Malta Financial Services Authority (MFSA) Updates

MFSA Updates Industry on Brexit Readiness

The MFSA has published a circular concerning Brexit Readiness and provided its expectations for the end of the transition period on 31 December 2020. The circular seeks to inform Maltese license holders, namely insurance, investments and credit and financial institutions and UK entities, offering financial services in Malta, on the termination of such period.

The MFSA emphasizes the importance of its licence holders’ contingency plans. Such plans should be compliant with all applicable EU legislation. The possibility for UK-based entities to offer financial services to EU customers by means of a cross-border basis through the pan-European passport, and vice-versa, should be made clear in the contingency plans.

As for UK licensed entities offering services in Malta, the MFSA established that financial services from the UK in Malta by means of freedom of establishment and/or freedom of services will no longer be possible. Such entities must, therefore, obtain the necessary authorisation from a competent EU authority to ensure that they are effectively established before the transition period. Such entities must also ensure that sufficient information is available to their respective customers.

Any communication by the MFSA in respect to temporary permission regimes within the area of UK investment firms, and investment funds, in the context of a no-deal Brexit are no longer applicable. UK UCITS and UK AIFs will also become non-AIFs, thus discontinuing their passporting rights as regulated under the UCITS Directive and the AIFMD. Such funds will nonetheless be allowed to be marketed in Malta under the National Private Placement Regime, which is in turn governed by the Investment Services Act and subject to notification procedures under the AIFMD.

UK insurance undertakings and insurance intermediaries will, furthermore, not be allowed to conclude new insurance contracts or establish, renew, extend, increase or resume insurance cover under existing insurance contracts in Malta, unless they are authorized by the MFSA to perform such activities. If such intermediaries wish to continue or start distribution activities in Malta after the UK’s withdrawal, then these must be registered in accordance with the Insurance Distribution Act.

For more information:

MFSA Issues Consultation Document on the Updated CSP Rules

The MFSA has published a consultation document which discusses the updated Company Services Providers (CSP) Rules. The document seeks to align the CSP Rulebook with the amended CSP Act and also aims to strengthen the Rulebook’s governance provisions.

The MFSA is thus seeking stakeholders’ feedback on three main issues:

  1. Class A under threshold

The updated rulebook has created the Class A under threshold category that caters for practitioners who provide corporate services within a wider portfolio of services to clients while indicating that such persons will be subject to a risk-based approach towards their regulation and supervision. The category qualifies for a proportionate approach, that is subject to satisfying specific criteria connected to actual and/or projected revenue from CSP activities.

  1. The Risk Management Function

The Risk Management Function aims to implement adequate risk management policies and procedures, identifies risks that relate to CSP activities, processes and systems and also sets the level of risk tolerated by the CSP.

  1. Exemption for specific categories of Licence Holders

The MFSA moreover seeks to cater for certain exemptions from authorisation in terms of the Act, under specific exemptions regulations to be set out in a Legal Notice. These exemptions will apply vis-à-vis very specific categories of persons who offer either a) CSP services as ancillary to other services which they are already licensed/authorised to carry out; or (b) where the nature of the services is limited as detailed in the Regulations.

Stakeholders who wish to submit their feedback on these matters are requested to contact the MFSA by no later than 15 January 2021.

For more information:

European Securities and Markets Authority (ESMA) Updates

ESMA final view on Derivatives Trading Obligation (DTO)

ESMA has released a public statement which aims to clarify the application of the EU’s trading obligation for derivatives (DTO) following the end of the UK’s transition from the EU on 31 December 2020.

DTOs will continue to apply without changes after the transition period ends. The Authority believes that continued application of DTOs would not risk the stability of the financial system. While this may generate issues for some EU counterparties, especially UK branches of EU investment firms, ESMA considers that such counterparties can still meet their obligations under the DTO by trading on EU trading venues or eligible trading venues in third countries.

In the absence of an equivalence decision by the European Commission, as well as the state of the current legal framework, ESMA does not intend to alter its guidance.

For more information:

Statement to propose adapting the EMIR Implementation Timelines

The European Supervisory Authorities (ESAs) which comprise ESMA, the EBA and EIOPA, have published a final report with draft regulatory technical standards (RTS) proposing to amend the Commission Delegated Regulation on the risk mitigation techniques for OTC derivatives not clear by a CCP (bilateral margin requirements) under the European Market Infrastructure Regulation (EMIR).

Some key amendments in the report intend to improve:

  1. Intragroup transactions: the amendments included in these draft RTS put forward the extension of the temporary exemption rules of 18 months for intragroup transactions.
  2. Equity options: the draft RTS includes amendments on bilateral margins and goes on to propose the extension of the temporary exemption rule for single-stock equity options for index options (equity options) for three years. 
  3. Novations from UK counterparties to EU counterparties: the draft RTS also consider the implications of Brexit. ESAs and other EU authorities and institutions have highlighted the importance for market participants to be prepared for the end of the UK’s transition period out of the EU. The draft RTS indeed re-establish a regulatory solution to support these preparations.

The ESAs have based the draft RTS on bilateral margining under Article 11(15) of EMIR.

ESMA has moreover published its own final report with draft RTS proposing to amend the three Commission Delegated Regulations on the clearing obligations under EMIR. ESMA has subsequently developed this draft RTS on the clearing obligation under Article 5(2) of EMIR.

