Regulatory Updates

FIAU Notice

19/07/2019     Implementing Procedures Part I – Revised Version

Further to the proposal issued by the FIAU in October 2018, the FIAU is now issuing a revised version of the Implementation Procedures Part I (“IPs”). The revision aims at providing subject persons with more in-depth qualitative guidance to assist them in better fulfilling their AML/CFT obligations.

The salient amendments to the IPs are the following:

1.The Risk Based Approach (RBA)

The revised IPs provide subject persons with a better understanding of what the RBA entails and lay down detailed guidance on the carrying out of business risk assessments and customer risk assessments, which are the basis for the correct application of a RBA to AML/CFT obligations.

2. Customer Due Diligence (CDD)

Subject persons are provided with a better understanding of their CDD obligations as required by the PMLFTR. The IPs emphasise the importance of conducting appropriate and effective on-going monitoring. The updates also provide guidance on other areas which impinge on CDD obligations including when subject persons are faced with high-risk scenarios. The updated IPs also include further information on the use of technological alternatives to fulfil AML/CFT obligations.

3. Outsourcing

The Chapter on outsourcing aims to provide subject persons with a clear understanding of which AML/CFT obligations may be outsourced, the respective responsibilities of the subject person and of the outsources service provider, as well as the conditions under which such outsourcing agreements can take place.

4. Non-Reputable Jurisdictions and High-Risk Jurisdictions

The changes made shall aid subject persons in their interpretation of what constitutes a non-reputable jurisdiction and in identifying high risk jurisdictions.

5. Sanctions Screening

In view of the recent changes to the National Interest (Enabling Powers) Act, the obligations relating to sanction screening, freezing of assets and reporting obligations emanating therefrom have also been reflected in the IPs.

The FIAU would also like to inform subject persons that IPs Part II addressed to Banks have been repealed and the FIAU is in the process of drafting a new set of sector specific IPs.

Notice can be seen here.

FIAU Notice

19/07/2019    Implementing Procedures Part I – Revised Version

The FIAU would like to bring to the attention of subject persons and interested parties that on 24 July 2019 the European Commission adopted and published a revised version of its Supranational Risk Assessment.

This assessment includes 7 additional products and services as potentially vulnerable to money laundering or terrorism financing within the internal market, forming part of four new sectors that had not been previously assessed. These include:

1. Privately-owned automated teller machines;

2. Professional football;

3. Free ports; and

4. Investor citizenship and residence schemes

Furthermore, FIAU reminds subject persons of their obligations when carrying out their business risk assessment.

The revised supranational risk assessment can be accessed either through the European Commission’s website through the FIAU’s website.

Notice can be seen here.

MFSA Circulars

04/07/2019     Circular on Regulation (EU) No 909/2014 – the Central Securities Depositaries Regulation (CSDR)

This circular is being addressed to investment firms and professional clients and should be read in conjunction with the ESMA Guidelines on Internalised Settlement reporting; RTS on Internalised Settlement and ITS on Internalised Settlement.

The MFSA would like to inform the market of the obligation for firms to report settlement internalisation under Article 9 of the CSDR which will come into force on 12 July 2019.

The Authority is hereby publishing a set of templates and procedures extracted from the aforementioned RTS and ITS on internalised settlement. These templates and procedures are intended to assist a settlement internaliser to report and transmit any information on transactions which are settled outside a securities settlement system.

Circular can be seen here.

11/07/2019    Circular to provide an update on the proposed Temporary Permission Regime (‘TPR’) for UK Investment Funds, Asset Managers and Investment Firms passporting into Malta in relation to a No-Deal Brexit

Further to a circular issued by the MFSA on the 28 March 2019 relating to UK licenced Investment Funds, Asset Managers and Investment Firms (“UK Entities”), the MFSA would like to inform UK Entities that it is in the process of preparing legislation so that the said UK Entities would be able to avail themselves of the TPR should the following conditions be satisfied:

i. There is a no-deal Brexit;

ii. The UK Entity would have already obtained a European right to provide such services in Malta on a cross-border basis prior to the no-deal Brexit scenario;

iii. The UK Entity would only be servicing those contracts with clients that were featuring on the UK entities’ respective books until 30 September 2019.

The intention is for the temporary permission granted under the TPR shall remain valid in Malta until 31 March 2020. UK Entities may continue to fulfil their existing contracts with Maltese clients until 31 March 2020, or alternatively (i) terminate existing contracts in an orderly manner; and/or (ii) obtain the necessary authorisation by 31 March 2020; and/or (iii) proceed with the assignment of the existing contracts to a duly authorised entity.

As from 1 April 2020, UK Entities passporting to Malta shall be treated as third country firms. The MFSA encourages UK Entities to submit the TPR Notification form at their earliest and not later than 3 weeks from the no-deal Brexit date.

