Regulatory Updates

FIAU Statement

22/02/2019       FATF Public Statement and document on ‘Improving global AML/CFT compliance: on-going process’

The FIAU would like to notify subject persons that the FATF issued a public statement and a document on ‘Improving global AML/CFT compliance: on-going process’. The FATF classifies jurisdictions into three (3) different categories depending on the deficiencies present in such jurisdictions and the level of commitment and progress made in addressing such deficiencies and these categories are set out in the statement.

Subject persons are required to implement appropriate measures when dealing with any of the above jurisdictions.

Moreover, in the public statement, the FATF recognises the progress of Iran’s legislative efforts, namely on passing the Anti-Money Laundering Act. However, the FATF expressed disappointment that the Action Plan, which expired in January 2018, remains outstanding. Until Iran implements the measures required to address the deficiencies identified with respect to countering terrorism-financing, the FATF will remain concerned with the TF risk emanating from Iran and the threat this poses to the international financial system. Thus until further notice and for the purposes of the FIAU’s Guidance Note on High-Risk and Non-Cooperative Jurisdictions, Iran shall remain considered as a Category 2 jurisdiction.

Click here to access the Statement page.

Click here to access the Document.

28/02/2019       Introduction of the Compliance and Supervision Platform for Assessing Risk

The FIAU would like inform subject persons it has launched the Compliance and Supervision Platform for Assessing Risk (“CASPAR”), a tool which will aid with the collection of the responses of the Anti-Money Laundering and Countering the Financing of Terrorism Risk Evaluation Questionnaire (“REQs”).

CASPAR was launched on the 28 February 2019 to process the submission of the REQs. In order to be able to make use of CASPAR, Money Laundering Reporting Officers (“MLROs”) must register on the system, complete an electronic REQ and submit the related payment.  The FIAU is encouraging MLROs to carry out the registration process on CASPAR as soon as possible and not later than Friday 15th March 2019.

The online payment facility should be made available in March 2019, however the FIAU encourages subject persons to commence the compilation of the REQs prior to the payment facility being made available. It is vital to note that the submission deadline for the REQs is 31st March 2019.

Furthermore, the FIAU would like to inform subject persons that the notification of the appointment and/or replacement of an MLRO and/or Designated Employee shall no longer be made through the MLRO Details Sheet (“MDS”) but shall now be made through CASPAR. Until Further notice, Suspicious Transaction Reports (“STRs”) shall still be submitted through the online submission system in the usual manner.

Click here to access the CASPAR User Guide.

MFSA Circulars

05/02/2019   Circular on Regulation (EU) No. 648/2012 – The European Market Infrastructure Regulation (“EMIR”)

The Circular is being addressed to all market participants, particularly entities which fall within the scope of EMIR, mainly financial and non-financial counterparties as defined in Article 2 of EMIR, as follows:

i.‘financial counterparty’ means an investment firm, credit institution, insurance undertaking, assurance undertaking, reinsurance undertaking (and where relevant its management company), an institution for occupational retirement and an alternative investment fund managed by AIFMs; and

ii.‘non-financial counterparty’ means an undertaking established in the European Union other than those falling within the scope of the definition of ‘financial counterparty’.

The MFSA would like to inform the said market participants that ESMA has on 1 February 2019 issued a public statement on how derivatives data reported under EMIR (‘EMIR Data’) should be handled in the event of the UK leaving the EU without a withdrawal agreement, the no-deal Brexit Scenario.

In the event of a No-deal Brexit, UK counterparties would not be mandated to report under EMIR to ESMA supervised Trade Repositories. The statement also deals with aspects of reporting scenarios (namely where both counterparties are EU Member States (excl. UK), both from the UK and where one is from the UK and the other is from an EU Member States (excl. UK)), and sets out the timeline for completion of the relevant adjustments by the European Member States in view of the above.

Click here to access the circular page.

