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Circular on Updates to the Q&As on Regulation N0 2015/2365 – Securities Financing Transactions Regulation (‘SFTR’)

On 5th January 2022, the Authority issued a circular notifying market participants that ESMA has updated its Q&A document relating to reporting under SFTR, namely financial and non-financial counterparties as defined in Article 3 of the SFTR. The update relates to the ‘Currency for the Overview Report’.

In this respect, Trade Repositories should calculate and express the aggregate positions in SFTs in the EUR equivalent value, irrespective of whether the position captures SFTs featuring the same or different currencies.

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

https://www.mfsa.mt/wp-content/uploads/2022/01/Circular-on-Updates-to-the-QAs-on-Regulation-No-2015-2365-Securities-Financing-Transactions-Regulation.pdf

 

ESMA Updates on Appropriateness and Execution-Only Requirements and Q&As on Investor Protection Topics

On 6th January 2022, the Authority issued a circular notifying investment firms that on 3rd January 2022 ESMA published its final report on its Guidelines on certain aspects of the MiFID II appropriateness and execution only requirements. These requirements constitute an important element of investor protection in the provision of investment services other than investment advice or portfolio management. Investment firms providing non-advised services are required to request information on the knowledge and experience of clients or potential clients to assess whether the investment service or product envisaged is appropriate.  Exemptions are allowed in certain conditions only.

The purpose of the ESMA Guidelines is to encourage convergence in the application of the appropriateness and execution-only requirements whilst also addressing several key-aspects of the appropriateness process, including the information to be provided to clients regarding the objective of the appropriateness assessment the arrangements required to comprehend clients and products, the matching of clients with appropriate products and the effectiveness of warnings. Six months from when the Guidelines are translated and published on ESMA’s website such amendments will be incorporated in the Conduct of Business Rulebook.

ESMA has also updated its Q&As on the implementation of investor protection requirements under MiFID II and MiFIR. The Q&As provide new answers on product governance that aim to give guidance on whether bonds embedding a make-whole clause are exempt from the MiFID II product governance requirements.

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

https://www.mfsa.mt/wp-content/uploads/2022/01/ESMA-Updates.pdf

 

Common Fund Reporting Issues with regards to the CBM Investment Funds Statistical Return

On 18th January 2022, the Authority together with the Central Bank of Malta (“CBM”) issued a circular aimed at providing direction and information to Investment Funds on the compilation of the statistical return required by the CBM.

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

https://www.mfsa.mt/wp-content/uploads/2022/01/Common-Fund-Reporting-Issues-with-regards-to-the-CBM-Investment-Funds-Statistical-Return.pdf

 

Enhancement to the Trusts Ultimate Beneficial Ownership Register

On 20th January 2022, the Authority issued a circular addressed to Trustees who are account holders on the Trusts Ultimate Beneficial Ownership Register (“TUBOR”) about a new feature which has been added to the platform. This enhancement relates to the addition of a field to cater for Body Corporate settlors which would have been struck off at the time of reporting of a beneficial ownership declaration on TUBOR, or thereafter. Presently Trustees must report whether the settlor is a Body Corporate. The new field would require Trustees to report whether the Body Corporate settlor has been struck off. In addition, there are a number of fields which will still need to be completed for a Body Corporate Settlor who has been struck off.

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

https://www.mfsa.mt/wp-content/uploads/2022/01/Enhancement-to-the-Trusts-Ultimate-Beneficial-Ownership-Register.pdf

 

ESMA launches a Common Supervisory Action on the valuation of UCITS and open-ended AIFs across the EU

On 21st January 2022, the Authority issued a circular notifying relevant licence holders that ESMA has announced the launch of a Common Supervisory Action (“CSA”) with National Competent Authorities on the valuations of UCITS and open-ended AIFs across the EU. In this respect, the MFSA will be actively contributing to this initiative, and will assess the governance structures, policies and procedures in the context of valuation of assets, particularly assets with lower liquidity and, to this effect, the MFSA will be reaching out to relevant licence holders in due course in line with the methodology provided by ESMA.

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

https://www.mfsa.mt/wp-content/uploads/2022/01/ESMA-launches-a-Common-Supervisory-Action-on-the-valuation-of-UCITS-and-open-ended-AIFs-across-the-EU.pdf

ICT Outsourcing Arrangements – Sector Specific Guidelines and Updated Registers

On 24 January 2022, the Authority issued a circular reminding respective authorised persons of their obligations to comply with the ‘EBA Guidelines on Outsourcing Arrangements’, the ‘ESMA Guidelines on Outsourcing to Cloud Service Providers’ and the ‘MFSA Guidance on Technology Arrangements, ICT and Security Risk Management and Outsourcing Arrangements’, including  the requirement to maintain an updated register of information on all outsourcing arrangements at the authorised firm and, where applicable, at sub-consolidated and consolidated levels. In the event of any inconsistency or conflict between this Guidance Document and any applicable Acts, Regulations, rules or sector-specific guidelines, the provisions of the said Acts, Regulations, rules or sector-specific guidelines shall always prevail.

