Regulatory Updates

December 2019

 

 

 

Contact the PwC Malta Regulatory Team for further information in relation to any of the updates or if you wish to discuss how these may impact your business.

Welcome

Welcome to PwC Malta’s Regulatory Updates - giving a recap for this month of the main legislative updates and key regulator activity.

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Anti-Money Laundering

FIAU News

17/12/2019     Directive to all subject persons in relation to dealings with Iran

This Directive is being issued by the FIAU and is applicable to all subject persons as defined in Reg. 2(1) of the Prevention of Money Laundering and Funding of Terrorism Regulations (PMLFTR), when dealing with natural or legal persons having connections with Iran.

In order to protect the international financial system from money laundering and financing of terrorism risks, the Financial Action Task Force (FATF) identifies jurisdictions that have strategic deficiencies and works with them to address such deficiencies that pose a risk to the international financial system.

Whilst Iran has made noticeable progress pursuant to the June 2016 high-level political commitment it provided to the FATF, it failed to fully complete its agreed Action Plan by the January 2018 deadline. Consequently, in June 2019, the FATF called upon its members and urged all jurisdictions to require increased supervisory examinations for branches and subsidiaries of financial institutions based in Iran. The FATF urged jurisdictions to introduce enhanced relevant reporting mechanisms or systematic reporting of financial transactions connected with Iran, and require increased external audit requirements for financial groups having any branches or subsidiaries located in Iran.

Link to Document can be found here.

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Asset Management

MFSA Circulars

05/12/2019     Common Fund Reporting Issues with regards to CBM Investment Funds Statistical Return

The aim of this circular is to provide direction to the licensed investment funds in the compilation of the statistical return issued by the Central Bank of Malta Act and Directive No. 5 and EU Regulation No 1073/2013 of the European Central Bank concerning statistics on the assets and liabilities of investment funds (recast). This circular focuses on the most salient points in relation to the reporting of a Fund’s Assets and Liabilities and the report is aimed at providing guidance towards enhanced statistical data quality.

Link to Circular can be found here.

 

MFSA Circulars

05/12/2019     Circular on Regulation (EU) No 909/2014 – the Central Securities Depositories Regulation (CSDR)

The MFSA is issuing a circular addressed to all market participants and all interested stakeholders, particularly investment firms authorised pursuant to Article 5 of Directive 2014/65/EU and professional clients as referred to in Annex II to Directive 2014/65.EU.

Through the circulars previously issued by the Authority on 16 September 2019 and subsequent circular on 28 November 2019, the Authority had informed market participants that it was working on a submission platform enabling settlement internalisers to report to the Authority, on a quarterly basis, the aggregated volume and value of all securities transactions they settle outside securities settlement systems.

By virtue of this circular, the Authority would like to inform market participants that the development of the settlement internalisers platform is not fully finalised and is ready to go live on 24 December 2019. Furthermore, settlement internalisers are required to submit reports within 10 working days from the end of each quarter.

Link to Circular can be found here.

 

MFSA Circulars

24/12/2019     European Single Electronic Format (ESEF) – 2019 XBRL Taxonomy

By way of background, on 21st March 2019, ESMA published the ESEF XBRL taxonomy files and related documentation to support issuers in the implementation of the requirements set out by the draft Regulatory Technical Standards (RTS) on ESEF. By virtue of this publication, ESMA aims to facilitate the implementation of ESEF RTS by providing XBRL taxonomy files that are compliant with all relevant technical and legal requirements in the RTS, and that issuers should use as a starting point to create their own taxonomies.

The ESEF taxonomy is based on the IFRS taxonomy, providing issuers with a hierarchical structure to be used to classify financial information. Preparers can access the taxonomy in the form of a set of electronic XBRL files that are available in a machine-readable and freely downloadable format.

In this respect, the Malta Financial Services Authority wishes to inform the industry that the 2019 ESEF XBRL Taxonomy files have been published on ESMA’s website in order to reflect the 2019 update of the ESEF Regulation.

Link to document can be found here.

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Banking

MFSA Cross Sectoral Analysis

10/12/2019     Circular addressed to Credit Institutions operating in Malta – Mystery shopping exercise on the opening of bank accounts

The MFSA has recently carried out a second mystery shopping exercise, through the Conduct Supervision function, at a number of branches of the main domestic credit institutions.

The mystery shopping exercises are considered by the MFSA to be one of the effective tools of methodologies used as a mechanism to monitor compliance and best practices in the banking industry, to protect the consumers and identify possible malpractices. During the exercise, supervisors pose as regular ‘customers’ and test out bank products, services and processes during real-life situations.