06/02/2019     Circular to Collective Investment Schemes, Fund Managers and Depositaries on ESMA Liquidity Stress Test Guidance

ESMA has launched a public consultation on Draft Guidelines on Liquidity Stress Testing for AIFs and UCITS. These guidelines will be applicable to UCITS Management Companies and EU AIFMs as well as EU Depositaries overseeing UCITS and EU AIFs (collectively ‘Fund Managers’).

These draft guidelines aim at providing convergence among EU National Competent Authorities and sets out 14 principle based criteria for liquidity stress testing to be followed by Fund Managers.

Draft Guidelines require the liquidity stress tests to:

• be tailored towards the individual Collective Investment Scheme (‘CIS’);
• reflect the risks which are most applicable to a CIS;
• be sufficiently extreme or unfavourable and yet plausible;
• sufficiently model how a Fund Manager is likely to act in times of stressed market conditions; and
• be embedded into the CIS’s overall risk management framework.

The public consultation is open for feedback until 1 April 2019. ESMA expects to publish a final report by mid-2019 and is currently seeking stakeholders’ views on the design of liquidity stress testing scenarios; the liquidity stress test policy, including internal use of liquidity stress test results; considerations for the asset and liability sides of CIS’s balance sheets; and the timing and frequency for individual CIS to conduct the liquidity stress tests.

Click here to access the circular page.

06/02/2019     Circular on MiFID II and MiFIR - Notice of availability of the MiFID II Phase 2 testing portal through the Managed File Transfer solution

This circular is addressed to investment firms, credit institutions providing investment services and/or performing investment activities, and market operators including any trading venues they operate.

The Transaction Reporting Guidelines and Transaction Reporting Exchange Mechanism

The Circular refers to such guidelines which set out the requirements for reporting to the national competent authorities, and which are supplemented by technical documentation relating to the reporting mechanisms. Reference is made to ESMA regularly updating the XML Schema used for reporting transaction data as well as the reporting instructions and the validation rules. In February 2019, ESMA will go live with version 1.1.0 of the XML Schema, which shall supersede the XML Schema version 1.0.3 - A circular updating this go-live date has since been issued by the MFSA on 11/02/2019 – kindly refer to the next section

MiFID II Phase 2 testing platform

The MFSA has now made available the test platform for MiFID II Phase 2. Through this, the submission of test files on the test platform through the Managed File Transfer solution is now being accepted and this may be done through the ‘Testing Portal’ folder located on portal.mfsa.com.mt. The circular further elaborates on the file name conventions to be used.

Click here to access the circular page.

11/02/2019    Circular on MiFID II and MiFIR - Updates on the TREM XML Schema Version 1.1.0 Go-live Date

Further to the previous circular in relation to the MiFID II phase 2 testing portal, the MFSA added a further update with respect to the go-live date.

ESMA published a statement in relation to the use of UK data in ESMA databases and the performance of MiFID II calculations under a no-deal Brexit. In such an eventuality, the UK’s FCA will cease to send data to ESMA and will no longer have access to ESMA’s IT applications and databases.

In light of the above, ESMA has postponed the go-live date of the XML Schema version 1.1.0 to Q3 of 2019. Until the said go-live date, the current XML Schema 1.0.3 shall continue to be used, however, the MFSA urges the industry to commence testing of XML Schema 1.1.0 in order to ensure a smooth migration.

Click here to access the circular page.

13/02/2019    Circular to Applicants who are required to complete a Personal Questionnaire

Further to two circulars issued by the MFSA in 2018 relating to persons being proposed to hold a positon which required the MFSA’s approval and the submission of online Personal Questionnaires (“PQ”), the MFSA would like to inform interested persons that new features have been added to the online PQ.

These features include the following:

Edit feature – applicants can amend previously saved sections prior to submission

Pre-population of data – applicants who have already updated an online PQ and are proposed for other positions are required to submit an updated PQ for each new involvement. The data submitted in the previous PQ, including any documentation attached, will be automatically populated and applicants are only required to amend the applicable fields.

