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Regulatory Updates

July 2020

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.

Anti-Money Laundering

02/07/2020 - Implementing Procedures Part II For the Remote Gaming Sector Revised Version 
The FIAU in cooperation with the Malta Gaming Authority, has published a revised version of the Implementing Procedures Part II for the Remote Gaming Sector. The key revisions made in this respect, include, inter alia, (i) further guidance on customer due diligence (“CDD”), such as on the verification of customers’ identity, the carrying out of ongoing monitoring, dealing with customers who are PEPs, as well as on the requirements that persons acting as MLROs are expected to meet; (ii) clarifications on the obligations of subject persons when the customer is not willing to provide the same with the necessary information and/or documentation required as part of CDD; (iii) the provision of targeted guidance on Corporate Licensees; (iv) the extension of the licensees’ own anti-money laundering and countering the funding of terroris obligations to physical establishments used to extend licensees’ customer reach; and (v) further elaboration on risk factors which are to be taken into account by subject persons, such as on the involvement of affiliates.

Link to Implementing Procedures can be found here.

17/07/2020 - Guidance Document on Funding of Terrorism
The FIAU has published a Guidance Document on Funding of Terrorism, which builds upon and incorporates the 2018 ‘Guidance Note on Funding of Terrorism – Red Flags and Suspicious Activities’. Key features of this Guidance Document includes: (i) insights and select findings from the 2019 Terrorism Financing Risk Assessment carried out by the National Co-ordinating Committee on Combating Money Laundering and Funding of Terrorism; (ii) substantive information on emerging FT trends and typology-specific case studies and red flags; and (iii) case studies based on real cases analysed by the FIAU’s Intelligence Analysis Section.

Link to guidance document can be found here.

07/07/2020 - 12 Month Review of Revised FATF Standards - Virtual Assets and Virtual Assets Service Providers (VASPs)
The FATF has completed a review of the implementation of its revised Standards on virtual assets and virtual asset service providers, 12 months after the FATF finalized these amendments. This report sets out the findings of the review and finds that overall, both the public and private sectors have made progress in implementing the revised FATF Standards. In particular, there has been progress in the development of technological solutions to enable the implementation of the ‘travel rule’ for VASPs, even though there remain issues to be addressed by the public and private sectors.

Link to the report can be found here.

Asset Management

03/07/2020 - Circular on the Fitness and Properness Assessment of Committee Members involved with Investment Services Licence Holders and Collective Investment Schemes
This circular is addressed to firms classifying as MiFID firms, fund managers and self-managed collective investment schemes. The MFSA is hereby announcing that with effect from 3 July 2020, individuals being appointed as members of (i) Investment Management Committees; (ii) Investment Advisory Committees; (iii) Risk Management Committees; (iv) Internal Audit Committees; and (v) Valuation Committees, will, subject to certain exceptions, no longer be required to submit a Personal Questionnaire (“PQ”) Form.

Circular can be found here.

03/07/2020 - Circular on the updates made to the Investment Services Rules for Investment Services Providers and Collective Investment Schemes
The MFSA has updated certain sections of its rulebooks in line with regulatory updates at European level as well as other regulatory enhancements. The key updates/ amendments include, inter alia: (i) amendments to Section 9 of the Investment Services Rules for Investment Services Providers Part A: The Application Process to ensure streamlining and additional consumer protection; (ii) Part BI: Rules applicable to Investment Services Licence Holders which qualify as MiFID Firms, specifically with respect to ‘ICT and Security Risk Management’; (iii) Part BI of the Investment Services rules for Retail Collective Investment Schemes, Section 1 of Part B of the Investment Services Rules for Alternative Investment Funds and Parts BI, BII and BIII of the Investment Services Rules for Professional Investor Funds , to enable the MFSA to require the suspension of both subscriptions and redemptions of units of a Scheme, where this is considered to be appropriate in the interests of unitholders or of the public; and (iv) Part BII of the Investment Services Rules for UCITS Management Companies and Appendix VII to the Investment Services Rules for retail collective investment schemes (applicable to self-managed UCITS schemes), for the purposes of implementing ESMA’s Guidelines on Liquidity Stress Testing.

Circular can be found here.

