Investment Firms Regulation and Investment Firms Directive Update
The IFRD package, comprised of the Investment Firms Regulation (IFR) package and the Investment Firms Directive (IFD) package, which applies to (i) investment firms authorised and supervised under MiFID II and (ii) de minimis fund managers providing MiFID II services, came into force on 26 June 2021. On 5 August 2021 and 11 October 2021 the MFSA issued the revised Part BI: Rules applicable to Investment Services Licence Holders which qualify as MiFID Firms (the ‘Rulebook’) and Part A: The Application Process, respectively .
As mentioned in an earlier short read among the changes introduced by the IFRD package, is the removal of the licence categories and the introduction of Classes of investment firms:
- Class 1 and the sub-Class Class 1 Minus;
- Class 2; and
- Class 3 firms.
A closer look at the new Classes
- Class 1 and Class 1 Minus
- Class 2 and Class 3
Class 1 and Class 1 Minus
Class 1 and Class 1 Minus investment firms deal on their own account and/or underwrite financial instruments and/or place financial instruments on a firm commitment basis.
While Class 1 investment firms have total consolidated assets equal to or in excess of 15 billion Euro; Class 1 Minus investment firms would have total assets equal to or in excess of 5 million Euro but less than 15 billion Euro.
The status of Class 1 minus is not automatic like Class 1, but requires MFSA’s discretion.
Class 2 and Class 3
Class 3 firms are small and non-interconnected and must at all times satisfy the following requirements:
- Assets under management are less than €1.2 billion;
- Client orders handled are less than either:
- a. €100 million per day for cash trades or
- b. €1 billion per day for derivatives.
- Assets safeguarded and administered are zero;
- Clients’ money held are zero
- Daily trading flow is zero;
- Net Position Risk or Clearing Margin Given is zero;
7. Trading Counterparty Default is zero;
8. The on- and off-balance sheet total of the investment firm is less than €100 million;
9. The total annual gross revenue from investment services and activities of the investment firm is less than €30 million calculated as an average on the basis of the annual figures from the two-year period immediately preceding the given financial year.
Class 2 firms concern small and interconnected firms and may be referred to as the residual Class. Indeed, unlike Class 1, Class 1 Minus and Class 3 firms, in the case of Class 2 firms there is no specific list of requirements which must be adhered to. Conversely, these are firms which do not satisfy the requirements of Class 1, Class 1 Minus and Class 3.
The MFSA has been reaching out to investment firms to confirm their Classification and also requested that this was submitted via its LH Portal by 1 November 2021.
The Rulebook
Indeed, the Rulebook has been amended significantly to allow the proper transposition and implementation of the IFRD package as well as other regulations and directives including, among others, the CRR and the CRD.
Given that the Rulebook refers to two prudential frameworks, licence holders are required to apply the applicable contents in respect of their respective Class. Broadly, the Rulebook is divided as follows:
Part 1: General - All Classes
Part 2: Class 1 and Class 1 Minus
Part 3: Class 1 Minus, Class 2, and Class 3
European Banking Authority (EBA) reporting framework v3.1
For the purposes of Part Seven of the IFR concerning the reporting requirements of investment firms, the EBA reporting framework v3.1 should apply in line with the Implementing Technical Standards on reporting and disclosure requirements. Such reporting should be submitted to the MFSA through the LH Portal in XBRL format. Investment firms should be in possession of the LEI code in order to submit as this is a mandatory field.
The MFSA has set out the following reporting timelines:
| Applicability | Class 2 | Class 3 | Class 2&3 |
| File name | Annex I | Annex II | Annex VIII* |
| Frequency | Quaterly | Annually | Quaterly |
| Deadline | 42 days after the end of the accounting-quater | 42 days after the end of the accounting-year | 42 days after the end of the accounting-quater |
*In view that this is the first submission under IFRD, quaterly reports covering reporting periods between 01 July and 30 September 2021 are allowed a grace period to submit by 11 february 2022.
There is no longer the requirement for investment firms to submit the audited annexes. However, where the audited figures deviate from submitted unaudited figures, for example, following adjustments with respect to figures which impact the XBRL Return, the revised figures are required to be submitted without undue delay.
Markets in Financial Instruments Directive Firms Quarterly Reporting
Investment Firms providing Markets in Financial Instruments Directive (MiFID) services to retail, professional, and/or eligible counterparties are required to submit the MiFID Firms Quarterly Reporting within 42 days after the end of the applicable reporting period, through the ‘Investment Firms reporting’ project on the LH Portal.
Broadly, the MiFID Firms Quarterly Reporting will include three sections as follows:
Part A, related to Conduct Data:
The data which was previously provided in the Conduct-Related Data Return and within the Common Reporting (COREP) Return will now be included under Part A with certain amendments being made to the information required. The relevant reporting period for Part A is on a quarterly basis. However, Investment Firms will still be required to submit the List of Financial Instruments on a biannual basis, 42 days after the end of the reporting period.
Part B, related to Prudential Data:
The data which was previously requested in Appendix 2a and Appendix 2c is now being requested under Part B of the MiFID Firms Quarterly Reporting. The relevant reporting period for Part B is on a cumulative basis. This is the only part of the new return that needs to be audited.
Part C, related to Exposure to Maltese Banks:
Part C seeks to obtain information on the extent to which the licence holders are exposed, directly or through its clients, to banks licensed in Malta.
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