Circular can be seen here.

MFSA Circulars

16/07/2019     Circular on Regulation (EU) No 909/2014 – the Central Securities Depositaries Regulation (CSDR)

The MFSA is issuing a circular aimed at CSDs, Investment firms and market participants trading on trading venues.

ESMA updated its Q&As on the Implementation of the Regulation (EU) No 909/2014 on improving securities settlement in the EU on central securities depositaries, focusing on practical issues on the implementation of the new CSDR regime. The updated Q&As, included in Part IV of the Q&As, focus on clarifying aspects regarding the scope of internalised settlement reporting.

Circular can be seen here.

Feedback Statement

17/07/2019     Feedback Statement to the Analysis of Consultation on the Implementation of National Product Intervention Measures in relation to Binary Options

This Feedback Statement is being issued further to a Consultation Document issued by the MFSA in May 2019 in relation to the proposed adoption of Product Intervention (PI) measures in terms of Article 42(2) of MiFIR with respect to Binary Options.

The Statement contains industry feedback relating to the following questions:

A. Do you agree with the permanent Product Intervention measures being proposed by the MFSA which would apply to persons offering services to retail investors, in relation to Binary Options, in or from Malta?

B. If the answer to question A above is no, please provide reasons.

C. What other measures, in addition to, or in substitution of, the proposed national measures would you suggest to be implemented by the MFSA to mitigate consumer detriment in this area?

The Statement contains industry responses as well as the MFSA’s position on the above.

Feedback Statement can be seen here.

MFSA Circular

22/07/2019     Conduct of Business Rulebook Revisions

MFSA has issued an updated version of the Conduct of Business Rulebook including specific requirements in the sectorial parts in order to reflect the applicable requirements emanating from specific EU Directives.

Amendments were made to 3 key areas mainly:

i. Requirements applicable to the Securities Sector;

ii. Requirements applicable to Insurance Undertakings and/or Intermediaries namely the conflicts of interest requirement; and

iii. Requirements applicable to all regulated persons

Some renumbering and amendments of other rules were made in order to bring such other amendments in line with these changes.

Circular can be seen here.

MFSA Circulars

23/07/2019     ESMA Issues Stress Testing Requirements for Money Market Funds

ESMA has issued two sets of guidelines regarding the stress testing of money marketfunds and reporting on money market funds to national competent authorities, aimed at ensuring a coherent application of the Money Market Fund (“MMF”) Regulation.

The Guidelines on stress testing establish common reference parameters of the stress test scenarios MMFs or managers of MMFs should include in their stress scenarios.

MMFs and managers of MMFs are expected to measure the impact of the common reference stress test scenarios specified in the Guidelines which include stress test scenarios in relation to hypothetical changes in MMFs’:

• liquidity levels;
• credit and interest rate risks;
• redemptions levels;
• widening/ narrowing of spreads among indexes to which interest rates of portfolio securities are tied; and
• macro-economic shocks

Circular can be seen here.

23/07/2019     ESMA’s Public Statement on the application of product intervention measures under Article 40 and 42 of Regulation (EU) No. 600/2014 (1) (MiFIR) by CFD providers

ESMA has issued a statement in response to various practices and situations observed in the market which raised a number of concerns of non-compliance with the requirements imposed by ESMA’s Product Intervention Measures. This Statement refers to all regulated entities which either provide, distribute or sell CFDs to retail clients.

The Statement aims at drawing the industry’s attention and subsequently assessing the issues relating to professional clients on request and marketing, distribution or sale by third-country CFD providers.

Circular can be seen here.

MFSA Circulars

25/07/2019     Application of Host Country National Product Intervention Measures

Following the adoption of national product intervention measures due to the termination of ESMA temporary restrictions on Contracts for Differences and Binary Options to retail clients, ESMA has issued its opinion on these product interventional measures depending on whether such measures relates to Binary Options or to Contract for Differences which have been used as at to date. In its opinion, ESMA provides whether such measure is similar to the previous ESMA temporary restrictions and also the date when these national measures shall take effect.

In this Circular it is provided that the Compliance Function shall monitor firm’s cross border business and check whether the host National Competent Authority has adopted stricter national product intervention measures vis a vis MFSA with respect to Contract for Differences and/or Binary Options.

These proposed national measures have been outlined in Contracts for Differences Consultation Document and in the Binary Options Consultation Document and Binary Options Feedback Statement. Furthermore, Conduct of Business Rulebook was amended in order to reflect the National Product Intervention Measure.

Circular can be seen here.