The MFSA also informed interested parties that when submitting a PQ update, applicants are to attach the necessary supporting documentation and shall note that:

• Identification documents shall remain valid until the expiration date printed on the said documents;
• Newly issued Police Conduct Certificates shall be submitted where one (1) year has elapsed from the date of issuance of the conduct certificate previously submitted to the MFSA;
• Utility bills shall remain valid for as long as the Applicant has not changed his/her residential address;
• Appendices shall remain valid unless the Authority requests updated versions;
• Certificates of qualifications obtained, and training/courses attended shall be automatically regenerated as attachments. Notwithstanding this, Applicants are required to attach certificates of qualifications obtained and training/courses attended since the last PQ submission.

Applicants should submit a newly completed ‘Declaration’ of the online PQ with each submission.

Click here to access the circular page

14/02/2019    Circular on the Agreement between ESMA and EU Securities Regulators with the UK’s Financial Conduct Authority as part of the no-deal Brexit scenario

The MFSA would like to inform the securities industry that ESMA has issued a press release in relation to Memoranda of Understanding (‘MoUs’) executed between ESMA and the UK’s Financial Conduct Authority (‘FCA’). The MoUs form part of the authorities’ preparations should the UK leave the EU without a withdrawal agreement (no-deal Brexit).

The following are the MoUs which have been executed:

1. An MoU between ESMA and FCA regarding the exchange of information in relation to the supervision of credit rating agencies and trade repositories; and
2. A multilateral MoU (MMoU) between EU/EEA securities regulators and the FCA with respect to supervisory co-operation, enforcement and exchange of information between individual regulators and the FCA. This will allow certain activities, such as fund manager outsourcing and delegation, to continue to be carried out by UK based entities on behalf of counterparties based in the EEA.

The MFSA is a signatory of the MMoU referred in point 2 above.

Click here to access the circular page.

14/02/2019    Circular on Cross Sub-Fund Investment in Retail Collective Investment Schemes

This circular is addressed to the attention of directors and compliance officers of Retail Collective Investment Schemes, Fund Managers and Depositaries. The MFSA would like to notify the aforementioned that it has decided to review its Rules in relation to cross sub-fund investments in Retail Schemes.

At present, cross sub-fund investments in Retail Collective Investment Schemes are prohibited, whereas on the other hand, the MFSA allows Professional Investor Funds (“PIFs”) and Alternative Investment Funds (“AIFs”) to undertake cross sub-fund investments, subject to certain requirements being fulfilled.

The MFSA has now reviewed this position and will now be allowing cross sub-fund investments in Retail Schemes subject to a number of terms and conditions which are set out in the circular.

The relevant Standard Licence Conditions in the Rule Book will be amended in due course. Moreover, the said rule does not apply to Loan Funds.

Click here to access the circular page.

14/02/2019    Circular on the Regulatory Framework for ‘CRR Local Firms’ within the Maltese MiFID Investment Firms’ Framework

The MFSA will be introducing the concept of ‘Local Firms’ as defined in the Capital Requirements Regulation (‘CRR’) and the applicability of the Capital Requirements Directive (‘CRD’) to such firms. This circular aims to inform the industry on the inclusion of Local Firms and the applicable supervisory regime within the Maltese MiFID Investment Firms Framework.

In order to meet the definition of a Local Firm as set out in the CRR, an applicant has to prove that it meets the following conditions:

1. It is exclusively dealing for its own account or for the account of other members of the same derivatives or cash markets;
2. It is active on markets in financial futures or options or other derivatives;
3. It is active on cash markets (or spot markets) for the sole purpose of hedging positions on derivatives markets; and
4. The trading positions are guaranteed by clearing members of the same markets, where responsibility for ensuring the performance of contracts entered into by such a firm is assumed by those clearing members.