08/07/2020 - Circular on Regulation (EU) No 2015/2365 on Securities Financing Transactions (‘SFTR’) - Reporting Obligation under Article 4 of SFTR applicable from 13 July 2020
By virtue of this circular, the MFSA would like to remind market participants of the upcoming obligation for CSDs, CCPs and relevant third-country entities acting as counterparties to securities financing transactions (‘SFTs’), to report the details of any SFT they have concluded, modified or any termination thereof, to a trade repository registered with ESMA or recognised in accordance with Article 4 of SFTR. The reporting obligation requirements are applicable from 13 July 2020. The details of SFTs need to be reported on a T+1 basis.

Circular can be found here.

10/07/2020 - European Banking Authority Consultation Papers on the new Investment Firms Framework
As of 26 June 2021, non-bank and the majority of the local investment firms will largely no longer be subject to the Capital Requirements Regulation and Directive, but to the Investment Firms Regulation (EU) 2019/2033 and Directive (EU)2019/2034 (the “IFR Package”). In this respect, the European Banking Authority (“EBA”) has issued four consultation papers on technical standards that will be implementing the IFR Package and the MFSA strongly expects the industry to familiarize itself with these technical standards and recommends that the industry contributes to the EBA Consultation process.

Circular can be found here.

14/07/2020 - Circular on Updates to the Q&As on Regulation (EU) No 648/2012 - the European Market Infrastructure Regulation (‘EMIR’/ the “Regulation”)
This circular is addressed to all market participants, particularly entities who enter into derivative contracts and which fall within the scope of EMIR, namely, financial and non-financial counterparties (as defined in Article 2 of EMIR). By virtue of this circular, the MFSA would like to inform the said market participants that ESMA has updated its Q&As document on practical questions regarding data reporting issues under EMIR, in order to clarify that the counterparties should follow their local time and the relevant calendar of their Member State to specify “working day” in the context of determining the deadline for reporting under EMIR.

Circular can be found here.

14/07/2020 - Circular on Regulation (EU) No 2015/2365 on Securities Financing Transactions (‘SFTR’) - SFTR Reporting Regime sees successful first day
ESMA has on 13 July 2020 issued a statement confirming that reporting by financial and non-financial counterparties under the SFTR, has gone smoothly. All four trade repositories, namely, DTCC Derivatives Repository plc, UnaVista TRADEcho B.V., Krajowy Depozyt Papierów Wartosciowych S.A. and REGIS-TR S.A., have opened their systems and started receiving and processing SFT data submitted by reporting firms. It also appears that ESMA has so far, not identified any major disruptions in the functioning of the Trade Repositories. Nonetheless, ESMA will continue monitoring the availability of Trade Repository systems and data to both reporting firms and authorities.

Circular can be found here.

28/07/2020 - Circular on the Recommendation of the European Systemic Risk Board of 27 May 2020 on restriction of distributions during the COVID-19 pandemic
By virtue of this circular, the MFSA is adopting the Recommendation of the European Systemic Risk Board of 27 May 2020 on restriction of distributions during the COVID-19 pandemic, in order to maintain sufficient levels of capital and loss absorbing capacity remaining in the financial institutions to mitigate the impact of this ongoing crisis and thereby contribute to a smoother recovery for the pan-European economy as a whole. 

Circular can be found here.

08/07/2020 - ESMA updates the CSDR Q&As (July 2020)
ESMA has updated its Q&As regarding the implementation of the Central Securities Depositories Regulation (CSDR), by introducing a new question and answers relating to the buy-in timeframes. In this respect, by way of background, Articles 26, 27(1), 28, 29(1), 30 and 31(1) of the RTS on Settlement Discipline, provide that a buy-in process should be initiated “on the business day following the expiry of the extension period” and in this respect, ESMA clarified that the definition of “business day” in the CSDR  “shall cover both day and night-time settlement and shall encompass all events happening during the business cycle of a system”. 

Circular can be found here.

08/07/2020 - ESMA updates its Q&As on MiFID II and MiFIR Transparency (July 2020)
ESMA has updated its Q&As regarding transparency issues under MiFID II and MiFIR in order to introduce a new question and answer that provides technical clarifications for the performance of the mandatory systematic internaliser (SI) test. The Q&A specifies how the number of transactions and the nominal amount traded of a derivative shall be allocated when a derivative contract changes over the observation period from one sub-class to another.

Circular can be found here.

10/07/2020 - ESMA updates the ESEF Reporting Manual
On 09 July 2020, ESMA haspublished an update of the European Single Electronic Format (ESEF) Reporting Manual. The ESEF Reporting Manual aims at facilitating compliance with the RTS on ESEF by assisting market participants, particularly issuers and software vendors, in creating Inline XBRL documents.

Circular  can be found here.