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

https://www.mfsa.mt/wp-content/uploads/2022/01/ICT-Outsourcing-Arrangements-Sector-Specific-Guidelines-and-Updated-Registers.pdf

 

Circular addressed to Newly Authorised Company Service Providers which fall under the category of ‘Under Threshold Class A CSP’ or ‘Under Threshold Class B CSP’ in relation to the Regulatory Submissions due on 31 January 2022

On 26 January 2022, the MFSA issued a circular containing important information with respect to newly authorised company service providers (“CSPs”) which were classified as ‘Under Threshold Class A CSP’ or ‘Under Threshold Class B CSP’ in November 2021, following submission of an application for authorisation in terms of the transitory periods set out by the amendments to the Company Service Providers Act, by virtue of Act L of 2020.

In terms of the rulebook, CSPs are required to submit, on an annual basis, a Certificate of Compliance and to the newly introduced requirement whereby Under Threshold Class A CSPs and Under Threshold Class B CSPs are required to submit a self-declaration confirming that they still fall within the applicable thresholds to qualify for their classification.

In exercising proportionality, the Authority communicated that newly authorised Under Threshold Class A and Under Threshold Class B CSPs will not need to submit the above-mentioned deliverables in 2022.  The Authority would like to emphasize that this is a one-time waiver only.

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

https://www.mfsa.mt/wp-content/uploads/2022/01/Circular-addressed-to-Newly-Authorised-Company-Service-Providers-Class-A-and-Class-B.pdf

 

Circular on Short-Selling Regulation – ESMA Requires to Report Net Short Positions between 0.1% and 0.2% During Transition

On 27 January 2022, the MFSA issued a circular making reference to ESMA’s statement with respect to the reporting of Net Short Positions (“NSPs”) between 28 and 31 January 2022 when the reporting threshold changes from, 0.2% to 0.1%. The last day of application of the old reporting threshold (0.2%) will be in relation to NSPs entered into on Friday, 28 January 2022

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

https://www.mfsa.mt/wp-content/uploads/2022/01/Circular-on-Short-Selling-Regulation-ESMA-requires-to-report-net-short-positions-between-0.1-and-0.2-during-transition.pdf

 

Circular on MFSA Findings emanating from EMIR Supervisory Interactions

On 1 February 2022, the MFSA issued a circular addressed to financial and non-financial counterparties (as defined in EMIR) wherein the Authority summarised its findings emanating from EMIR supervisory interactions undertaken. The circular provides recommendations as to what is considered to be good practice for entities when seeking to adhere to their legal obligations.

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

https://www.mfsa.mt/wp-content/uploads/2022/02/Circular-on-Regulation-N0-6482012-The-European-Market-Infrastructure-Regulation-Supervisory-Interactions-General-Findings.pdf

 

Consultation on Guidelines on Certain Aspects of the MiFID II Suitability Requirements Issued by ESMA

On 2 February 2022, the Authority issued a circular informing investment firms (particularly those providing investment advice and/or discretionary portfolio management) on a consultation launched by ESMA on certain aspects of the MiFID II Suitability Requirements. The purpose of the said Consultation is to update and revise the current guidelines, in particular in light of MiFID II’s sustainability amendments relating to the integration of sustainability factors, risks, and preferences into certain organizational requirements and operating conditions applicable to investment firms.

Firms are expected to take into consideration sustainability factors of investment products as part of their policies and procedures.  The main amendments introduced to the MiFID II Delegated Regulation and reflected in the draft revised guidelines are:

  1. Collection of Information from Clients on Sustainability Preferences;
  2. Assessment of Sustainability Preferences; and
  3. Organisational Requirements.

The consultation closes on 27 April 2022.  For further information, reference should be made to the circular on the MFSA’s website; https://www.mfsa.mt/wp-content/uploads/2022/02/Consultation-on-Guidelines-on-Certain-Aspects-of-the-MiFID-II-Suitability-Requirements-Issued-by-ESMA.pdf

 

The Investment Firms Regulation and Directive – 7th Briefing

On 2 February 2022, the Authority issued another communication supplementing the previous briefings and updated the industry by providing information with respect to:

  • The publication of Implementing Technical Standards;
  • Updates on the MFSA’s website pertaining to the EBA Reporting Requirements;
  • The projected fixed overheads;
  • Liquidity requirements;
  • Guidelines on internal governance;
  • The Internal Capital Adequacy and Risk Assessment and the Risk Management and Internal Capital Adequacy and Assessment Process requirements; and
  • LH Portal Corporate Profile.