The circular also outlines vital points in relation to the Regulatory Framework, capital requirements, licensing requirements and Ongoing regulatory requirements for such Local Firms.

Click here to access the circular page.

Legal Updates

LN 25 of 2019   Investment Services Act (Money Market Funds Regulations), 2019

By virtue of this Legal Notice, the Minister responsible for the Regulation of Financial Services implements the relevant provisions of the Money Market Fund Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017, which deal with inter alia, (a) the establishment of the local competent authority; (b) the authorisation of Money Market Fund; (c) the powers of the said authority; (d) administrative penalties and other specific administrative measures; (e) the publication of the decisions of the competent authority; and (f) treatment of existing UCITS and AIFs.

Click here to access the Legal Notice.

MFSA Circulars

04/02/2019  Circular to Credit Institutions on Banking Rule BR/14

07/02/2019  Circular to Financial Institutions on Banking Rule BR/14

The MFSA is issuing an annex to Banking Rule BR/14 on the “Outsourcing by Credit Institutions authorised under the Banking Act 1994” (the “Rule”). The said Rule and Annex shall also be applicable to financial institutions in full.

Outsourcing to Cloud Service Providers – Annex 1 of the Rule provides guidance for institutions that outsource to cloud service providers, namely:

• stipulates the supervisory requirements and processes that apply;
• sets out the manner in which materiality of cloud outsourcing is assessed and reported to the Authority;
• provides guidance on the security of the data and systems used whilst addressing the treatment of data and data processing locations in the context of cloud outsourcing;
• includes requirements for institutions to mitigate the risks associated with ‘chain’ outsourcing where the cloud service provider subcontracts elements to other providers; and
• guides institutions on the contractual and organizational arrangements for contingency plans and exit strategies.  

Revisions to BR/14 – Minor revisions to BR/14 were undertaken to allow for the inclusion of the above-stated annex, which shall come into force with immediate effect.

Click here and here to access the circular pages.

07/02/2019  Circular to Credit Institutions on Annex 2C of Banking Rule   BR/12 and Banking Rule BR/15

The MFSA is amending Annex 2C of Banking Rule BR/12 on ‘The Supervisory Review Process of Credit Institutions Authorised under the Banking Act 1994’ and Banking Rule BR/15 on ‘Capital Buffers of Credit Institutions Authorised under the Banking Act 1994’.

Revisions to Annex 2C of BR/12 - Definitions of the following terms were inserted: - ‘Discretionary pension benefits’ and ‘Securitization special purpose entity (SPPE)’. These definitions will apply to BR/12 as well as the other Annexes of the said Rule and reflect the definitions provided for in the CRD IV.

Revisions to BR/15 – the inclusion of the definition of ‘Discretionary pension benefits’, which also reflects the definition provided for in the CRD IV.

The above revisions shall come into force with immediate effect.

Click here to access the circular page.

13/02/2019   Circular to Applicants who are required to complete a   Personal Questionnaire

Kindly refer to Asset Management – Part 3

MFSA Circulars

13/02/2019    Circular to Applicants who are required to complete a Personal Questionnaire

Kindly refer to Asset Management – Part 3

MFSA Circulars

04/02/2019    Public Consultation: IOPS Supervisory Guidelines on the integration of ESG Factors in the investment and risk management of pension funds

The International Organisation of Pension Supervisors (“IOPS”) has launched a consultation for Retirement Scheme Administrators and Investment Managers providing services to a Retirement Scheme or Retirement Fund concerning draft IOPS Supervisory guidelines on the integration of ESG (Environmental, Social and Governance) factors in the investment and risk management of pension funds.

The consultation is open until 11 March 2019 and the aim of the consultation is to bring the views and experience together on how ESG factors should be considered and integrated in the supervision of investment and risk management of pension funds.

Click here to access the circular page.