The first initiative of the mystery shopping exercise was carried out in 2018 by MFSA officials so as to gather first hand evidence of what a person visiting the branch to open a bank account might experience and identify issues and deficiencies, as well as recognise good players and practices in the market.

The aim of this Circular is to share some good practices identified as well as those matters where further improvement is required. In this respect, credit institutionsare encouraged to adopt the good practices outlined in this Circular whilst paying attention to issues of concern as revealed.

Findings

Following the 2018 exercise, the MFSA was satisfied to note considerable improvement in most of the branches of the credit institutions visited.

Among the improvements, the MFSA noted the following:

  • that the majority offered to the customer the Payment Account with Basic Features (‘PABF’), posters and leaflets of which provided by the MFSA containing information about the PABF were displayed in a visible place;
  • that credit institutions representatives were in a better position to provide information to the client, including in writing, using the supporting tools and documents available; and
  • that some credit institutions created tools to provide a better service to the customer whilst also helping branch representatives to provide better support to their customers, such as information leaflets about products offered by the credit institutions.

Some of the reoccurring weaknesses include the following:

  • That branch representatives were not forthcoming with providing the customers with information on the features of the bank accounts available;
  • That sometimes, branch representatives exhibited limited knowledge when replying to customers’ requests and/ or questions being posed by the same;
  • In some cases, the PABF was only offered upon enquiry and request and when offered, the information about the PABF was incomplete; and
  • In the majority of branches, no written information on the fees and charges applied by the credit institutions on their products and/ or services was found.

Link to document can be found here.

 

MFSA Cross Sectoral Analysis

11/12/2019     Circular to credit institutions including foreign branches on the revised ITS on Supervisory Reporting – ITS v2.9

Following the publication of the Implementing Technical Standards (ITS) on Supervisory Reporting (EU Reg No. 680/2014), the MFSA is hereby issuing a communication to all credit institutions and foreign branches with regards to developments in supervisory reporting requirements, more specifically ITS v2.9.

Among others, amendments in this revised reporting framework include:

  • Changes to COREP to align with the new securitisation framework;
  • Changes to FINREP concerning non-performing and forborne exposures reporting, P&L and IFRS16;
  • Changes to LCR to align with the LCR amending Act; and
  • Increase in and updates validation rules, including a change to two-status-severity.

The revised templates apply to institutions on an individual and consolidated basis, as applicable.

Link to document can be found here.

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FinTech

MFSA Circular

10/12/2019     Circular to Virtual Financial Asset Service Providers in relation to Amendments to Chapter 3 of the Virtual Financial Assets Rulebook

On 15th October 2019, the MFSA issued the Consultation Document on Circular to Virtual Financial Asset Providers in relation to System Audit Requirements which had presented the MFSA’s proposals on the Systems Audit and Live Replication Server requirements laid down in Chapter 3 of the Virtual Financial Assets Rulebook.

Following the publication of the abovementioned consultation document, the MFSA received several responses from the industry participants and interested parties. Taking all feedback into consideration, the MFSA notes that certain requirements under Chapter 2 od the Rulebook may be too prescriptive for operators in this field. Therefore, the Authority has taken the decision to revisit certain obligations and consequently adopting a more principles-based approach, whilst ensuring effective investor protection, financial market integrity and financial stability.

By virtue of this circular, the MFSA sets out its position in respect of various sectors to reflect the feedback received, for example:

  • Systems Audit – proposed requirements have been slightly altered so as to better ensure a fair playing field and an appropriate time for applicants to comply with the requirements set out therein
  • Live Replication Server –in this regard, the MFSA wishes to clarify that the proposed requirement should be understood in the wider sense of a machine connected to the rest of the system of an Applicant or LH, as applicable, and is not to be conflated with the live replication server requirement. In view of the potential for confusion, the MFSA has replaced the term ‘Live Replication Server’ with the term ‘Live Audit Log’.
  • Matters requiring Approval – the Rulebook provides that licence holders are obliged to obtain written consent from the MFSA before engaging any person in portfolio management activities or the provision of investment advice. The said requirement for written approval has been amended so that it shall only require MFSA’s prior notification.
  • Cybersecurity – The Rulebook provides that licence holders shall establish a cybersecurity framework, comprising a number of policies and plans. Following internal review, it was noted that the rule was too prescriptive and it has therefore been reworded such that licence holders are now required to ensure that their cybersecurity architecture is in line with, inter alia, any cybersecurity guidelines issued by the MFSA.
  • The Financial Instrument Test – The MFSA understands that it is not always feasible for a Compliance Officer to endorse the Financial Instrument Test and therefore assume such responsibility. In this respect, the said rule has been amended so that the Financial Instrument Test shall now be required to be signed by the person responsible for carrying out the said test, in line with a licence holder’s business model, and counter-signed by one Administrator.