Banking

06/07/2020 - Circular to Credit Institutions on the issuance of a new Banking Rule
MFSA issued a new Banking Rule BR/23 on Reporting and Disclosure of Exposures subject to Measures applied in response to the COVID-19 crisis. The scope of this rule is to implement the provisions and requirements introduced by the EBA Guidelines on reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis. Accordingly, the rule introduces additional reporting and disclosure requirements for credit institutions with respect to mitigating measures introduced in Malta to combat the negative economic consequences of the COVID-19 pandemic. This Rule will come into force with immediate effect.

Circular can be found here.

28/07/2020 - Circular to Credit Institutions on the Extension to the Restriction on Dividend Distributions or Share Buy-backs and Variable Remuneration
By virtue of this circular: (i) The MFSA is hereby announcing that Recommendation ECB/2020/35 of the ECB shall also apply in its entirety to all credit institutions licensed in terms of the Banking Act from today and at least until 1 January 2021. Variable Remuneration Payments; and (ii) The ECB also issued a letter to banks directly supervised by it with regard to remuneration policies in the context of the COVID-19 pandemic, in terms of which it expects that credit institutions consider the extent to which it is possible to reduce the payment of variable remuneration.

Circular can be found here.

01/07/2020 - EBA publishes final Guidelines on the treatment of structural FX positions
The EBA has published its final Guidelines on the treatment of structural FX positions, intended to establish a harmonised framework for the application of the structural FX waiver. The Guidelines will apply as from 1 January 2022, one year later than originally envisaged to ensure that institutions have time to prepare for the introduction of the requirements.

Link to the publication can be found here.

07/07/20 - EBA provides clarity on the implementation of the prudential framework in the context of COVID-19
The EBA published a report, which provides clarifications on the application of the prudential framework that have been raised as a consequence of the COVID-19 pandemic. This report is part of the EBA’s wider monitoring of the implementation of COVID-19 policies as well as of the application of existing policies under these exceptional circumstances. The first section of the report focuses on credit risk policies, whereas the second part provides some considerations around operational risk in the context of the COVID-19 pandemic are also included, in particular related to the recognition of credit and operational risk losses stemming from COVID-19. These Guidelines also address data gaps associated with such measures to ensure an appropriate understanding of institutions’ risk profile and the asset quality on their balance sheets for both supervisors and the wider public.

Link to the publication can be found here.

Gaming

02/07/2020 - Implementing Procedures Part II For the Remote Gaming Sector Revised Version 
The FIAU in cooperation with the Malta Gaming Authority, has published a revised version of the Implementing Procedures Part II for the Remote Gaming Sector. The key revisions made in this respect, include, inter alia, (i) further guidance on customer due diligence (“CDD”), such as on the verification of customers’ identity, the carrying out of ongoing monitoring, dealing with customers who are PEPs, as well as on the requirements that persons acting as MLROs are expected to meet; (ii) clarifications on the obligations of subject persons when the customer is not willing to provide the same with the necessary information and/or documentation required as part of CDD; (iii) the provision of targeted guidance on Corporate Licensees; (iv) the extension of the licensees’ own anti-money laundering and countering the funding of terroris obligations to physical establishments used to extend licensees’ customer reach; and (v) further elaboration on risk factors which are to be taken into account by subject persons, such as on the involvement of affiliates.

Link to Implementing Procedures can be found here.

17/07/2020 - The Malta Gaming Authority publishes Directive on the Key Function of the Prevention of Money laundering and the Financing of Terrorism
The Malta Gaming Authority is informing licensees that it has issued the Directive on the Key Function of the Prevention of Money laundering and the Financing of Terrorism (Directive 3 of 2020).

As from the effective date of this Director, the MGA is hereby informing licence holders that B2C Licensees shall be required to ensure that at least one of the Key Function Holders vested with exercising the Key Function of the Prevention of Money Laundering and the Financing of Terrorism, is FIAU-registered as MLRO in accordance with the procedures laid down in the directive.

Link to MGA News Publication - Directive can be found here.

General Application

15/07/2020 - Circular addressed to all Licence Holders regarding their obligations in relation to record keeping
The MFSA published this Circular to draw the attention of licensed entities with respect to their obligations in relation to record keeping, as well as the MFSA’s expectations in this regard. The said circular covers, inter alia, the obligations of licensed entities to retain accurate documentation and records relating to their governance and oversight of their regulated activity and their interactions with customers, the obligation to ensure that all correspondence relating to client contact/introduction, on boarding of clients, client acceptance and all ongoing exchanges throughout the relationship, are retained centrally and the requirement to ensure that all the information provided to the firms should be accessible to those who deal with clients in their day to day work or for monitoring purposes.