MFSA Consultation Document

04/02/2019     Consultation on Amendments to Regulations Issued Under the Retirement Pensions Act

In October 2018, the MFSA issued a consultation document highlighting the main changes proposed to the Retirement Pensions Act (Cap. 514) as a consequence of the transposition of Directive (EU) 2016/2341 on the activities and supervision of institutions for occupational retirement provision (the “IORP II Directive”). Following the said consultation document, the MFSA is issuing for consultation the proposed amendments to regulations issued under the Retirement Pensions Act and new regulations transposing specific provisions of the IORP II Directive.

 The following are the Proposed Regulations to be issued under the Retirement Pensions Act:

• Retirement Pensions (Control of Assets) (Amendment) Regulations, 2019
• Retirement Pensions (Exemption) (Amendment) Regulations, 2019  
• Retirement Pensions (Cross-Border Activities and Cross-Border Transfers) (Amendment) Regulations, 2019  
• Retirement Pensions (Technical Provisions) Regulations, 2019
• Retirement Pensions (General Provisions of Supervision) Regulations, 2019  
• Retirement Pensions (Transitional Provisions on Back-Office Administrators) Regulations, 2019  
• Retirement Pensions (Transitional Provisions)(Revocation) Regulations, 2019

The Consultation document contains in depth details in relation to the above Regulations. Comments and feedback shall be sent to the MFSA by 25th February 2019.

Click here to access the consulation document.

MFSA Circulars

07/02/2019 Circular on Regulation (EU) No 2017/2402 – The Securitisation Regulation – Opinion and Q&A on Disclosure technical Standards under the Securitisation Regulation

ESMA issued an opinion containing a revised set of draft Regulatory Technical Standards (‘RTS’) and Implementing Technical Standards (‘ITS’) on Securitisation on underlying exposures and investor reports as well as standardized templates for the submission of such information.

Amendments to ESMA’s draft technical standards on disclosure requirements under the Securitisation Regulation

ESMA agreed to amend the disclosure RTS/ITS and extend the ability for reporting entities to use the ‘No Data’ options in the respective disclosure templates. It has also provided additional information on the templates to be used in relation to inside information and information on significant events affecting the securitization.

Securitisation Regulation Q&As

ESMA developed a set of Q&As that considers stakeholders feedback and questions on technical standards. The purpose of the Q&A is to provide a comprehensive package of clarifications for market participants. ESMA has prepared these draft RTS/ITS with due regard to its mandates of investor protection, orderly markets, and financial stability.

Click here to access the cicular page.

07/02/2019    Circular on Regulation (EU) No. 2017/2402 - The Securitisation Regulation – Implementation of the Securitisation Regulation (the “Regulation”)

The MFSA would like to inform securitisation market participants that the Securitisation Regulation and the related Capital Requirements Regulation amendments came into force on 1 January 2019.

The Regulation refers to transaction(s) where credit risk associated with an exposure or pool of exposures is tranched, and where all of the following characteristics are met:

i.payments in the transaction or scheme are dependent upon the performance of the exposures or of the pool of exposures;

ii.the subordination of tranches determines the distribution of losses during the ongoing life of the transaction or scheme; and

iii.the transaction or scheme does not create specialised lending exposures.

This circular provides an overview of the Securitisation Regulation which applies to institutional investors; originators; sponsors; original lenders and Securitisation Special Purpose Entities.

Moreover, the circular also provides the key criteria under the General Securitisation Framework namely in relation to due diligence, risk retention and transparency requirements as well as the key criteria under the specific ‘Simple, Transparent, and Standardised’  process.

Lastly, the circular sets out the documentation published by ESMA in this regard.

Click here to access the circular page.

MFSA Consultation Document

08/02/2019  Guidance Notes on Cybersecurity – Consultation Document

The MFSA notes that the financial services industry is undergoing a digital transformation and has identified the need to ensure that the industry implements the necessary cybersecurity solutions in order to effectively mitigate cyber threats.