For more information:

Guidelines on Enforcement of Financial Information

ESMA has published its Guidelines on Enforcement of Financial Information. These guidelines are intended to apply in relation to the enforcement of financial information under the Transparency Directive. The guidelines seek to ensure that the financial information in harmonised documents by issuers who, in turn, have securities admitted to trading on a regulated market, complies with the Directive’s requirements.

Financial information is to include financial information by issuers already listed on a regulated market who are, in turn, subject to the Directive, and such information may also comprise the financial information of issuers from third countries who employ financial reporting frameworks equivalent to IFRS.

These guidelines shall apply to all competent authorities of EU Member States who deal with the enforcement of financial information under the Transparency Directive. The guidelines shall also apply to competent authorities in the EEA.

For more information:

Consultation on Fees and Derogation Criteria for Data Reporting Service Providers

ESMA has launched two public consultation papers on fees for Data Reporting Service Providers (DRSPs) and criteria to identify Authorised Reporting Mechanisms (ARMs), as well as Approved Publications Arrangements (APAs) subject to authorisation and supervision by a competent authority of EU Member States.

The authorisation and supervision of DRSPs is to shift from competent authorities to ESMA. The revised regulation aims to exempt certain ARMs and APAs from direct EU supervision, given their limited importance in the internal market. The consultation thus aims to equip the European Commission with technical advice on such derogation criteria, particularly on:

a) How to establish if the APA or ARM services are provided to investment firms authorised in a Member State;

b) How to determine when ARMs or APAs are part of a group of financial market participants operating cross border, as well as other aspects necessary to determine whether the ARM or APA are of limited relevance to the internal market; and

c) How to calculate the number of trade reports or transactions.

ESMA is thus encouraging feedback from DRSPs, market participants and authorities. The Authority shall consider all submissions received for both consultations by 4 January 2021.

For more information: and

European Bank Authority (EBA) Updates

EBA Opinion on the Prudential Treatment of Legacy Instruments

When assessing legacy instruments and examining clauses that led to their grandfathering, as per Regulation (EU) 575/2013 (Capital Requirements Regulation or CRR), the EBA determined two main issues relating to the conditions governing those instruments which may create infection risk by affecting the CRR eligibility of regulatory instruments.

The two main risks identified relate to:

  1. Interlinkages between capital instruments’ distribution payment features and the principle of flexibility distribution payments;
  2. The eligibility criterion of subordination.

Principle of the Flexibility of Distribution Payments

The EBA has assessed concerns relating to different mechanisms restricting the flexibility of payments, in particular, classic dividend pushers/stoppers and reverse stoppers.

Primarily, the EBA opines that the CRR is clear in determining the ineligibility of CET1 and AT1 legacy instruments after the grandfathering period. The EBA also finds that the admissibility of classic dividend pushers/stoppers in Tier 2 instruments and how they interact and affect their eligibility, can be tolerated and do not pose a risk of infection of higher capital tiers under certain circumstances.

Eligibility criterion of subordination

The EBA further opines that CRR provisions relating to the ranking of CET1, AT1 and Tier 2 Instruments are clear and comprehensive. CET1 instruments are subordinated to all other claims, while AT1 instruments are subordinated to Tier 2 instruments and Tier 2 instruments are subordinated to any claims from eligible liabilities instruments.

If the statutory or contractual provisions governing legacy instruments do not satisfy those ranking rules, the eligibility of the instruments for the classification as AT1 or Tier 2 instruments shall be assessed vis-à-vis the eligibility criteria stipulated under the CRR.

It is to be noted that the beneficial treatment provided by the grandfathering provisions will expire on 31 December 2020.

For more information:

International Organisation of Securities Commissions (IOSCO) Updates

IOSCO Reviews MMF Recommendations and Events Arising from March 2020 Market Turmoil

IOSCO has released a diagnostic report assessing the events that occurred in the Money Market Funds (MMFs) sector during the market turmoil in March 2020. IOSCO has also simultaneously published a thematic review on the implementation of selected IOSCO recommendations issued in 2012 to strengthen the efficacy of MMFs globally.

The Diagnostic Report comprises a comprehensive description of events across jurisdictions in March 2020 and describes how impacts varied according to MMF type, structure and currency. Outflows from MMFs with primarily non-public and mostly USD denominated debt were significant. Despite this, however, the market saw remarkable inflows into MMFs holding primarily US government instruments.

The March market turmoil nonetheless emphasised vulnerabilities in particular types of non-public MMFs and the need for further reform. The Report goes on to determine those areas which merit further consideration, such as the behaviour of MMF investors and the functioning of money markets.

On the other hand, the thematic ref

view assesses the effects of the market dislocations vis-à-vis COVID-19 events on MMFs. The review concludes that participating jurisdictions have generally employed MMF reforms in line with the 2012 IOSCO recommendations, taking into consideration the heterogeneity and specificities of their local MMF markets. Liquidity requirements in many of the analysed jurisdictions complement the recommendations for MMFs to hold a minimum amount of liquid assets, with some differences as regards to the type of eligible assets and amount thereof. Moreover, the jurisdictions in question also allow for the use of specific liquidity management tools and need specific pre- or post- sale disclosures to investors regarding the use of these tools.

For more information:

For more information on the updates above 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.

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