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Financial Services and Fintech Update

Malta Financial Services Authority (MFSA) Update

1. Circular to Licensees on Record Keeping

The MFSA issued a circular to licence holders regarding their record keeping obligations, which obligations aim to protect customers, ensure regulatory compliance and enable MFSA supervision.

Licence holders are reminded that they must retain accurate documentation and records reflecting their governance structures, manner of oversight and customer interaction. The MFSA highlights that customer interaction aims to capture prospective customers, even if these are eventually not onboarded and that effectively, correspondence relating to client contact/introduction, onboarding, client acceptance and even ongoing exchanges must be maintained.

The MFSA has remarked that such records must be made easily accessible to them by licence holders and be maintained in a centralised location and in an accessible format, as otherwise the MFSA is hindered from carrying out its supervisory role. The licence holder may face repercussions if deemed to be uncooperative towards the Authority.

2. Circular on Regulatory Reporting

The MFSA issued a circular regarding Regulatory Reporting following the outbreak of COVID-19 confirming that it would be accepting to extend reporting deadlines for submissions/publications which were due in March or April 2020.  Moreover, having recognised the lingering effects of the pandemic, and having communicated with the industry,  the MFSA may accept that the reporting deadline is delayed for some of the submissions/publications falling due by June 2020 albeit, on a case-by-case and very exceptional basis and at the discretion of the MFSA. Moreover, requests for delay must be justified and the Authority will carry out its assessments in line with guidance issued by the European Supervisory Authorities or the European Central Bank.

The Circular is mainly directed at those operating in the following spheres:

  • Capital Markets
  • Credit and Financial Institutions
  • Insurance Undertakings and Intermediaries
  • Pension Schemes and Service Providers
  • Investment Firms
  • Investment Funds and Fund Managers
  • Trustees and CSPs

3. Product Approval and Oversight Requirements in the Context of Coverage Under Insurance Policies for Claims Arising Out of COVID-19

Following a previous circular of the MFSA, whereby it had outlined its expectations for insurance undertakings providing services to retail clients in the context of coverage under insurance policies for claims arising out of COVID-19, the MFSA states that it is still monitoring developments and would like to re-iterate that:

  1. changes made to insurance products in the light of COVID-19 should undergo an approval process in line with the insurer’s internal mechanisms and be assessed in the best interest of the client;
  2. product oversight and adherence to governance requirements should be continuous;
  3. product review should be aimed at assessing the impact of COVID-19 on the product; and
  4. insurers should contact the MFSA in cases whereby the insurer intends to include a COVID-19 exemption in their product.

4. Issuance of New Banking Rule for Credit Institutions

The MFSA is issuing a new Banking Rule which implements the provisions and requirements, as introduced by the European Banking Authority, on reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis. The Banking Rule came into immediate effect with its issuance.

The Banking Rule introduces additional reporting and disclosure requirements for credit institutions with respect to mitigating measures introduced in Malta to combat the negative economic consequences of the COVID-19 pandemic. Credit institutions must report information on:

  1. exposures subject to payment moratoria in accordance with the Moratorium on Credit Facilities in Exceptional Circumstances Regulations, 2020 (L.N. 142 of 2020) and the Central Bank of Malta (CBM) Directive No. 18 on Moratoria on Credit Facilities in Exceptional Circumstances. This information must be reported bi-annually;
  2. exposures subject to other forbearance measures introduced in response to the COVID19 crisis; and
  3. newly originated exposures subject to the Malta Development Bank COVID-19 Guarantee Scheme.

Such data must be reported on a monthly basis and as follows:

  • reference reporting: on the last day of each month; and
  • remittance reporting: 42 calendar days following each reporting reference date.

European Securities and Markets Authorities (ESMA) Updates

1. Guidelines on Securitisation Repository Data Completeness and Consistency Thresholds

ESMA issued Guidelines on Securitisation Repository Data Completeness and Consistency Thresholds which aim to provide clarity for market participants and securitisation repositories on the accepted levels of No-Data options contained in the submitted securitisation data.

The Guidelines aim to explain how the No-Data option should be verified and that the No-Data option should only be used where permitted and not in a manner which prevents the underlying exposures in securitisation from being sufficiently represented

2. Update of ESMA’s Q&A on MiFID II and MiFIR Transparency

The purpose of the Q&A is to promote common supervisory approaches and practices, setting out answers to questions set out by not only stakeholders and competent authorities, but also by the general public.

The new Q&A outlines technical clarifications for the performance of the mandatory systematic internaliser test and specifies how the number of transactions and the nominal amount traded of a derivative shall be allocated when a derivative contract changes over the observation period from one sub-class to another.

The Q&A may be accessed here.

European Banking Authority (EBA) Updates

1. EBA issues Consultation Papers on the new Investment Firms Framework

The MFSA has issued a circular which aims to inform the industry about changes to be introduced by the EBA in prudential regulation of investment firms to take effect as from next year.

Non-bank and the majority of local investment firms will largely no longer be subject to the Capital Requirements Regulation and Directive but will be subject to the Investment Firms Regulation [(EU) 2019/2033] and Directive [(EU)2019/2034], that is the IFR Package.

The IFR package consists of four consultation papers on technical standards consisting of the following:

  1. Consultation Paper on Draft Regulatory Technical Standards related to implementation of a new prudential regime for investment firms
  2. Consultation Paper on Draft Implementing Technical Standards on reporting requirements for investment firms under Article 54(3) and on disclosures requirements under Article 49(2) of Regulation (EU) 2019/2033
  3. Consultation Paper on Draft RTS on classes of instruments that adequately reflect the credit quality of the investment firm as a going concern and possible alternative arrangements that are appropriate to be used for the purposes of variable remuneration
  4. Consultation Paper on Draft Regulatory Technical Standards on criteria to identify categories of staff whose professional activities have a material impact on an investment firm’s risk profile or the assets it manages

Feedback is to be submitted directly to the EBA by the 4th of September 2020.

For more information please contact Dr Ian Gauci and Dr Cherise Abela Grech.

This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.