The Guidance Notes on Cybersecurity (“Guidance Notes”) shall be applicable to the following:

i.Governing Body of Professional Investor Funds investing in Virtual Currencies;

ii.Board of Administration of: VFA Agents, Issuers and VFA service providers (collectively “the decision making body”);

iii.A designated person within an entity appointed to act as Security Officer, Chief Security Officer, Chief Information Security Officer or any other designation (“CISO”).

The Guidance Notes mainly refer to:

i.Organisational Governance - entities should establish a Cybersecurity Framework (“CSF”) taking into account its specific set-up, nature of business, contractual agreements and human resources arrangements

ii.Management of Data and Information – entities should establish and maintain data classification systems, strict user access control policies and activity monitoring

iii.Threat Management – entities should have the proper safeguards to make sure that its systems and networks are fully protected

iv.Security awareness and Training  - the Guidance Notes emphasise the importance of having awareness sessions for all staff members

v.Compliance and Audit - highlights the importance of ensuring that internal audit is carried out at regular intervals and ensuring compliance with applicable legislation

The Guidance Notes also provide Supplementary Guidance Notes applicable to Issuers of Virtual Financial Assets and VFA Service Providers.

The consultation is open to the public until 8 March 2019 and responses may be submitted through an online survey.

Click here to access the consultation document.

05/02/2019         Consultation Procedure – Consultation on the MFSA Fintech Strategy note regarding an extension of consultation period

Further to the Consultation Document issued by the MFSA in January 2019 (Kindly refer to the Regulatory Updates of January 2019 for further details), the MFSA would like to notify interested parties that the consultation period has been extended to Monday 18 March 2019.

Click here to access the circular page. 

MFSA Circular

25/02/2019         Circular on the Publication of the Virtual Financial Assets Rules for VFA Service Providers

Following the Consultation Paper on the Virtual Financial Assets Rules for VFA Service Providers published by the MFSA in August 2018, the MFSA has now published Chapter 3 of the Virtual Financial Assets Rulebook: Virtual Financial Assets Rules for Service Providers (the “Rules”). The Rules are applicable to VFA Service Providers licensed or seeking licensing in terms of the Virtual Financial Assets Act (“VFAA”).

The Rules are divided into four (4) titles:

i.  The high level principles which should guide VFA Service Providers in the provision of their VFA service/s in or from within Malta;

ii.  The licensing requirements and the respective licensing process for VFA Service Providers;

iii.  The ongoing obligations which VFA Service Providers must adhere to; and

iv.  Enforcement and sanctions in the event of misconduct by VFA Service.

Persons seeking licensing under the VFAA shall do so by appointing a VFA Agent duly registered with the MFSA. The MFSA is currently processing the applications in relation to persons seeking to be registered as VFA Agents and these will be listed in the Malta Financial Services Register.

The MFSA would like to notify that the VFA Services Providers benefitting from the transitory provisions provided under the VFAA shall comply with the Rules on a best effort basis.

Such service providers shall be required to [i] engage the services of a person who  is registered or has the intention to register as a VFA Agent in accordance with Article 14 of VFAA provided that such person has at least three proposed Designated Persons who have successfully completed a course approved by the Authority; [ii] provide evidence to the Authority that it has successfully passed a fitness and properness assessment, conducted by the service provider; and [iii] provide evidence to the Authority that it has appropriate systems in place to satisfy the AML/CFT requirements applicable to VFA Service Providers.

Further to the above and pursuant to Article 62(1)(c) of the VFAA, persons providing a VFA service shall, within twelve months from the date of coming into force of the Act, apply to the MFSA for a licence in terms of Article 14. Provided that where the MFSA communicates its refusal to grant a VFA Services licence, that person shall immediately cease to provide VFA services in or from Malta.

Click here to access the circular page.

MFSA Circulars

13/02/2019    Circular to Applicants who are required to complete a Personal Questionnaire

Kindly refer to Asset Management – Part 3