Regulatory Updates

MFSA Circular

03/06/2019 AML/CFT Approved Courses for VFA Issuers and Service Providers

Kindly refer to "Fintech".

Circular can be seen here.

18/06/2019 FIAU and MFSA publish joint Guidance Document for Institutions opening accounts for Fintechs

Kindly refer to "Banking".

Circualr can be seen here.

FIAU News Update

11/06/2019 Notice Registration – Entities licensed to provide VFA Services

Kindly refer to "Fintech".

Circular can be seen here.

MFSA Circulars 

04/06/2019 Circular on the ESMA Technical Advice on Integrating Sustainability Risks and Factors in MiFID II

Further to the consultation paper published by ESMA back in December 2018 in relation to technical advice on integrating sustainability risks and factors in MiFID II, the MFSA would like to bring the proposed changes to the attention of interested stakeholders.

The proposed changes mainly revolve around the following areas:

• Organisational Requirements - The proposed amendment to Article 21 of MiFID II will require investment firms to incorporate environmental, social and governance considerations within their processes, systems and controls in order to ensure the investment and advisory process correctly takes them into account.
• Risk Management - A new recital will be added to MiFID II Regulation confirming the position expressed in the Consultation Paper that both the Compliance Function and Internal Audit are expected to consider issues related to sustainability risks. The new recital will also refer to the responsibilities of the investment firms’ Senior Management.
• Conflicts of Interest – A new recital will be included to ensure that investment firms have in place appropriate arrangements to ensure that the inclusion of environmental, social and governance considerations in the advisory process does not lead to mis-selling practices or misrepresentations and does not damage the interest of the client.
• Product Governance – obligations on manufacturers in relation to the target market are also being proposed.

Circular can be seen here.

06/06/2019 Circular on the ESMA MiFID II/ MiFIR Investor Protection and Intermediaries Q&As

ESMA has published an updated version of its Q&A on the Implementation of Investor Protection Requirements under (MiFID II/MiFIR). The Q&A provides new answers on the following topics:

Best Execution

• Reporting for venues on the trading mode according to RTS 27 and reporting for venues and firms on template fields of RTS 27 & 28 if the required content is not applicable to their activities;
• Reporting on passive and aggressive orders for firms using quote driven systems to have client orders executed; and
• RTS 28 reporting and execution venues.

Information on Costs and Charges

• Information on costs and charges: Ex-ante information in case of sell orders or telephone trading;
• Information on costs and charges: Use of assumed investment amount for ex-ante and use of ranges and maximum amount/percentages for ex-ante information; and
• Information in relation to investment services and/or products with non-linear charging structures.

The Q&A is aimed at competent authorities and investment firms by providing clarity on the application of the MiFID II and MiFIR requirements.

Circular can be seen here.

06/06/2019 Circular on the revised Financial Marketing Rules for Trading Venues, DRSPs and Central Securities Depositaries

The MFSA would like to notify interested parties that following the transposition of the Shareholders Rights Directive, it has updated its Financial Market Rules for Trading Venues, DRSPs and Central Securities Depositories (the “Rules”).

The MFSA has included a new Section 8 to Part V of the Rules which shall apply to Central Securities Depositories (‘CSDs’), relating to the identification of shareholders, transmission of information and facilitation of exercise of shareholders rights.

Following the revision of the Rules, CSDs are subject to new requirements, which have been summarised as follows:-

1. Provide listed companies with information relating to their shareholder identity;
2. Transmit information, from the company to the shareholder or to a third party nominated by the shareholder;
3. Transmit to the company the information received from the shareholders;
4. Facilitate the exercise of rights by shareholders, including the right to participate and vote in general meetings.

In terms of new Rule, the new rules also apply to CSDs which have neither their registered office nor head office in the EU, when they provide the services referred to in R5-8.1 for shares of a Company having its registered office in Malta and is traded on a Regulated Market in an EU Member State.

Circular can be seen here.

06/06/2019 Circular on Regulation (EU) No 2019/834 – the European Market Infrastructure Regulation (‘EMIR’) Regulatory Fitness Programme (‘Refit’)

This circular is targeting all marketing participants, particularly entities who enter into derivative contracts which fall within the scope of EMIR, inter alia financial and non-financial counterparties.

