Skip to main content

Circular addressed to authorised Company Service Providers (“CSPs”) in terms of the CSP Act (Cap. 529 of the Laws of Malta) as amended by Act L of 2020

On 2 July 2021, the Authority issued a circular addressed to CSPs following the updated CSP Rules which came into force on 16 March 2021, and which allowed for a transitory period of 6 months to take all the necessary measures to comply with the updated CSP Rules.

The Authority informed CSPs that any Shareholders’ resolution and amendments to the Memorandum and Articles of Association in relation to any increase in share capital, as well as a confirmation that the share capital has been increased, should be submitted to the MFSA by not later than 15 September 2021. Individual CSPs are also requested to provide the Authority with a bank statement confirming the capital investment. Furthermore, a confirmation that the Professional Indemnity Insurance cover is in place should also be done by not later than 15 September 2021.

The Risk Management Function for Class C CSPs

In view of the updated rules and the classification exercise, Class C CSPs should submit a proposal relating to the individual who will be holding the risk management function by 16 September 2021. Should the CSP intend to apply for a derogation from such requirement, provided that this does not create a conflict of interest, the CSP should do so through the official notification form.

For further information, reference should be made to the circular on the MFSA’s website:

https://www.mfsa.mt/publication/circular-addressed-to-authorised-company-service-providers-in-terms-of-the-company-service-providers-act-cap-529-of-the-laws-of-malta-as-amended-by-act-l-of-2020/

 

MFSA Releases a Cross-Sectoral Self-Assessment Questionnaire on ICT and Cybersecurity Risk Management

On 8 July 2021, the Authority issued a circular reminding Licence Holders that the MFSA would be circulating a self-assessment questionnaire whereby Licence Holders would be required to complete such questionnaire within 2 months from receipt of the questionnaire through email.

For further information, reference should be made to the circular on the MFSA’s website:

https://www.mfsa.mt/publication/mfsa-releases-a-cross-sectoral-self-assessment-questionnaire-on-ict-and-cybersecurity-risks-management-3/

 

Sustainable Finance – Commission puts forward new strategy to make the EU’s financial system more sustainable and proposes new European Green Bond Standard

On 8 July 2021, the Authority issued a circular informing ‘Financial Market Participants’ and ‘Financial Advisors’ that the European Commission adopted a number of measures to increase its level of ambition on the new Sustainable Finance Strategy, the European Green Bond Standard proposal and the adoption of a Delegated Act on the disclosure of information.

For further information, reference should be made to the circular on the MFSA’s website:

https://www.mfsa.mt/publication/sustainable-finance-commission-puts-forward-new-strategy-to-make-the-eus-financial-system-more-sustainable-and-proposes-new-european-green-bond-standard/

 

The Nature and Art of Financial Supervision – Volume V (Product Oversight and Governance (“POG” Requirements)

On 16 July 2021, the Authority published a document outlining the MFSA’s findings and expectations following a POG Cross-Sectoral Thematic Review undertaken through self-assessment questionnaires and several onsite inspections. This thematic review exercise was aimed to ensure that the investment firms have the POG policies and arrangements in place and are in line with POG requirements emanating from the Conduct of Business Rulebook (“COBR”) and the European regulatory framework. Section 1 of this document focused on the MFSA’s findings pursuant to the above-mentioned thematic review and set out examples of good practices while Section 2 sets out the MFSA’s expectations with respect to five main elements of POG requirements: (i) Internal Governance Arrangements (ii) Target Market (iii) Product Testing (iv) Monitoring and Remedial Actions and (v) Distribution and Information Exchange with distributors.

For further information, reference should be made to the document published by the MFSA:

https://www.mfsa.mt/publication/the-nature-and-art-of-financial-supervision-conduct-supervision-pog-requirements/

 

Circular on Regulation No 648/2012 (“EMIR”) and Regulation No 2015/2365 (“SFTR”) – Final Report on the simplification and harmonisation of fees to Trade Repositories under EMIR and SFTR

On 16 July 2021, the MFSA issued a circular informing applicable entities that ESMA has now issued the Final Report following the Consultation Document issued on 9 June 2021.

For further information, reference should be made to the circular on the MFSA’s website:

https://www.mfsa.mt/publication/circular-on-regulation-no-648-2012-emir-and-regulation-no-2015-2365-sftr-final-report-on-the-simplification-and-harmonisation-of-fees-to-trade-repositories-un/

 

Circular on the updates effected to Part B of the Investment Services Rules for AIFs

On 19 July 2021, the Authority issued a circular notifying AIFs that the MFSA has published an updated version of the Part B Rulebook.

The updates to the applicable Rulebook were affected to align and reflect the changes and amendments to the MFSA Notified AIF regulatory framework and, to clarify that individuals being appointed as Committee Members and/or Valuation Officers are no longer required to submit a Personal Questionnaire Form, with the exception of Committee Members who bear the responsibility for the service being provided.