The updates included in this Circular will come into force on 1st February 2020.

Link to document can be found here.

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Gaming

MFSA Cross Sectoral Analysis

05/12/2019     MGA publishes Amusement Machine Directive

The MFSA is publishing this document in order to outline its views on the key risks that authorised firms operating in the financial services sector might pose to their clients and the market in general. This document also sets out the MFSA’s expectations of the applicable controls for the various operators within the industry. Additionally, this document also highlights the common weaknesses and deficiencies.

The document is divided into 2 chapters: (i) includes a detailed AML/CFT section and provides a list of cross-sectoral risks, expectations and controls; and (ii) includes 4 detailed sector specific sections relating to insurance and pensions, credit and financial institutions, securities and markets and Trusts and Corporate Services Providers.

Link to notice can be found here.

 

12/12/2019     MGA publishes Directive on the rules applicable to Amusement Machines and Low Risk Games

In exercise of the powers granted to it by the Gaming Act, the MGA published the Amusement Machine Directive (Directive 5 of 2019) in relation to the requirements applicable to amusement machines.

The said directive applies to any person wishing to operate or in any other manner make available for use an amusement machine in premises accessible to the public. Such person shall be required to submit the “Application for the Registration of Amusement Machines” found in the downloads section on the MGA website and register such amusement machine. The said application can be submitted by hand, by post or sent to the following e-mail address: amusements.mga@mga.org.mt, along with the relevant enclosures.

Link to notice can be found here.

 

10/12/2019     MGA publishes the Enhanced Automated Reporting Platform (Land-Based) Directive

In exercise of the powers granted to it by the Gaming Act, the MGA published the Enhanced Automated Reporting Platform (Land-Based) Directive (Directive 6 of 2019) which establishes the requirements around the application of the Authority’s automated reporting system applicable to casinos and controlled gaming premises, as well as providers of critical gaming supplies to the same.

Qualifying entities under Directive 6 of 2019 are required to take all the necessary action to ensure that they have systems in place capable of generating reports in the format and frequency required by the same by the 30 November 2020. Furthermore, qualifying entities are also obliged to provide all the necessary assistance to the Authority’s personnel during testing phases.

The Enhanced Automated Reporting Platform is a tool which will allow the MGA to receive standardised data on a daily basis from land-based casinos and controlled gaming premises, thereby allowing the MGA direct and immediate access to gambling data, as well as the receipt of real-time alerts to the MGA’s Inspectorate for immediate and timely action.

Link to notice can be found here.

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General

MFSA Circular

24/12/2019    Circular on the Consultation Document on Raising the bar for Company Service Providers

On 22nd October 2019, the MFSA issued a Consultation Document on Raising the bar for Company Service Providers setting out the Authority’s proposals for a reform of the Maltese framework for CSPs. The said consultation period closed on the 6th December 2019.

The Authority has received 50 detailed responses and is currently undertaking an analysis thereof. Furthermore, the MFSA is also holding meetings with groups representing stakeholders to discuss their feedback. In this respect, the Authority wishes to thank those who provided their views.

A detailed feedback statement is expected to be published in the coming weeks.

Link to document can be found here.
 

MFSA Circulars

11/11/2019    Circular on the contents to be included in the Written Declaration to be submitted to the MFSA on Continuous Professional Development Requirements

Relevant persons, as defined in Chapter 7 on Continuous Professional Development of Part B of the Insurance Distribution Rules (“Chapter 7”), are required to submit a written declaration to the MFSA stating that the relevant persons, Tied Insurance Intermediaries, Ancillary Insurance Intermediaries and the relevant employees have successfully completed the relevant professional training and development established in Chapter 7, on an annual basis. The submission of the said declaration shall not be later than the 31st January 2020. The contents of this written declaration are set out in the circular.

The written declaration is to be submitted through the Licence Holder Portal , as from January 2020. The LH Portal contains Guidelines on the file naming convention. Following the completion of the form on the LH Portal, the CPD written declaration is to be scanned and attached in a ZIP file.

Link to circular page can be found here.

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