The EMIR Refit Regulation enters into force on 17 June 2019 and it will bring about changes in relation to the reporting requirements, the clearing obligation, the risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories.

The main amendments revolve around the below matters:

Amendments to the definition of Financial Counterparties; Small Financial Counterparty; Clearing obligations for Non-Financial Counterparty; Responsibility for the Reporting Obligation; Frontloading; Fair, Responsible, Non-Discriminatory and Transparent commercial terms (‘FRANDT’); Power to suspend the clearing obligation; Pension Schemes; Risk Mitigation and FX Transactions

The majority of the provisions will come into force on 17 June 2019 however, the application date of a number of requirements have been delayed as set out in the circular.

Circular can be seen here.

14/06/2019 Common Supervisory Action on MiFID II Appropriateness Rules

This circular is targeted to Investment Firms and Credit Institutions when providing investment services other than investment advice and portfolio management.

ESMA is launching a Common Supervisory Action which participant National Competent Authorities (NCAs) will carry out simultaneously, in the second half of 2019 with the aim of sharing practices across NCAs which will help ensure consistent implementation and application of European Union rules and enhance the protection of investors.

The MFSA will be participating in this supervisory activity which will focus on the application of the MiFID II requirements on the assessment of appropriateness carried out by investment firms.

In view of the MFSA’s participation in this project, the Conduct Supervision shall be conducting on-site inspections at a number of investment firms in the coming months to assess the application of appropriateness rules adopted by the selected firms.

Circular can be seen here.

17/06/2019 Circular on Regulation (EU) No 2019/834 – the European Market Infrastructure Regulation (‘EMIR’) Regulatory Fitness Programme (‘Refit’)

This circular should be read in conjunction with the MFSA’s latest circular issued by on 6 June 2019 (Kindly refer to the section on Asset Management – Part 2 for further information in this regard).

EMIR Refit introduces a new regime to determine when financial counterparties and non-financial counterparties are subject to the clearing obligation, depending on whether or not they exceed the clearing thresholds. The clearing thresholds which counterparties should not exceed in order to benefit from a clearing exemption under EMIR Refit are as follows:

• €1 billion in gross notional value for OTC credit derivatives contracts;
• €1 billion in gross notional value for OTC equity derivatives contracts;
• €3 billion in gross notional value for OTC interest rate derivatives contracts;
• €3 billion in gross notional value for OTC foreign exchange derivatives contracts;
• €3 billion in gross notional value for OTC commodity and other OTC derivatives contracts.

The calculation which determines the categorisation of counterparties is required to be conducted once a year and will be based on the aggregate month-end average position of all OTC derivative contracts entered into by the counterparty for the preceding 12 months. The circular lays down measure to be taken when counterparties choose not to conduct the calculation or the result of the calculation exceeds the above thresholds.

The MFSA would like to remind counterparties that the calculation shall be carried out on the 17th June 2019, and every year thereafter.

Circualar can be seen here.

20/06/2019 Updates on ESMA AIFMD and UCITS Q&As in relation to the depositary function

ESMA has published an updated version of its Q&A on: (a) the application of the AIFMD; and (b) the UCITS Directive (“Q&A Documents”). The purpose of the Q&A documents is to promote common supervisory approaches and practices in relation to both the AIFMD and the UCITS Directive and their implementing measures in relation to the depositary function.

The revised sections in the Q&As cover depositary functions, including:

• distinction between depositary functions and mere supporting tasks that are not subject to the delegation requirements set out in the AIFMD and UCITS Directive;
• delegation of safekeeping functions;
• performance of depositary functions where there are branches in other Member States;
• supervision of depositary functions in case of branches in other Member States; and
• delegation of depositary functions to another legal entity within the same group.

Circular can be accessed here.

20/06/2019 Circular on Regulation (EU) No 909/2014 – the Central Securities Depositaries Regulation (CSDR)

The MFSA is addressing this circular to CSDs and market participants on trading venues and is to be read in conjunction with the CSDR, its Delegated Regulations and previous circulars issued by the Authority.