For further information, reference should be made to the circular on the MFSA’s website:

https://www.mfsa.mt/publication/circular-on-the-updates-effected-to-part-b-of-the-investment-services-rules-for-alternative-investment-funds/

 

Revisions to the COBR

On 20 July 2021, the MFSA informed the industry on revisions affected to the COBR. The newly added and revised rules, inter alia, reflect the applicable requirements emanating from the ESMA guidelines on certain aspects of MIFID II Compliance Function Requirements.

For further information, reference should be made to the circular on the MFSA’s website:

https://www.mfsa.mt/publication/conduct-of-business-rulebook-revisions-4/

 

Changes to Appendix 2B Fund Manager Return resulting from the Investment Firms Directive and Regulation (“IFRD”)

On 21 July 2021, the Authority issued a circular addressed to Fund Managers notifying such entities that, in view of the of the IFRD coming into force on 26 June 2021, and despite the fact that the Fund Managers fall out of scope of the IFRD, the MFSA has revised and updated the Appendix 2B sheet. As a result of these changes, Fund Managers are required to use the new Appendix 2B template available on the MFSA website for all future submissions covering the reporting periods commencing from Quarter 3 2021 and any other reporting due for submission by 1 November 2021.

For further information, reference should be made to the circular on the MFSA’s website:

https://www.mfsa.mt/publication/changes-to-appendix-2b-fund-manager-return-triggered-by-the-investment-firms-regulation-and-directive-ifrd/

 

Marketing Campaigns in relation to financial products or services linked to rewards

On 22 July 2021, the MFSA issued a circular addressed to regulated entities which make use of marketing campaigns in relation to the provision of services and financial products offered. The MFSA strongly recommends that the provision of gifts should not entice a person to purchase a financial product, nor should the financial decision be rushed by the pressure of obtaining any sort of reward or the possibility to participate in a giveaway or lottery. Furthermore, regulated entities should only offer gifts when these are related to the Product or Service being offered and/or enhances the value thereof.

For further information, reference should be made to the circular on the MFSA’s website:

https://www.mfsa.mt/publication/marketing-campaigns-in-relation-to-financial-products-or-services-linked-to-rewards-or-giveaways/

 

ESMA warns firms and investors about risks arising from payment for order flow (“PFOF”) and from practices by ‘zero-commision brokers’

On 22 July 2021, the MFSA issued a circular to remind firms that the receipt of PFOF touches upon a number of MiFID II obligations which are aimed at ensuring that they act in the best interest of their clients when executing orders. In light of the serious investor protection concerns raised by PFOF and the multiple requirements applying to it, ESMA noted that it is in most cases unlikely that the receipt of PFOF by firms from third parties would be compatible with MIFID II and its delegated acts.

It was noted that the receipt of PFOF from third parties by a firm executing client orders causes a clear conflict of interest between the firm and its clients because it incentivises the firm to choose the third party offering the highest payment, rather than the best possible outcome for clients.  Firms are also reminded that PFOF received from third parties constitutes an inducement received from third parties in connection with the investment service provided to the client. Firms must rigorously assess whether they are able to comply with the relevant MiFID II requirements, most notably those on taking all sufficient steps to obtain the best possible result for their clients. Firms receiving PFOF from third parties shall comply with the MiFID II inducements requirement.

It was also observed that some firms executing clients’ orders are marketing their services as bearing no costs for investors.  Such firms charge no explicit commissions for the execution of client orders in certain or all financial instruments on offer.  These firms usually often receive PFOF from third parties, which may compensate for the lack of direct commissions charged to their clients.  Firms are reminded to provide fair, clear and not misleading information to their clients and to provide information on all costs and charges to the client relating to the service and the financial instrument(s).  As clients will always incur costs, ESMA emphasises that the marketing of the service as “cost-free”, will infringe the firm’s compliance with the requirements and it could incentivise retail investors’ gaming or speculative behaviour due to the incorrect perception that trading is free.

For further information, reference should be made to the circular on the MFSA’s website:

https://www.mfsa.mt/publication/esma-statement-on-pfof-and-zero-commission-brokers/

 

Updates from ESMA with respect to RTS 27 and ‘Questions and Answers’ relating to MiFID and MiFIR ‘Investor Protection’

On 23 July 2021, the MFSA issued a circular outlining two updates from ESMA. The first update relates the application of the temporary suspension of the obligation to publish RTS 27 reports. In line with the ESMA Public Statement issued in March 2021, the MFSA will not prioritize supervisory actions towards execution venues in relation to the obligation to publish the RTS reports until 28 February 2023.

The second update relates to the updated Q&A issued by ESMA on the implementation of investor protection requirements under MiFID II and MiFIR. The updates include two newly added questions under the Inducement section and the information on Costs and Charges section.

For further information, reference should be made to the circular on the MFSA’s website:

https://www.mfsa.mt/publication/european-securities-and-markets-authority-updates/

 

ESMA’s Public Statement highlighting areas for Improvement in Compliance with MiFID II Suitability Requirements

On 29 July 2021, the MFSA issued a circular informing the industry on the way forward following the launch of ESMA’s Common Supervisory Action on the application of MiFID II suitability rules. In this respect, the MFSA reminds investment firms that they should always abide by all the relevant MiFID II regulatory requirements.

