assets.
(2) For the purpose of this regulation, beneficial owner means a
person who is the real owner of, or who is otherwise beneficially
entitled to, the assets held under control by the subject person, as is
provided in regulation 4 of these regulations.
Part 3
Control of Assets
Functions and 
duties of subject 
person.
7. (1) A subject person having the control of assets belonging
to a customer shall safeguard such assets and the interest of the
customer therein.
(2) The subject person shall carry out such functions and duties
as shall be required in accordance with these regulations, the terms
and conditions of the agreement entered into with the customer, the
conditions of any investment services licence, and such other
requirements as may be laid down by the competent authority.
(3) The subject person shall maintain proper and adequate
records and accounts of all customers’ assets held under control.
The records and accounts shall identify the customers to whom
such assets belong and shall clearly indicate that the assets of every
customer are separate and distinct form the assets belonging to the
subject person and from other customers' assets held by the subject
person. The records and accounts shall, upon due notice being
given to the subject person, indicate where any pledge or other
right over assets held under the control of the subject person has
been given by the customers to any third parties, and where any
order by any Court has been made in connection with such assets.
(4) The subject person entrusted with the control of assets
belonging to customers shall, to every extent reasonably possible,
segregate in a proper manner the assets of every customer from the
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assets belonging to the subject person and form the assets of other
customers:
Provided that the subject person may, with the written
consent of the customer and in accordance with the terms and
conditions of the agreement entered into with the customer, the
conditions of any investment services licence and such other
requirements as may be laid down by the competent authority and
without prejudice to the customer's right of ownership over the
assets held under control, place and keep such assets in a common
pool of identical assets or otherwise deposit them in a clients’ or
common account.
(5) The subject person shall make appropriate arrangements for
the protection of customers' assets held under control and shall
ensure that such assets are placed under adequate systems to
safeguard such assets from damage, misappropriation or other loss
and which permit the delivery of such assets only in accordance
with the terms and conditions of the agreement entered into with
the customer.
(6) Where it is not reasonably possible for the subject person to
carry out any of the duties specified in this regulation due to the
nature of the assets and of the arrangements whereby control is
exercised, the said duties may be varied with the written consent of
the customer and in accordance with the terms and conditions of
the agreement entered into with the customer, the conditions of any
investment services licence and such other requirements as may be
laid down by the competent authority.
Liability of the 
subject person.
8. (1) A subject person having the control of assets belonging
to customers shall be liable for any loss or prejudice suffered by the
customers due to the subject person’s fraud, wilful default or
negligence including the unjustifiable failure to perform in whole
or in part the subject person’s obligations arising under these
regulations, the terms and conditions of the agreement entered into
with the customers, the conditions of any investment services
licence or such other requirements as may be laid down by the
competent authority.
(2) For the purposes of this regulation, subject person includes
such other subject person to whom functions, duties or assets may
be delegated or entrusted in terms of regulation 9.
Subject person 
may delegate 
functions and 
duties or entrust 
assets to another 
subject person.
9. (1) A subject person may delegate part of the functions and
duties under regulation 7 to another subject person which is
qualified and competent to take the control of customers’ assets;
and may entrust or deposit all or part of a customer’s assets held
under control with such other subject person.
(2) The liability of the subject person for its own acts or
omissions under regulation 8 shall not be affected or reduced as a
result of the subject person delegating functions and duties, or
entrusting all or part of the assets belonging to a customer, to
another subject person.
(3) Where the subject person delegates or entrusts functions,
duties or assets in terms of subregulation (1) to a person which is a
INVESTMENT SERVICES ACT (CONTROL OF ASSETS) [ S.L.370.05 5
group company, without prejudice to the liability of such person,
the subject person shall be liable for any loss or prejudice suffered
by the customers as a result of the acts, omissions or insolvency of
such person.
(4) Where the subject person delegates or entrusts functions,
duties or assets in terms of subregulation (1) to a person which is
not a group company, without prejudice to the liability of such
person, the subject person shall be liable for any loss or prejudice
suffered by the customers as a result of the acts or omissions of
such person unless the subject person can prove that such person
was and remains qualified and competent to carry out the functions
and duties delegated and that the subject person exercised
reasonable care to oversee that the functions and duties delegated
were undertaken by such person competently.
(5) The liability of the subject person under subregulations (3)
and (4) may be varied or reduced with the written consent of the
customer and in accordance with the terms and conditions of the
agreement entered into with the customer, the conditions of any
investment services licence and such other requirements as may be
laid down by the competent authority:
Provided that the subject person discloses fully to the
customer any risks that may be associated with the nature of the
arrangements whereby control is to be exercised and that the
agreement with the customer shall clearly define the extent of
liability of the subject person.