ESMA has updated its Q&As focusing on practical issues on the implementation of the new CSDR regime. The updated Q&As focus on clarifying aspects in relation to the passporting of notary or central maintenance services across Member States. The updated Q&As:

• Discuss the collaboration between the National Competent Authorities from home and host Member States granting the main authorisation procedure and the passporting procedure;
• Determine what should be considered as a change in the range of services provided on a cross-boarder basis: (a) provision of another core service and (b) provision of service(s) in relation to another type of financial service;
• Article 23(3)(e) of the CSDR provides that “where relevant, an assessment of the measures the CSD intends to take to allow its users to comply with the national law referred to in Article 49(1)”. The updated Q&As clarify what should be understood as relevant within the context of CSDR: whenever there are requirements under the national law that it has determined as being relevant for the users of each cross-border service it provides or intends to provide; and
• Tackle instances where the NCA of the host Member State refuses to approve the assessment of the measures referred to in Article 23(3)(e) of CSDR.

Circular can be seen here.

20/06/2019 Circular on Updates to the Q&As on Regulation (EU) No 648/2012 – the European Market Infrastructure Regulation (‘EMIR’)

The MFSA issued a circular addressed to entities who enter into derivative contracts which fall within the scope of EMIR and should be read in conjunction with previous circulars issued by the MFSA.

The updates to the Q&As serve to further clarify the implementation of the EMIR Refit and namely include the following:

• Updates relating to the calculation of the clearing threshold following the entry of EMIR Refit; and
• Changes in the reporting obligations under Article 9(1) of EMIR.

An in-depth breakdown of the said updates may be found in the circular.

Circualr can be seen here.

28/06/2019 ESMA Consults on Short-Termism in Financial Markets

Further to a questionnaire aiming at gathering evidence on potential short-term pressures on corporations stemming from the financial sector being published by ESMA in June 2019, the MFSA is inviting UCITS Management Companies, UCITS, AIFMs and AIFs to respond to the questionnaire. The responses would assist ESMA to identify rules aimed at mitigating undue short-termism.

The questionnaire is structured in 8 sections as follows:

1. General Information about respondent;
2. Investment strategy and investment horizon;
3. Disclosure on ESG factors and the contribution of such disclosure to long-term investment strategies;
4. The role of fair value in better investment decision making;
5. Institutional investors’ engagement;
6. Remuneration of fund managers and corporate executives;
7. Use of CDS by Investment Funds; and
8. Final

The Questionnaire’s deadline for a response is 29 July 2019.

Circular can be seen here.

20/06/2019 Circular on Market Abuse Regulation (EU) 596/2014 (‘MAR’ or the ‘Regulation’) – PDMR Notifications

This circular is addressed to issuers whose financial instruments are admitted to trading on a trading venue, or for which a request for admission to trading has been made; and to persons discharging managerial responsibilities for such issues, as well as to persons closely associated with them.

The circular provides information on the below issues:

• Notification of Managers’ Transactions under Article 19 of MAR – the circular goes into the details of who shall be subject to notification obligations, jurisdiction and who is a PDMR and a PCA;
• Transactions subject to the notification obligation and notification of shares received as part of remuneration package;
• Managers’ Transactions Threshold – the circular also considers exchange rates when transactions are executed in a currency other than the Euro and the price of gifts, donations and inheritance;
• Trading during closed periods and the timing of the said closed period;
• ESMA Questions and Answers on Managers’ Transactions;
• Notification Forms;
• Content of the Notification and Notification Deadline – the circular also considers the date of the transaction in the case of an inheritance, donation or subscriptions as well as the submission of the notification and the content thereof; and
• Issuers’ Responsibilities.

The circular also outlines the information required in the notification and public disclosure of transactions by persons discharging managerial responsibilities and persons closely associated with them.

Circular can be seen here.

Feedback Statements

05/06/2019 Feedback Statement issued further to Industry Responses to MFSA Consultation Document on the Encouragement of Long-Term Shareholder Engagement

Further to the Consultation Document issued by the MFSA in April 2019, proposing a new Annex III to Chapter 6 of the Insurance Rules on the Encouragement of Long-Term Shareholder Engagement, as part of the transposition exercise of New EU Shareholders Rights Directive.

The main comments received on the proposed new annex from industry respondents were taken into consideration by the MFSA and are clearly set out in the feedback statement.

Feedback statement can be seen here.

MFSA Circular

18/06/2019 FIAU and MFSA publish joint Guidance Document for Institutions opening accounts for FinTechs

Further to the public consultation conducted by the FIAU and MFSA (the “Authorities”) earlier in 2019, the Authorities would like to inform interested parties that a Guidance Document has been issued.

