Malta Financial Services Authority (MFSA) Update

1. The New EU Sustainable Finance Model

The MFSA has issued a circular outlining the various legislative initiatives being taken at an EU level in conjunction with the European Green Deal which aims to see private investment channeled to the transition to the climate neutral economy as a complement to public money.

The three main legislative initiatives currently being implemented include:

i. Taxonomy Regulation:

This Regulation seeks to establish the framework for a unified classification system on what can be considered as environmentally sustainable economic activities. The European Commission will also establish detailed Technical Screening Criteria for economic activities through delegated legislation.  The Regulation will also deem investments in companies of licence holders performing only sustainable activities as an environmentally sustainable asset.

ii. Disclosure Regulation:

The Disclosure Regulation, which will come into force on the 10^th of March 2021, will seek to harmonise existing provisions on disclosures to investors in relation to sustainability-related disclosures.

iii Benchmark Regulation:

The Benchmark Regulation aims to ensure the reliability of climate benchmarks and avoid conflicts of interest.

The MFSA has commenced its implementation of the Regulations and will be issuing circulars and working closely with the sector to ensure proper implementation.

For more information: https://www.mfsa.mt/publication/circular-on-the-new-eu-sustainable-finance-model/

2. European Securities and Markets Authority: Guidelines On certain aspects of the MiFID II compliance function requirements

The MFSA has issued a circular relating to compliance function requirements as reported in our former Fintech Update. The circular is intended to capture investment services licence holders; credit institutions when carrying out investment services or investment activities or when selling or advising clients in relation to structured deposits; as well as UCITS management companies and AIFMs when providing certain services under the respective EU Directives. The updated guidelines will also be used as a benchmark during the MFSA’s on-site inspections when assessing the effectiveness of the licensed entity’s compliance function.

For more information: https://www.mfsa.mt/wp-content/uploads/2020/08/European-Securities-and-Markets-Authority-Guidelines-On-certain-aspects-of-the-MiFID-II-compliance-function-requirements.pdf

3. Circular on the updates made to the Investment Services Rules applicable to Collective Investment Schemes in relation to Reporting of Breaches in the Annual Report and Audited Financial Statements

The MFSA has issued a circular regarding updates to the Collective Investment Scheme Rulebook.

CIS are now expected to include a statement in the Directors’ report or in any prominent section in the Annual Report and Audited Financial Statements regarding breaches which occurred in the relevant reporting period.

For more information: https://www.mfsa.mt/wp-content/uploads/2020/08/Circular-on-the-updates-made-to-the-Investment-Services-Rules-applicable-to-Collective-Investment-Schemes.pdf  

4. Circular to VFA Agents in relation to Reporting Obligations

The MFSA has revised Chapter 1 of the Rulebook applicable to VFA Agents and VFA Agents will now be required to submit an Annual Return by 30 September 2020.

For more information: https://www.mfsa.mt/publication/circular-to-vfa-agents-in-relation-to-reporting-obligations/

5. Note for Information on the European Commission Public Consultation Document on the Review of Prudential Rules for Insurance and Reinsurance Companies (Solvency II)

The European Commission has launched a public consultation in relation to the review of prudential rules for insurance and reinsurance companies (Solvency II). The purpose of the consultation is to collect feedback from policyholders, consumer associations and financial market stakeholders.

The consultation covers:

• Long- activities and priorities of the European framework;
• Proportionality of the European framework and transparency towards the public;
• To enhance policyholder protection and financial stability; and
• New emerging risks and opportunities that may need to be addressed by the European framework.

For more information: https://www.mfsa.mt/wp-content/uploads/2020/08/Note-for-Information-on-the-European-Commission-Public-Consultation-Document-on-the-Review-of-Prudential-Rules-for-Insurance-and-Reinsurance-Companies-Solvency-II.pdf

European Securities and Markets Authority (ESMA) Updates

1. ESMA Recommends Priority Topics in AIFMD Review

ESMA has written to the European Commission highlighting areas of review of the Alternative Investment Fund Managers Directive (AIFMD)

ESMA proposed changes in 19 areas including: harmonizing the AIFMD and UCITS regimes delegation and substance; liquidity management tools; leverage; the AIFMD reporting regime and data use; and the harmonisation of supervision of cross-border entities.

For more information: https://www.esma.europa.eu/press-news/esma-news/esma-recommends-priority-topics-in-aifmd-review

European Banking Authority (EBA) Updates

1. EBA consults on the use of RegTech solutions and ways to support the uptake of RegTech across the EU

The EBA has launched a survey to invite all stakeholders in the RegTech industry, including financial institutions and ICT providers and in fact it has issued two separate surveys.

In its survey, the EBA is focusing on (i) mapping and understanding the existing RegTech solutions; (ii) identifying the main barriers and risks related to the use of RegTech solutions; and (iii) identifying potential ways to support the uptake of RegTech across the EU.

For more information: https://eba.europa.eu/eba-consults-use-regtech-solutions-and-ways-support-uptake-regtech-across-eu

2. EBA consults on Guidelines on criteria for the use of data inputs in the expected shortfall risk measure under the Internal Model Approach

The EBA has launched a consultation on draft Guidelines for the use of data inputs in the risk-measurement model referred to in Article 325bc under the Internal Model Approach (IMA) for market risk.

These Guidelines clarify that the data used to compute the ES risk measure should be (i) accurate, (ii) appropriate, (iii) frequently updated, and (iv) complete and overall consistent in its use in the ES risk measure.

The consultation period remains open until the 12^th of November 2020.

For more information: https://eba.europa.eu/eba-consults-guidelines-criteria-use-data-inputs-expected-shortfall-risk-measure-under-internal  

3. EBA supports the EU Commission’s call for a more efficient and effective framework to tackle money laundering and terrorism financing

In response to the European Commission’s Action Plan for a comprehensive tool against money laundering and financing of terrorism, the EBA recommends the following:

• harmonise the EU’s legal framework to reduce the risk of gaps created by divergent approaches to incorporating EU AML/CFT law into national law;
• combine an ongoing role for national AML/CFT authorities with an EU-level AML/CFT supervisor in a hub and spoke approach that builds on national AML/CFT authorities’ expertise and resources, and complement this with effective EU-level oversight for a consistent approach with comparable outcomes;
• leverage on the EU’s existing AML/CFT infrastructure, including the EBA’s policy, data and information technology resources as well as the EBA’s European and international supervisory cooperation networks.

For more information: https://eba.europa.eu/eba-supports-eu-commission%E2%80%99s-call-more-efficient-and-effective-framework-tackle-money-laundering-and

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.