31/07/2019     ESMA’s Public Statement on the application of product intervention measures under Article 40 and 42 of Regulation (EU) No. 600/2014 (1) (MiFIR) by CFD providers

Further to the Consultation Paper on the draft guidelines on performance fees in UCITS, the MFSA is now asking for the feedback of assets managers managing retail funds and their trade associations, institutional and retail investors investing into such funds. The scope of such consultation paper was to gather feedback from stakeholders on the application of performance-based fee charges with the intention to publish Guidelines on subject matter.

ESMA shall receive feedback up until 31 October 2019. The feedback provided shall be considered prior to the issuing of Guidelines.

Circular can be seen here.

31/07/2019     Circular on Regulation (EU) 600/2014 on Markets in Financial Instruments ( MiFIR )

ESMA has published an updated version of its Q&As relating to MiFIR Data reporting. The purpose of the updated Q&As is to provide clarification on how operators should populate Field 24 (Expiry date) for a financial instrument without a defined

Circular can be seen here.

Feedback Statement

01/07/2019     Feedback Statement issued further to Industry Responses to the Listing Authority Consultation Document on Defining Material Related Party Transactions and Disclosure Requirements as required in terms of the Shareholders Rights Directive II

Further to the Consultation Document issued by the MFSA on 13 May 2019 relating to Related Party Transactions and Disclosure Requirements, the MFSA is now issuing a feedback statement outlining the responses obtained from the industry.

The Statement is divided into different sections, namely the following:

• Definition of Material Related Party Transactions;
• Exemptions;
• Aggregation of Same Related Party Transactions;
• The Role of the Audit Committee; and
• The Proposed Materiality Threshold.

Each section contains the feedback received together with the Position of the Listing Authority.

Feedback Statement can be seen here.

MFSA Circular

05/07/2019     Circular on the Market Abuse Regulation (EU) 596/2014 (‘MAR’ or the ‘Regulation’)

This circular is being addressed to all issuers of financial instruments, admitted to trading on a trading venue or for which a request for admission to trading has been made, and to any persons acting on their behalf or on their account in terms of Article 18 of MAR.

Article 18 of MAR requires issuers or any persons acting on their behalf/account, to draw up and promptly update a list of all persons who have access to inside information and who are working for them under a contract of employment or otherwise performing tasks through which they gain access to insider information.

The circular touches up a number of issues, namely the following:

• Purpose of Lists of Insiders;
• Who is required to draw up the List of Insiders and when? And Exemptions;
• Who is responsible for the List of Insiders?;
• Who should be included in the List of Insiders?;
• Temporary and permanent List of Insiders and information to be included in
• the List of Insiders;
• Updating the List of Insiders;
• Record keeping: How long, where and how should an Insider List be kept; and
• Company’s Obligations with respect to Employees listed on the List of Insiders;
• Insiders’ Acknowledgements, Training, Staff Dealing, Access and Control of Inside Information.

Circular can be seen here.

MFSA Circular

24/07/2019     ESMA Updates the ESEF Reporting Manual

ESMA has published an expansion and update to existing guidance to the ESEF Reporting Manual originally published by ESMA in December 2017. The aim of this Manual is to provide more guidance to market participants and to address some of the salient issues emanating from generating documents in compliance with the ESEF Regulation. ESMA will continue to monitor relevant market developments and gather feedback on issues frequently encountered. Where relevant and/or necessary, ESMA will provide further guidance to the public.

Circular can be seen here.

Consultation Document

04/07/2019     Pillar 1 – Regulations on the MFSA Fintech Strategy

Further to the Consultation Document issued by the MFSA on 15 May 2019 in relation to its Fintech Strategy, the MFSA is now delving into further detail with respect to each of the identified six pillars and focusing on the implementation of the strategic objectives outlined therein.

This Consultation Document is seeking to obtain industry feedback in relation to the proposed measures with respect to Pillar 1 which deals with Regulations and is divided into 4 sections as follows:

Status update on the MFSA’s current initiatives in relation to the Pillar 1 strategic priorities of proportionality and smart regulations;

The MFSA’s objective to establish a Regulatory Sandbox and presents the various approaches towards implementation;

The Regulatory and supervisory technology initiatives that the MFSA is proposing; and

MFSA seeks feedback from the industry through a set of questions as a conclusion to this Consultation Document.

This Consultation is open to the public until 30 August 2019.

Consultation document can be seen here.

Consultation Document

19/07/2019     Security Token Offering – MFSA Capital Markets Strategy

This Consultation Document aims at establishing legal certainty for Security Token Offerings (“STOs”) in the Maltese financial markets and is divided into 6 sections covering the following matters:

1) Defining Security Tokens;

2) Applications for approval of prospectuses and/or admissibility to listing and trading of Traditional STOs;

3) Transparency Requirements;

4) Secondary Markets;

5) Market Abuse Regulation; and

6) Post-trade Settlement.