(6) Where the subject person delegates or entrusts functions,
duties or assets in accordance with specific written instructions
from the customer, the subject person shall not be liable for any
loss or prejudice suffered by that customer as a result of the acts or
omissions of the person to whom functions, duties or assets are
delegated or entrusted as requested by the customer.
Use of clearing, 
settlement and 
de-materialised 
systems and 
settlement risk.
10. (1) Where reasonably required by the nature of the assets
and of the arrangements whereby control is to be exercised, a
subject person may, with the written consent of the customer and in
accordance with the terms and conditions of the agreement entered
into with the customer, the conditions of any investment services
licence and such other requirements as may be laid down by the
competent authority, make use of any market clearing system,
settlement system, dematerialised book entry system, centralised
custodial depository or similar system for the purpose of the
control of assets in terms of these regulations.
(2) Such systems as are provided for in subregulation (1) may
also be used to effect all transactions including conveyance,
assignment, transfer, transmission and pledging of assets held
under the control of the subject person and the law of the country in
which the system is maintained shall apply to the validity of such
transactions notwithstanding the provisions of any other law.
(3) The agreement with the customer shall clearly define the
extent of liability of the subject person for any losses that may be
incurred by the customer as a result of the use of such systems.
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Subject person’s 
fees.
11. The subject person shall have the right to charge fees to the
customer and to be reimbursed for expenses in accordance with the
terms and conditions of the agreement entered into with the
customer. The subject person may, if authorised to do so by the
terms and conditions of the said agreement, exercise a right of
retention over the customer’s assets held under control, to the
extent of any lawfully due but unpaid fees and expenses, until such
fees and expenses are paid.
Termination of the 
control of assets.
12. (1) Without prejudice to any requirements as may be laid
down by the competent authority, an agreement for the control of
assets belonging to a customer may be terminated by the customer,
by the subject person, or by order of the competent authority.
(2) Upon the termination of an agreement for the control of
assets, the subject person shall convey for no consideration the
assets held for the customer, as instructed by the customer or by the
competent authority, without prejudice to the subject person’s right
to payment of any lawfully due fees or expenses in terms of the
agreement entered into with the customer and to any obligations
arising in favour of the customer thereunder.
Part 4
Custody of assets of collective investment schemes
Applicability. 13. The provisions of Parts 1 and 2 and regulations 7 and 10 to
12 of Part 3 shall apply to the custody of assets of schemes under
this Part, and for the purposes of this Part, unless the context
otherwise requires, any references in Parts 1, 2 and 3 to "subject
person", "control of assets" and "customer" shall be construed to
refer to "custodian", custody of assets" and "scheme" respectively.
Qualifications of a 
custodian. 
14. A custodian shall be -
( a ) a bank, credit or financial institution constituted,
registered and licensed under the laws of Malta, or
( b ) a bank, credit or financial institution of standing and
repute, constituted, registered and licensed outside
Malta, which is recognised as such by the competent
authority, or
( c ) such other body corporate, unincorporated body or
association acceptable to the competent authority,
providing the services of a custodian,
having the business organisation, systems, experience and expertise
deemed necessary by the competent authority for it to act as
custodian.
Custody of assets 
of a scheme.
15. (1) The custody of all the assets of a scheme shall be
entrusted by the scheme or the manager, where acting on behalf of
the scheme, to a custodian appointed by an instrument in writing
with the approval of the competent authority.
(2) The custody of the assets of a scheme may, without
prejudice to the provisions of the Act and subject to the approval of
the competent authority, be entrusted to a custodian which does not
hold an investment service licence under the Act.
INVESTMENT SERVICES ACT (CONTROL OF ASSETS) [ S.L.370.05 7
Functions and 
duties of the 
custodian.
16. (1) The custodian shall take custody of all the assets of
any scheme and shall safeguard such assets and the interests of the
scheme and of the holders of units or participants in the scheme.
(2) In addition to the functions and duties specified in
regulation 7, the custodian shall carry out monitoring, oversight,
administrative and such other functions required in accordance
with the terms and conditions of the agreement appointing it as
custodian, the deed or other instrument establishing or regulating
the scheme, the conditions of the collective investment scheme
licence which may be held by the scheme, the conditions of any
investment services licence and such other requirements as may be
laid down by the competent authority.
Independence of 
custodian from 
management of 
collective 
investment 
scheme.