The Guidance Document is not intended to replace Institutions internal procedures, nor as an obligation for them to modify their risk appetite, but rather to: [i] assist them in acquiring a better understanding of the sector-specific risks involved; and [ii] to complement their due diligence procedures, inter alia by providing guidance on which information and documentation may be requested in order to assist them in reaching decisions on whether to on-board a customer, or otherwise.

Circular can be seen here.

27/06/2019 Circular on the introduction of two new Banking Rules and two new Annexes to BR/12

The MFSA is implementing a number of Guidelines issued by the EBA through the publication of two new Banking Rules and two new Annexes to the BR/12.

The MFSA is issuing a new Banking Rule BR/19 on Recovery Plans for Credit Institutions authorised under the Banking Act. This new rule provides guidance to credit institutions in view of their obligation under the Recovery and Resolution Regulations to draw up and maintain a recovery plan providing for measures to be taken by the institution to restore its financial position following a significant deterioration of its financial situation.

Additionally, the MFSA is also issuing another new Banking Rule BR/20 on Remuneration Policies and Practices which govern sound remuneration policies for all credit institutions' staff and for staff whose professional activities have a material impact on a credit institution’s risk profile.

Lastly, the MFSA shall also be issuing two new Annexes to Banking Rule BR/12, Annex 2J and Annex 2K which modify the duration for debt instruments and implicit support for securitised transactions are being implemented.

Further information in this regard may be found in the coming circular updates.

Circular can be seen here.

27/06/2019 Circular to Credit Institutions on the inclusion of Annex 2J and Annex 2K to Banking Rule BR/12 and the deletion of Annex 2E

The MFSA is issuing Annex 2J to Banking Rule BR/12 on the Calculation of General Interest Rate Risk on Debt Instruments - the Duration-Based Approach. Annex 2J provides guidance to credit institutions which apply the duration-based calculation when computing capital requirements for general interest rate risk. This Annex establishes two approaches which can be used to correct the modified duration calculation for all debt instruments subject to prepayment risk. The first approach treats the instrument with embedded optionality as if it were a combination of a plain vanilla bond and an option whilst the second approach proposes to calculate directly the change in value of the whole instrument subject to prepayment risk.

Additionally, the MFSA is issuing Annex 2K to Banking Rule BR/12 on Implicit Support for Securitisation Transactions by Credit Institutions Authorised under the Banking Act. This Annex specifies the conditions where a transaction is considered to be executed at arm’s length and provides details on when a transaction is considered as not structured to provide support.

Circular can be seen here.

27/06/2019 Circular to Credit Institutions on the issuance of a new Banking Rule (BR/19)

The MFSA is issuing a new Banking Rule BR/19 on Recovery Plans for Credit Institutions Authorised under the Banking Act (the “Rule”). This new Rule provides guidance to credit institutions and groups in relation to the range of scenarios to be used in recovery plans, the minimum list of qualitative and quantitative recovery plan indicators, the coverage of entities in group recovery plans and provisions dealing with simplified obligations in relation to recovery plans.

The first part of the Rule implements the provisions of the EBA’s Guidelines on the range of scenarios to be used in recovery plans. The second part implements the provisions of the EBA Guidelines on the minimum list of qualitative and quantitative recover plan indicators which provides credit institutions with a set of indicators to identify circumstances which may lead to a significant deterioration in their financial position in pursuance of the Regulations. This section also contains three annexes which include a list of categories of recovery plan indicators, the minimum list of recovery plan indicators that should be included under the rebuttable presumption and a non-exhaustive list of recovery plan indicators provided for illustration purposes.

The third part takes into consideration the EBA Recommendation on the coverage of entities in a group recovery plan. Lastly, the fourth part deals with simplified obligations of recovery planning with regard to regulatory technical standards specifying the criteria for assessing the impact of an institution’s failure on financial markets, on other institutions and on funding conditions and the Final Report Draft regulatory technical standards on simplified obligation.

Circular can be seen here.

27/06/2019 Circular to Credit Institutions on the issuance of a new Banking Rule (BR/20)

The MFSA is issuing a new Banking Rule BR/20 Remuneration Policies and Practices (the “Rule”).

