Consultation Document on Updated Company Service Providers (“CSPs”) Rules
On 1 December 2020, the MFSA launched a Consultation Document in relation to the proposed updated rules applicable to CSPs. The Consultation Document is publicly available on the MFSA website. Once the amendments to the Company Services Act are in force, they will introduce a categorisation of CSPs into classes depending on the services offered and will remove the exemption for warranted persons offerings CSP services. There will be a move from the concept of ‘registration’ to ‘authorisation’. Interested parties are encouraged to send their feedback to email@example.com by not later than 15 January 2021.
Circulars on Regulation No 648/2012 – The European Markets Infrastructure Regulation (“EMIR”)
On 2 December 2020, the MFSA issued a circular notifying all entities who enter into derivative contracts and fall within scope EMIR that the European Supervisory Authorities have published a final report presenting the new draft Regulatory Technical Standards (“RTS”) on risk mitigating techniques for Over-The-Counter derivative contracts not cleared by a Central Counterparties. The RTSs set out the detailed bilateral margin requirements.
The circular also makes reference to the European Securities and Markets Authority’s Final Report on EMIR RTSs which propose to amend three relevant Commission Delegated Regulations on the clearing obligation under EMIR. This report was published on 23 November 2020. In the absence of equivalence decisions related to the United Kingdom, the date from when the clearing obligation was to be applied with respect to certain intragroup transactions was postponed to 21 December 2020. The amendments included in the draft RTS propose to extend the temporary exemption for 18 months for intragroup transactions.
Furthermore, UK Counterparties will be allowed to be replaced by EU counterparties without triggering the bilateral margin and clearing obligation requirements under certain conditions.
On 4 December 2020, the MFSA issued another circular specifically addressing entities which enter into derivative contracts and which fall within scope of EMIR, and entities which use the services of a UK Trade Repository for reporting derivative transactions under EMIR. Following the UK withdrawal from the EU, counterparties should ensure the continuous reporting of derivatives to a registered or recognised Trade Repository in the EU to comply with their respective reporting obligations under EMIR.
Accordingly, Counterparties which fall under the obligations of EMIR, and which currently make use of a UK trade repository for the reporting of their derivative transactions, shall ensure that they have finalized onboarding with an ESMA-Registered Trade Repository by not later than 31 December 2020.
Securities Financing Transactions (“SFTs”) Reporting following the end of UK Transition Period on 31 December 2020
On 9 December 2020, the MFSA issued a circular specifically addressed to entities which use the services of a UK Trade Repository for the purposes of reporting their SFTs under the Securities Financing Transactions Regulation, and to Financial and Non-Financial Counterparties which trade with UK counterparties.
Following the UK withdrawal from the EU, entities should ensure continuous reporting of SFTs to a registered or recognised Trade Repository in the EU to comply with their respective reporting obligations under the SFTR. Accordingly, entities falling under the obligations of SFTR, and which currently make use of a UK Trade Repository for the reporting of their SFTs, shall ensure that they have finalized onboarding with an ESMA-Registered Trade Repository by not later than 31 December 2020.
The Investment Firms Regulation and Directive – 1st Briefing
On 10 December 2020, the MFSA issued a circular notifying investment firms that the MFSA will be issuing a series of short briefing to provide information on the implementation of the Investment Firms Directive (“IFD”) and the Investment Firms Regulation (“IFR”) (collectively the “IFR Package”) which will replace the current EU legislative package for investment firms composed of the Capital Requirements Regulation and the Capital Requirements Directive IV.
In its initial briefing, the MFSA referred to the classes of Investment Firms under the IFR Package, namely Class I, Class I Minus, Class 2 and Class 3. The Authority noted that there were no changes in these classes from the publications and consultations issued in 2019.
The briefing also made reference to the introduction of ‘K-Factors’ which are quantitative indicators to be used to accurately reflect the risks which investment firms face. There are three groups of K-Factors, namely: risk to customers, risk to market access, and risk to the Company itself. Class 2 firms will be required to calculate their capital requirements using the K-Factors, whilst Class 3 firms will not be required to calculate their capital requirement using the K-Factors. The latter firms will still need to calculate the K-Factors for categorisation purposes.
Furthermore, the Authority noted that Category 3 Local Firms which were authorised by the MFSA before 26 December 2019, must increase their own funds to € 250,000 by 26 June 2021. Such firms will have a maximum of 5 years to increase their own funds to a minimum of € 750,000, with a minimum of € 100,000 increase each year. All the other Category 3 Local Firms authorised by the MFSA after 26 December 2019, do not qualify for this transitory provision, and therefore have to increase their own funds to a minimum of € 750,000 by 26 June 2021.
The Authority also encourages Licence Holders to participate in all future EBA consultations and continue reviewing the CRR and IFR package to be prepared of any operational changes that may be required.
MFSA releases its Guidance on Technology Arrangements, ICT and Security Risk Management, and Outsourcing Arrangements
On 11 December 2020, the Authority issued a guidance document on Technology Arrangements, ICT and Security Risk Management, and Outsourcing Arrangements following an extensive consultation process and the feedback received. Furthermore, the Authority plans on undertaking thematic visits on the key aspects of this Guidance document.
Compliance is in the process of reviewing this document to determine whether updates should be reflected within the Company’s general compliance monitoring programme or if a focused (thematic) monitoring programme should be developed.
Update on the Interim Measures for the Processing of Physical Documentation
In a circular issued on 24 March 2020, the MFSA had notified all licence holders that, for an interim period, all documentation to be submitted to the MFSA was to be submitted electronically only with the physical documents to be held and submitted retrospectively at a future date.
On 16 December 2020, the Authority notified all licence holders that such physical documentation is now expected to be submitted to the MFSA in original format, by mail/courier as from 4 January 2021 onwards and should be received by the Authority by not later than 15 February 2021.
It was also noted that failure to submit such documentation by the stipulated deadline may lead to regulatory action against licence holders.
MFSA publishes its Supervisory Priorities for 2021
On 17 December 2020, the Authority issued a document outlining its “Supervisory Priorities” for the year 2021. The MFSA will be focusing its supervisory and regulatory activities on the following areas: Corporate Governance and Culture, Financial Crime Compliance, the Impact of COVID-19, ICT Risk and Cybersecurity, and FinTech and Innovation. These areas remain complementary to the Authority’s objectives of “Investor Protection”, “Market Integrity” and “Financial Soundness”.
Circularisation Exercise – R4-3.2.7 of Part B1 of the Investment Services Rules
On 18 December 2020, the MFSA issued a circular notifying investment firms that the MFSA has established the circularisation process for basis year 2020 and beyond. Licence Holders, through their Auditors, are required to carry out the circularisation exercise based on the sample sizes outlined in the circular as from the statutory audit for basis 2020. The sample sizes and minimum acceptable response rates are expected to be adhered to at all times.
Furthermore, Licence Holders should take the necessary measures to ensure that the required statutory reporting is submitted to the MFSA in line with Rule R4-5.3.1 of Part BI of the Investment Services Rules for Investment Services Providers.