Circular can be found here.

Insurance

03/07/2020 - MFSA’s Expectations with respect to Product Approval and Oversight Requirements in the Context of Coverage Under Insurance Policies for Claims Arising Out of COVID-19
The MFSA issued this circular to advise the financial industry that it is still monitoring the developments related to Product Oversight and Governance Requirements in light of the COVID-19 pandemic, and would like to reiterate its expectations as indicated in the abovementioned circular. In particular, the MFSA expects that changes made to insurance products in the light of COVID-19 should be processed through the insurance undertakings product approval process which they should have in place as part of their regulatory obligations relating to product oversight and governance. In this context, it is important to note that any changes to policies must take into account the best interest of the client.

Circular can be found here.

10/07/2020 - EIOPA issues a statement on supervisory expectations on Product Oversight and Governance requirements in the context of COVID-19
Further to the recent unforeseen developments the insurance sector has been facing and to the impact on insurance products and customers, as a result of the COVID-19 pandemic, the European Insurance and Occupational Pensions Authority (EIOPA) has issued a statement addressing insurance manufacturers. In this respect, EIOPA clarifies its expectations on the application of Product Oversight and Governance (POG) requirements, to ensure the fair and consistent treatment to consumers throughout a product’s lifecycle.

Circular can be found here.

28/07/2020 - Circular on the Recommendation of the European Systemic Risk Board of 27 May 2020 on restriction of distributions during the COVID-19 pandemic
By virtue of this circular, the MFSA is adopting the Recommendation of the European Systemic Risk Board of 27 May 2020 on restriction of distributions during the COVID-19 pandemic, in order to maintain sufficient levels of capital and loss absorbing capacity remaining in the financial institutions to mitigate the impact of this ongoing crisis and thereby contribute to a smoother recovery for the pan-European economy as a whole.

Circular can be found here.

27/07/2020 - Insurance against pandemic risk: EIOPA identifies options for shared resilience solutions
EIOPA published a paper highlighting options for developing shared resilience solutions for pandemic risk. The paper recognises that private insurance solutions alone will not be sufficient to protect society against the financial consequences of future pandemics. Solutions will require both public and private sector involvement, and build on the four specific key elements, including proper risk assessments, risk prevention and adaptation measures, appropriate product design and risk transfers.

Link to the publication can be found here.

27/07/2020 - EIOPA Statement on Solvency II supervisory reporting in the context of COVID-19
Following EIOPA’s Recommendations of 20 March 2020 on annual and quarterly reporting and publication deadlines, EIOPA considers that insurance and reinsurance undertakings should now be in condition to comply with the deadlines provided in the Solvency II framework. In the context of the current circumstances, it is of utmost importance to continue to provide a framework for consistent supervisory approaches and ensure that all competent authorities and EIOPA receive timely quarterly information.

Link to the publication can be found here.

31/07/2020 - EIOPA launches its Solvency II Single Rulebook
EIOPA launched its first Single Rulebook, which is an online tool focused on Solvency II that further promotes the consistent implementation of the regulatory framework for insurance supervision. The main benefit of the Single Rulebook is that it enables the navigation across different legal acts such as the Directive, Delegated and Implementing Regulation, as well as EIOPA Guidelines, Recommendations, Opinions and Supervisory Standards.

Link to the publication can be found here.

Pensions

24/07/2020 - Circular for the Retirement Scheme Administrator to Categorise Members as Professional Members
On the 28th of December 2018, the MFSA published the Pension Rules for Personal Retirement Schemes issued in terms of the Retirement Pensions Act, 2011 and following such publication, the MFSA received a number of queries from market participants with respect to the criteria included in SLC 9.3 of the said pension rules. Accordingly, the MFSA issued this circular for the purposes of clarifying the queries received and to guide the industry accordingly.

Circular can be found here.

Contact us

Fabio Axisa

Fabio Axisa

Assurance Partner, PwC Malta

Tel: +356 2564 7191

Mark Lautier

Mark Lautier

Partner, PwC Malta

Tel: +356 2564 6744

Chris Mifsud Bonnici

Chris Mifsud Bonnici

Senior Manager, Tax, PwC Malta

Tel: +356 2564 6935

Lee Ann Agius

Lee Ann Agius

Manager, Tax, PwC Malta

Tel: +356 2564 4027

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