17. In the exercise of its functions, duties and responsibilities,
the custodian shall act independently of the manager and of the
management of the scheme and solely in the interest of the holders
of units or participants in the scheme and of the scheme itself:
Provided that the custodian shall act upon the instructions
of the manager and the manager shall act upon the instructions of
the custodian to the extent required by the conditions of any
investment services licence, such other requirements as may be laid
down by the competent authority, and the conditions of the deed or
other instrument establishing or regulating the scheme.
Administration and 
management of 
manager and 
custodian.
18. Except as may be authorised by the competent authority, a
person shall not act as a member of the board of directors or similar
organ or as an officer responsible for the administration and
management of the manager and at the same time hold a similar
position with the custodian entrusted with the custody of the assets
of any scheme managed by the manager.
Liability of the 
custodian.
19. (1) The custodian shall be liable for any loss or prejudice
suffered by the manager, the scheme or the holders of units or
participants in the scheme due to the custodian’s fraud, wilful
default or negligence including the unjustifiable failure to perform
in whole or in part the custodian’s obligations arising under these
regulations, the terms and conditions of the agreement appointing
the custodian, the deed or other instrument establishing or
regulating the scheme, the conditions of the collective investment
scheme licence which may be held by the scheme, the conditions of
any investment services licence or such other requirements as may
be laid down by the competent authority.
(2) The custodian shall not be liable for any loss or prejudice
suffered by the scheme or the holders of units or participants in the
scheme as a result of the acts or omissions of the manager except
where and to the extent that the custodian has failed to perform its
functions and duties in terms of regulation 16.
(3) For the purposes of this regulation, custodian includes such
other sub-custodian to whom functions, duties or assets may be
delegated or entrusted in terms of regulation 20.
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Custodian may 
delegate functions 
and duties or 
entrust assets to a 
sub-custodian.
20. (1) The custodian may, with the consent of the scheme or
the manager, where acting on behalf of the scheme, delegate all or
part of the functions and duties under regulation 16 to a
sub-custodian, and may also entrust or deposit all or part of the
assets of the scheme held in custody with such sub-custodian.
(2) The liability of the custodian for its own acts or omissions
under regulation 19 shall not be affected or reduced as a result of
the custodian delegating functions and duties or entrusting all or
part of the assets of the scheme to a sub-custodian.
(3) Where the custodian delegates or entrusts functions, duties
or assets in terms of subregulation (1) to a person which is either a
group company or is the manager or associate of the manager,
without prejudice to the liability of such person, the custodian shall
be liable for any loss or prejudice suffered by the scheme or the
holders of units or participants in the scheme as a result of the acts,
omissions or insolvency of such person:
Provided that the custodian may not delegate to the
manager any function of oversight in respect of the manager or any
function of custody or control of the assets, nor may the custodian
delegate to an associate of the manager any function of oversight in
respect of the manager.
(4) Where the custodian delegates or entrusts functions, duties
or assets in terms of subregulation (1) to a person which is not a
group company nor the manager nor associate of the manager,
without prejudice to the liability of such person, the custodian shall
be liable for any loss or prejudice suffered by the manager, the
scheme or the holders of units or participants in the scheme as a
result of the acts or omissions of such person unless the custodian
can prove that such person was and remains qualified and
competent to carry out the functions and duties delegated to it and
that the custodian exercised reasonable care to oversee that the
functions and duties delegated were undertaken by such person
competently.
(5) The liability of the custodian under subregulations (3) and
(4) may be varied or reduced with the written consent of the
scheme or the manager, where acting on behalf of the scheme, and
in accordance with the terms and conditions of the agreement
appointing the custodian, the deed or other instrument establishing
or regulating the scheme, the conditions of the collective
investment scheme licence which may be held by the scheme, the
conditions of any investment services licence and such other
requirements as may be laid down by the competent authority:
Provided that the custodian discloses fully to the scheme or
the manager, where acting on behalf of the scheme, any risks that
may be associated with the nature of the custody arrangements, and
that the agreement appointing the custodian shall clearly define the
extent of liability of the custodian. Any such risks shall also be
fully disclosed to the holders of units or participants in the scheme.
(6) For the purposes of this regulation, "associate" in relation
to the manager means a body corporate which forms part of the
same group of companies as the manager.
INVESTMENT SERVICES ACT (CONTROL OF ASSETS) [ S.L.370.05 9
Termination of 
custody.
21. The termination of the appointment of the custodian in
accordance with the provisions of regulation 12 shall not come into
effect prior to the appointment of another custodian and the
conveyance of the assets held in custody by the outgoing custodian
to the new custodian.
