The Nature and Art of Financial Supervision – Volume IV
On 7 April 2021, the Authority published a document containing pertinent findings and expectations relating to 37 remote inspections undertaken by the MFSA in 2020. The inspections were primarily focused on governance and compliance, however, the Authority also conducted several inspections focused on specific topics on an ad-hoc basis, such as Liquidity Risk Management and Anti-Money Laundering/Counter-Funding of Terrorism.
In its inspections, the MFSA inter alia focused on the Fund Managers’:
- Alignment of business models and strategy with the licensed/permissible activities;
- Profitability and regulatory capital buffers;
- Adequacy of internal governance and organisational structure arrangements (and substance requirements and control functions in relation to CISs);
- The investment management processes;
- Risk management practices;
- Alignment of underlying portfolio assets with the investment strategy and restrictions contemplated by the relevant rules; and
- Net Asset Value trends and performances.
In its publication, the Authority underlined its expectation of a high level of regulatory compliance from firms to protect the interests of investors, the sustainability of the firm and the integrity of the markets in general. It also expects entities to take note of the content of the publication, evaluate it and to implement the recommendations and/or to take corrective actions, to meet the MFSA’s expectations.
ESMA publishes the results of the 2020 Common Supervisory Action (“CSA”) on UCITS Liquidity Risk Management
On 8 April 2021, the MFSA issued a circular informing UCITS Management Companies (“UCITS ManCOs”) and Self-Managed UCITS on the ESMA publication relating to the results of the CSA on UCITS Liquidity Risk Management which was undertaken in 2020. The MFSA encouraged UCITS ManCOs and Self-Managed UCITS to refer to the published results in conjunction with Section (ii)(b) of the above document published by the MFSA, entitled the ‘Nature and Art of Financial Supervision’.
UCITS ManCOs and self-managed UCITS should ensure that they are in line with the recommendations and expectations set out in these documents whilst ensuring compliance with the liquidity risk management requirements emanating from the UCITS Directive and applicable regulations.
Good practice recommendations for Annual General Meetings (“AGMs”) and any Extraordinary General Meetings (“EGMs”) of Listed Entities
On 8 April 2021, the Authority put forward recommendations for ‘Listed Entities’ to consider. The MFSA recommendations outline aspects that may enhance the delivery of AGMs and EGMs. The recommendations are:
- Allowing for easy access to the AGM/EGM livestream using a real time live stream for virtually held meetings and clearly communicating information to shareholders in advance on how to access the livestream;
- Shareholder’s interaction is facilitated using a live online chat, telephone, and email where shareholders can submit their questions, and answers to these questions are provided by the Company in both Maltese and English;
- Having planning and contingency plans in place for any unfavourable scenarios such as power cut, internet connectivity problems, and/or unavailability of key persons;
- An adequate streaming provider in the case the streaming service is being outsourced; and
- Setting up a meeting with the Malta Association of Small Shareholders prior to the AGM/EGM to discuss any feedback from small shareholders.
Introduction of the Annual Fund Return
On 12 April 2021, the MFSA issued a circular notifying all CISs that a new return, referred to as “the Annual Fund Return”, has been introduced. The new Annual Fund Return is required to be submitted on an annual basis and shall cover the same period as the annual report and the audited financial statements. Schemes are required to submit one Annual Fund Return which shall cover all the sub-funds.
The Annual Fund Return will become applicable for UCITS with a reference date 31 December 2020 onwards and is to be submitted together with the audited financial statements. The first submission for UCITS is due by 31 August 2021. Thereafter, from the following year, the Annual Fund Return is to be submitted together with the audited financial statement by 30 April. UCITS which have a reference date other than 31 December 2020, are required to submit the Annual Fund Return together with the audited financial statement.
The Annual Fund Return will become applicable for AIFs, NAIFS and PIFS with a reference date 31 December 2021 onwards and is to be submitted together with the audited financial statements.
Outreach to Company Service Providers (“CSPs”) not holding an MFSA licence: Mandatory Application before 16 May to be able to continue providing services under transitional arrangements
On 15 April 2021, the MFSA issued a Press Release addressed to CSPs, particularly those which are not yet authorised, indicating that such CSPs should submit their application through the LH Portal by not later than 16 May 2021. All applications (under and over-threshold) will be concluded by 16 November 2021. Provisionally authorised CSPs are to comply with the provisions of the CSP Act until 16 November 2022 or until such time as their application is approved or declined, whichever is the earlier.
Furthermore, the Authority also issued a Guidance Document on the application of the CSP Act and Frequently Asked Questions (“FAQs”) which can be accessed through the dedicated CSP page on the MFSA’s website.
Circular for Licence Holders availing of Freedom of Services
On 26 April 2021, the Authority issued a circular applicable to Licence Holders which have obtained authorisation to provide services outside Malta through passporting. The Authority requested all Licence Holders that had submitted notifications to exercise their passporting rights to assess their programme of operations and evaluate whether it is still their intention to actively passport outside Malta.
In the event that the Licence Holder has not been making use of an authorised passport for a period of more than three months, the MFSA is requesting such Licence Holders to reach out to the Authority to withdraw the relevant notifications by not later than 7 June 2021.
In view of the above, it is recommended that the requested withdrawal notifications are submitted to the MFSA.
MFSA Releases a Cross-Sectoral Self-Assessment Questionnaire on ICT and Cybersecurity Risks Management
Further to the Guidance Document on Technology Arrangements, ICT and Security Risk Management and Outsourcing Arrangements issued by the Authority (11 December 2020), on 29 April 2021, the MFSA issued a circular informing Licence Holders that the Supervisory ICT Risk and Cybersecurity function of the MFSA is carrying out a cross-sectoral thematic desk-based review on ICT and Cybersecurity Risks Management. In this respect, the Authority is preparing a self-assessment questionnaire whereby Licence Holders would be required to complete such questionnaire within 2 months from receipt of the questionnaire through email.