Malta Financial Services Authority (MFSA) Updates

1. Amendments to Insurance Business Rules

A circular issued by the MFSA to insurance market participants informed relevant stakeholders about amendments to Chapter 1 and Chapter 2 of the Insurance Business Rules issued under the Insurance Business Act (Chapter 403 of the Laws of Malta).

The following amendments were made effective immediately:

• Report on the adequacy of the scheme of operations: the MFSA previously requested a report drawn up by an approved auditor or where the undertaking is managed, by the insurance manager, on the adequacy of the undertaking’s business plan and a signed scheme of operations. The MFSA has now amalgamated these two requirements into one.
• Shareholding Structures: The MFSA may now require individual shareholders to submit a Statement of Wealth, containing details on net worth and on source of wealth, which statement should be verified by a qualified accountant or auditor in their professional capacity.
• Source of Business:  New information regarding the source of business must be provided by applicants, including: details of the target market;  details in relation to inducements that will be granted to intermediaries; submission of the Insurance Product Information Document (IPID); submission of the Product Oversight and Governance policy; details of how the applicant is ensuring that the necessary disclosures are being met; details on the manner in which complaints will be handled; details on the procedure to approve appointed distributors; and information on on-going due diligence.
• Risk Management: TheMFSA will demand more information pertaining to risk management, such as: underwriting and reserving risk; operational risk; reinsurance and other risk-mitigation techniques; strategic and reputational risk; asset-liability management; investment risk management; liquidity risk management.
• Financial Crime Analysis: New requirements will be imposed on subject persons in terms of the Prevention of Money Laundering and Funding of Terrorism Regulations.
• IT Systems: The MFSA will now expect information about dependency and complexity of systems; on data protection and data security; and whether the applicant will be relying on cloud infrastructure.
• Reinsurance Agreements: In cases when draft reinsurance agreements are not available, information about the scheme of operations and the anticipated reinsurance arrangements that will be put in place should be given to the MFSA.
• Submission of the scheme of operations: applicants are now requested to submit their plans in a structured format by completing the scheme of operations template found underneath each Schedule, as applicable.

2. Shareholding Policy for Credit Institutions and Insurance Companies

With a purpose to promote good corporate governance practices, the MFSA has issued a policy setting out the manner of assessment of shareholding structures of credit institutions and of insurance companies. This policy repeals and supersedes the Policy dated 13 February 2012 applicable to Applicants for authorisation as Credit Institutions and Insurance Companies.

The policy warns prospective licence applicants that the MFSA has no risk appetite for limited shareholding structures that may adversely impact the overall governance, financial soundness and resilience of a licence holder.

The policy may be found on: https://www.mfsa.mt/news-item/mfsa-publishes-shareholding-policy-for-credit-institutions-and-insurance-companies/

3. Guidance Note addressing Technology Arrangements, ICT and Security Risk Management and Outsourcing Arrangements

The MFSA has launched a consultation on the Guidance Note addressing Technology Arrangements, ICT and Security Risk Management and Outsourcing Arrangements

The Guidance is based on four high level principles: Proportionality, Principles-based consistency of outcomes, Information Assurance (IA) in Technology Arrangements and Approach to cloud computing. The MFSA proposes a set of definitions specific to the Guidance and addresses the following matters: Technology Arrangements, ICT and Security Risk Management and Outsourcing Arrangements.

The MFSA’s proposed Guidance is of a principle-based cross-sectoral nature, drawing from standards established by several European bodies, however the Guidance may be superseded by more sector specific laws, regulations and guidelines.

The consultation period closes on the 28th of August 2020 and any feedback is to be sent to the Supervisory ICT Risk and Cybersecurity function within MFSA on sirc@mfsa.mt.  

The Guidance may be found on: https://www.mfsa.mt/publication/consultation-document-on-the-guidance-on-technology-arrangements-ict-and-security-risk-management-and-outsourcing-arrangements/

European Securities and Markets Authority (ESMA) Updates

1. Net Short Positions

ESMA has renewed its decision to temporarily require the holders of net short positions in shares traded on an EU regulated market to notify the relevant national competent authority if the position exceeds 0.1% of the issued share capital.

The purpose of this decision has stemmed from a need to maintain the ability of national competent authorities to deal with any threats to market integrity, orderly functioning of markets and financial stability at an early stage.

The measure entered into force from the 17^th June 2020 for a period of three months and applies to natural and legal persons irrespective of their country of residence. However, these measures do not apply to shares admitted to trading on a regulated market where the principal venue for the trading of the shares is located in a third country, market making or stabilisation activities.

The decision can be found on: https://www.esma.europa.eu/sites/default/files/library/esma71-99-1342_decision_ss_reporting_renewal_statement.pdf

European Banking Authority (EBA) Updates

1. Extension of its Guidelines on payment moratoria to 30 September

The EBA has extended the application date of its guidelines on legislative and non-legislative moratoria to 30 September 2020. The extension intends to support measures taken by banks to extend loans in response to the extraordinary nature of the COVID-19 pandemic created crisis. The extension aims to ensure that adequate treatment for borrowers is available across the EU.

The Guidelines outline the criteria to be fulfilled by legislative and non-legislative moratoria on loan repayments and aim to clarify the requirements for public and private moratoria, which if fulfilled, will help avoid the classification of exposures under the definition of forbearance or as defaulted under distressed restructuring.

The Guidelines’ extension can be found here: https://eba.europa.eu/eba-extends-deadline-application-its-guidelines-payment-moratoria-30-september

2. EBA publishes final draft ITS on institutions’ Pillar 3 disclosures and on supervisory reporting

The EBA has published the Implementing Technical Standards (ITS) on public disclosures by institutions and revised final draft ITS on supervisory reporting that implements changes introduced in the revised Capital Requirements Regulation (CRR2) and the Prudential Backstop Regulation.

The publications aim to promote market discipline through enhanced and comparable public disclosures for stakeholders and to ensure that reporting requirements are adhered to.

The ITS Drafts can be found on: https://eba.europa.eu/eba-publishes-final-draft-comprehensive-its-institutions%E2%80%99-pillar-3-disclosures-and-revised-final

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.