By virtue of this Consultation Document, the MFSA is seeking stakeholders’ views on a policy which complements the VFA regime and continues to support innovation and new technologies for financial services in the area of STOs without compromising investor protection, financial stability and financial integrity.

This Consultation is open to the public until 30 August 2019.

Consultation document can be seen here.

MFSA Circular

22/07/2019     Note for Information in relation to Consultation Paper on Proposals for Solvency II 2020 Review on the Harmonisation of National Guarantee Schemes

On the 9th July 2019 the European Insurance and Occupational Pensions Authority (EIOPA) launched a Consultation Paper on Proposals for Solvency II 2020 Review on the Harmonisation of National Guarantee Schemes. The consultation covers a number of topics such as Insurance Guarantee Schemes and macro-prudential policy in insurance.

Consultation document can be seen here.

Consultation Document

15/07/2019     Consultation on Amendments to the Pension Rules for Occupational Retirement Schemes issued under the Retirement Pensions Act

The MFSA is in the process of transposing the IORP II Directive. In order to complete the transposition of the IORP II Directive, various amendments are being made to the Pension Rules for Occupational Retirement Schemes. The MFSA has issued two Consultation Documents in the past months for which no feedback was received from the market.

The purpose of this consultation is to highlight the proposed amendments to such Pension Rules. The proposed amendments transpose the remaining provisions of the IORPII Directive, which have not been included in the Act and regulations issued thereunder. The amendments also align the Pensions Rules for Occupational Retirement Schemes with some of the requirements that have been introduced in the Pension Rules for Personal Retirement Schemes. Any comments and feedback in relation to this Consultation Document shall be submitted by 12 August 2019.

Draft appendices of the Pension Rules for Occupational Retirement Schemes as well as the Consultation Document may be accessed here.

MFSA Circular

18/07/2019     ESMA sets out expectations regarding application of IAS 12

ESMA has published a Public Statement on IAS 12 Income Taxes setting out its expectations regarding the application of the requirements relating to the recognition, measurement and disclosure of deferred tax assets (DTAs) arising from unused tax losses in IFRS financial statements.

The Public Statement focuses on the salient matters that issuers, auditors and audit committees should consider when recognising DTAs in their financial statements. The main topics presented in the Public Statement include the assessment of the probability that future taxable profits will be available, the assessment on whether the expectations of future taxable profits have convincing supporting evidence.

Consultation document can be seen here.

18/07/2019     Extract from ESMA’s database of enforcement decisions on financial statements

ESMA has published an extract from its confidential database of enforcement decisions on financial statements. The extract includes a section of 8 decisions taken by national enforcers in the period from December 2016 to December 2018 in relation to:

• Presentation of cash flows arising from changes in ownership interests in a subsidiary
• Disclosure of changes in liabilities arising from financing activities
• Definition of cash and cash equivalents
• Disclosure of fair value measurement of investments by investment entity
• Impact of forbearance on assessment of significant increase in credit risk
• Accounting treatment of leased-out property acquired with a view to redevelopment
• Vesting and non-vesting features of performance conditions in share-based payment plans
• Indications of impairment of assets
• The aim of these annually published extracts is to strengthen supervisory convergence within the EEA and to provide issuers and users of financial statements with relevant information on the appropriate application of IFRS.

Consultation document can be seen here.

Consultation Document

22/07/2019     Independent Compliance Audits

As part of its 2021 vision, the MFSA intends to implement a new framework in order to have an additional supervisory tool, to strengthen further its supervisory approach and ensure proper and effective supervision of licence holders.

The MFSA is issuing a Consultation Document in order to present its ideas and seek the views of interested stakeholders. The Consultation Document includes the introduction of a new provision to the MFSA Act relating to the appointment of qualified persons.

The Consultation Document also contains the factors which the MFSA would look into when appointing qualified persons as well as the procedure for the registration of a qualified person.

This Consultation Document shall be read in conjunction with another document issued by the MFSA, “Qualified Persons –Rule Issued under the MFSA Act” and is open to the public until 30 August 2019.

Consultation document can be seen here.

Consultation Document

22/07/2019     Qualified Persons – Rule Issued under the MFSA Act

The MFSA is issuing a rule in relation to qualified persons and shall determine the terms and conditions of the appointment of a qualified person as well as the disclosure requirements which a qualified person shall be required to comply with in the exercise of his functions.

The purpose of this Rule is to also ensure that the Authority receives the required information from the qualified person and that the licence holder or any other person, fully cooperates and provides the qualified person with the required access and information for the purpose of the review process.

The Rule covers the registration process, the appointment process, terms of reference, powers of the qualified person, duties of the qualified person, ongoing disclosure requirements of the qualified person, payment terms and the agreement with qualified persons in terms of Article 16 of the MFSA Act.

Consultation document can be seen here.