For further information, reference should be made to the circular on the MFSA’s website;

https://www.mfsa.mt/publication/esma-public-statement-highlighting-areas-for-improvement-in-compliance-with-mifid-ii-suitability-requirements/

 

Coming into force of the Cross-Border Distribution of Funds Directive and Regulation

On 29 July 2021, the MFSA issued a circular informing the industry that on 2 August 2021, Directive EU/2019/1160 and Regulation EU/2019/1156 (collectively referred to as “the CBDF”) regarding the cross-border distribution of collective investment schemes will come into effect. The main changes being brought about by the CBDF are highlighted below.

Pre-Marketing (AIFM)

The introduction of the CBDF will harmonise the approach taken across different Member States on ‘pre-marketing’ as not all Member States allow ‘pre-marketing’ to be undertaken, and where they do, different approaches are being taken. The CBDF will introduce the definition of ‘pre-marketing’ to allow AIFMs to test market interest before establishing an AIF or registering it for marketing under Articles 31 or 31 of the AIFMD.

De-Registration Process (AIFM)

The CBDF will introduce new de-notification arrangements, subject to certain conditions being met, including:

  1. Providing a blanket offer to repurchase or redeem, free from any charges or deductions, all AIF (open-ended) units or shares held by investors in that particular Member State. The said offer must be publicly available for at least 30 working days, and is addressed individually to all investors;
  2. Making public the intention to terminate arrangements made for marketing of units or shares in a particular AIF;
  3. Ensuring that any contractual arrangements with financial intermediaries or delegates are modified or terminated with immediate effect from the date of the de-notification in order to prevent any new or further, direct or indirect, offering or placement of the units or shares.

Once a de-notification is submitted to the MFSA, the AIFM would not be allowed to engage in pre-marketing of units or shares of the AIF referred to in the de-notification.

Local Agent (UCITS ManCOs)

The CBDF will no longer require physical presence in the relevant Member State and hence the facilities that are currently provided by local agents, may be provided remotely by the UCITS or through a central local agent.

De-Registration Process (UCITS ManCOs)

The CBDF will also introduce new de-notification arrangements, subject to certain conditions being met, including:

  1. Providing a blanket offer to repurchase or redeem, free from any charges or deductions, all units or shares held by investors in that particular Member State. The said offer must be publicly available for at least 30 working days, and is addressed individually to all investors;
  2. Making public the intention to terminate arrangements made for marketing of units or shares in a particular UCITS;
  3. Ensuring that any contractual arrangements with financial intermediaries or delegates are modified or terminated with immediate effect from the date of the de-notification in order to prevent any new or further, direct or indirect, offering or placement of the units or shares.

Updates to Notifications (UCITS ManCOs)

The CBDF introduces the requirement for notification re changes to the fund documents to be submitted to the NCAs of both Home and Host Member States at least one month in advance of any changes taking effect.

Marketing Communications

On 27 May 2021, ESMA also published its final report on ‘Guidelines on Marketing Communications under the Regulation on Cross-Border Distribution of Funds’. The requirements contained therein will become applicable six months after the said guidelines are translated into the official EU languages and published on the ESMA website. The Guidelines will apply with respect to all marketing material issued to current or potential investors.

The main points highlighted include:

  • Guidelines on the identification of marketing communications;
  • Guidelines on the description of risks and rewards in an equally prominent manner; and
  • Guidelines on the fair, clear and not misleading character of marketing communications.

For further information, reference should be made to the circular on the MFSA’s website:

https://www.mfsa.mt/publication/coming-into-force-of-the-cross-border-distribution-of-funds-cbdf-directive-and-regulation/

 

Circular on the application of Sustainable Finance Disclosure Regulation (“SFDR”) by the MFSA and its request for Information on operational and compliance readiness by Financial Market Participants (“FMPs”) and Financial Advisers (“FAs”)

On 30 July 2021, the MFSA issued a circular informing FMPs and FAs that, notwithstanding the original timelines for the adoption of the Regulatory Technical Standards (“RTSs”) and their application by 1 January 2022, the European Commission now plans to bundle all the regulatory technical standards in a single delegated act and to defer the date of application thereof by six months to 1 July 2022.

In this respect, FMPs and FAs falling within scope of the Regulation are requested to submit requested information to the MFSA by 10 September 2021. For further guidance in this respect, reference should be made to the Guidance note put forward by the MFSA, which can be accessed through the link below.

For further information, reference should be made to the circular on the MFSA’s website:

https://www.mfsa.mt/publication/circular-on-the-application-of-sustainable-finance-disclosure-regulation-sfdr-by-the-mfsa-and-request-for-information-on-operational-and-compliance-readiness-by-financial-market-participants-and-fin/ 

Leave a Reply