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

https://www.mfsa.mt/wp-content/uploads/2022/02/The-Investment-Firms-Regulation-Directive-7th-Briefing.pdf

 

Amendments to Part VIII of the Financial Market Rules – Guidelines on Methodology, Oversight Function and Record Keeping Requirements under the Benchmarks Regulation

On 7 February 2022, the Authority issued a circular addressed to market participants who fall in scope of the Benchmark Regulation (‘BMR’), whether such entities are Administrators of a benchmark, contributors of benchmarks or users of benchmarks. In this respect, the MFSA has decided to comply with the Guidelines and hence, some amendments have been introduced in the Financial Market Rules, specifically Part VIII therein. The amendments to the Financial Market Rules will become effective as from 31 May 2022.

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

https://www.mfsa.mt/wp-content/uploads/2022/02/Amendments-to-Part-VIII-of-the-Financial-Market-Rules-Guidelines-on-Methodology-Oversight-Function-and-Record-Keeping-Requirements-under-the-Benchmarks-Regulation.pdf

 

ESMA Launches a Common Supervisory Action with National Competent Authorities on MiFID II Costs and Charges

On 14 February 2022, the MFSA issued a circular informing investment firms that ESMA launched a common supervisory action (CSA) focusing on the application of MiFID II costs and charges disclosure rules across the EU. This action will allow ESMA and the MFSA to assess the application by firms of the MiFID II requirements on costs and charges. The focus of the CSA will be on information provided to retail clients. Part of the review will focus on how firms ensure that these disclosures:

  • are provided to clients in a timely manner;
  • are fair, clear and not misleading;
  • are based on accurate data reflecting all explicit and implicit costs and charges; and
  • adequately disclose inducements.

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

https://www.mfsa.mt/wp-content/uploads/2022/02/ESMA-Launches-a-Common-Supervisory-Action-with-National-Competent-Authorities-on-MiFID-II-Costs-and-Charges.pdf

Conduct of Business Rulebook Revisions

On 14 February 2022, the MFSA issued another circular highlighting changes carried out the COBR.  In particular, the MFSA has specifically adopted the member state option and discretion laid down in Article 44a(1), second subparagraph of the BRRD2 which allows member states to extend protection to retail clients purchasing other instruments qualifying as own funds or bail-inable liabilities.  A new rule (reference R.4.1.50) aims to apply all the requirements laid down in Part E, section 1 of Chapter 4 of the COBR also with respect to Additional Tier 1 instruments and Tier 2 instruments sold to retail clients. The definitions of such instruments is also being introduced within the COBR.

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

https://www.mfsa.mt/wp-content/uploads/2022/02/Conduct-of-Business-Rulebook-Revisions.pdf

 

Consultation Document on the Proposed Settlement Procedure under the MFSA Act

On 21 February 2022, the MFSA launched a Consultation document with the intention of highlighting the changes proposed to be made to the MFSA Act to include a specific provision empowering the Authority to enter into settlement agreements.

The MFSA carries out investigations of alleged breaches of financial services law, regulations and MFSA rules on licence holders and on persons authorised by it or falling under its regulatory or supervisory functions.  The Authority aims to resolve investigations in the shortest time possible to ensure efficiency and productivity.  As a result, the MFSA is seeking to further strengthen its position by having the specific power to enter into settlement discussions and agreements, as proposed by the draft legislative provision attached to the publication.  The Authority is also working in parallel to establish a Settlement Policy which would need to be followed in cases where the MFSA enters into settlement discussions and agreements with an investigated person or entity. The MFSA is seeking feedback in relation to such consultation document.

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

https://www.mfsa.mt/wp-content/uploads/2022/02/Conduct-of-Business-Rulebook-Revisions.pdf

https://www.mfsa.mt/wp-content/uploads/2022/02/Conduct-of-Business-Rulebook-Revisions.pdf

Consultation on the Corporate Governance Code

On 22 February 2022, the MFSA issued a Consultation on the Corporate Governance Code. The MFSA considers corporate governance to be one of its key priorities – both from a strategic and supervisory perspective. Ensuring good corporate governance complements, supports and is conducive to the Authority reaching its objectives of preserving financial stability, to the integrity of the markets, and to the protection of consumers of financial services.

In light of this in 2020, the Authority published a Consultation Document whose primary objective was the implementation of a new Corporate Governance Code which sought to raise the bar for corporate governance standards and to encourage the maintenance of a prudent and consumer focused corporate culture.

The draft code comprises of a number of principles, to be applied on a ‘best effort basis’, ensuring that the principle of proportionality remains at the core of its application. Through this consultation, the MFSA is seeking feedback from authorised entities and practitioners prior to proceeding with the publication of the Final Code.

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

https://www.mfsa.mt/wp-content/uploads/2022/02/Consultation-Document-on-the-Corporate-Governance-Code.pdf

 

Public notice concerning the current situation in Ukraine

On 22 February 2022, the Authority issued a public notice reminding licence holders of their obligation to ensure that they have effective systems and controls in place to effectively screen sanctions being published, particularly in view of the conflict between Russia and Ukraine.  Licence holders are also required to take action should positive hits result from such monitoring.

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

https://www.mfsa.mt/publication/public-notice-concerning-the-current-situation-in-ukraine/

 

 

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