This new Rule governs sound remuneration policies for all credit institutions’ staff and for staff whose professional activities have a material impact on a credit institution’s risk profile. It governs the remuneration policies and practices related to the sale and provision of retail banking products and services implementing the EBA Guidelines on Remuneration Policies and Practices related to the Sale and Provision of Retail Banking Products and Services.

This Rule is to be incorporated in the internal governance framework of a credit institution where the credit institution has in place a Board approved structure regarding its policies for the remuneration and compensation of its management and staff members. The principles adopted by this new Rule are to be also applied by credit institutions at group, parent company and subsidiary levels as applicable.

Lastly, the Rule also includes an Annex wherein the Guidelines on the Applicable Notional Discount Rate for Variable Remuneration are being implemented for the purpose of calculating the relation between the variable and fixed component of the total remuneration awarded for services provided or performance as from 2014. This Annex governs mainly the principles of the discount rate of a maximum of 25% of the variable remuneration as paid in instruments that are deferred for a period of not less than five years.

Circular can be seen here.

Legal Notices

18/06/2019 Bill 89 of 2019 - Various Financial Services Laws (Amendment) Act, 2019

The main object of this Bill is to amend various financial services laws, most notably the Banking Act and the Financial Institutions Act. The said bill intends to, inter alia, transpose Directive (EU) 2015/2366 on payment services in the internal market, Articles 10 and 25 of Directive 2014/92/EU on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features as regards powers given to the Minister emanating from the said Directive and Article 124 of Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms.

Bill can be seen here.

MFSA Circular

03/06/2019 AML/CFT Approved Courses for VFA Issuers and Service Providers

The MFSA would like to notify interested parties that the following course has also been approved by the MFSA for the purpose of fulfilling the competence requirements for Money Laundering Reporting Officers (‘MLROs’) in terms of the VFA Rulebook:

Course Title: Anti-Money Laundering Course for VFA Issuers and Service Providers

Training Provider: Malta Institute of Management (MIM)

Commencement Date: 25 June 2019

Circular can be seen here.

FIAU News Update

11/06/2019 Notice Registration – Entities licensed to provide VFA Services

The FIAU would like to inform all VFA Agents which are duly licensed by the MFSA that registration on the Compliance and Supervision Platform for Assessing Risk (CASPAR) is now available and can be proceeded with.

In addition, the FIAU would like to notify the industry that in relation to VFA Service Providers and VFA Issuers, registration on CASPAR has not yet been made available. Further guidance shall be provided by the FIAU in due course.

News update can be seen here.

18/06/2019 FIAU and MFSA publish joint Guidance Document for Institutions opening accounts for FinTechs

Kindly refer to "Banking".

Circular can be seen here.

MFSA Circular

12/06/2019 Circular addressed to Enrolled Persons carrying on Insurance Intermediaries Activities who are required to submit the Management Accounts, Compliance Statements/BOIIS, Audited Financial Statements and Management Letters in terms of their licensing conditions

The MFSA would like to inform Enrolled Persons that the LH Portal which is currently being used for the submission of Business of Insurance (‘BOIIS’) and Management Accounts and Compliance Statements, shall now also be used for the submission of Audited Financial Statements (‘AFS’) and the Management Letters.

Details in relation to the document formats and dating format can be found in the circular.

Circular can be seen here.

Legal Notices

LN 113 of 2019 Personal Retirement Scheme (Amendment) Rules, 2019

By virtue of this legal notice, the general conditions for qualifying schemes under the Personal Retirement Scheme Rules (S.L. 123.163) have been amended. Moreover, the tax credit to which a qualifying individual is entitled to in terms of the Income Tax Act, has been revised in so far as such tax credit, which must not exceed five hundred euro (€500), must not exceed 25% of the total amount of contributions that the individual makes in the year preceding the year of assessment. These rules shall apply for the year of assessment 2020 and subsequent years of assessment.

Legal notice can be seen here.

LN 114 of 2019 Voluntary Occupational Pension Scheme (Amendment) Rules, 2019

By virtue of this legal notice, the definition of “qualifying scheme” under the principal rules has been amended so as to refer to any retirement scheme or a long term contract of insurance that fulfils the requirements of the said rules. Moreover, the tax credit which both qualifying employers and employees may be entitled to avail themselves of has been increased. These rules shall apply for the year of assessment 2020 and subsequent years of assessment.

Legal notice can be seen here.