Malta Financial Services Authority (MFSA) Updates
Implementation of the Sustainable Finance Disclosure Regulation
In a recent circular, the MFSA provided further details on the process that will be implemented by the Authority for the submission of updated Offering Documentation in line with the obligations provided for in the Regulation on Sustainability-Related Disclosures in the Financial Services Sector (Regulation EU 2019/2088 or ‘SFDR’).
The Authority has created a fast-track filing process for the submission of updates to the Offering Documents which are based on the Level 1 text of the SFDR. The MFSA has also highlighted that it is the obligation of the Investment Services Licence Holders to ensure compliance with the SFDR requirements as from 10 March 2021. Licence Holders will also need to ascertain and ensure that the pre-contractual disclosures made are appropriate to the fund in question.
License Holders are obliged to submit the following documentation to the Authority:
Submissions made after 10 March 2021 will be treated as any other change to an Offering Document and may thus be subject to comments. Licence Holders are furthermore requested to file any changes other than the changes required in line with the SFDR Level 1 text within the prescribed fast-track process.
For more information: https://www.mfsa.mt/publication/the-implementation-of-the-sustainable-finance-disclosure-regulation-sfdr-process-to-be-adopted-with-respect-to-the-submission-of-updates-to-the-pre-contractual-document/
MFSA Issues Notice on Software-as-a-Service as an Outsourcing Arrangement
Technology and evolving business needs of financial entities have led to an unprecedented automation of operational functions and processes. Software-as-a-Service (SaaS) allows organisations to carry out operational tasks, manage data and meet compliance requirements to enhance usability and reduce costs.
In light of the European Commission’s Cloud Strategy of 2019 and the Legislative Proposal on Digital Operational Resilience (‘DORA’) of 2020, the MFSA is urging licence holders to assess and determine whether SaaS currently being consumed or planned to be acquired qualifies as an outsourcing arrangement. Normally, the management element of the service rendered by SaaS third Party Providers (‘TTPs’) to licence holders qualifies as an outsourcing arrangement.
However, the Cloud Strategy defines SaaS as ‘business applications that are owned, delivered and managed remotely by one or more providers. The provider delivers software based on one set of common code and data definitions that is consumed in a one-to-many model by all contracted customers at any time on a pay-for-use basis or as a subscription based on use metrics’.
Additionally, DORA defines an ICT third-party service provider as ‘an undertaking providing digital and data services, including providers of cloud computing services, software, data analytics services, data centres, but excluding providers of hardware components and undertakings authorised under Union law which provide electronic communication services’.
Interested parties are moreover to assess and determine whether the outsourcing arrangement entails the outsourcing of a critical or important function. The MFSA has further reminded licence holders that they are to manage all relevant outsourcing risks associated with SaaS arrangements, and are also reminded of their obligation to comply with any applicable acts, regulations, rules and sector specific guidelines pertaining to outsourcing arrangements.
For more information: https://www.mfsa.mt/wp-content/uploads/2021/03/Software-as-a-Service-as-an-Outsourcing-Arrangement.pdf
MFSA Launches Consultation on Capital Markets Strategy
The MFSA has launched a consultation on a Capital Markets Strategy to provide equal and fair opportunities to market players, safeguard the stability and integrity of the financial markets, and protect investors. The document stipulates a strategy to advance Malta’s capital markets by establishing the Authority’s risk appetite, by devising five different pillars of concern, namely when:
The MFSA is thus seeking feedback from stakeholders on its Strategy. Stakeholders are to submit any feedback by latest 5 April 2021.
For more information: https://www.mfsa.mt/news-item/mfsa-launches-consultation-on-a-capital-markets-strategy/
European Securities and Markets Authority (ESMA) Updates
ESMA Issues Guidelines on Disclosure Requirements under the Prospectus Regulation
On 4 March 2021, ESMA published its finalised ‘Guidelines on Disclosure Requirements under the Prospectus Regulation’ to provide guidance to market participants concerning the disclosure of financial and non-financial information in prospectuses. The Guidelines aim to ensure that market participants have a uniform understanding of the relevant disclosure required in accordance with the various annexes included in the Commission Delegated Regulation (EU) 2019/980.
The Guidelines also seek to support national competent authorities, particularly to properly assess the completeness, consistency and comprehensibility of information indicated in the prospectus. In the case of Maltese companies, the Guidelines aim to help the Board of Directors to promote consistency as to how the annexes in the Delegated Regulation are enforced.
Amongst the key financial and non-financial matters defined by the Guidelines are:
ESMA has clearly maintained its position in relation to the aggregation of several transactions for this purpose, where this principle is considered as crucial from an investor protection perspective.
For more information: https://www.esma.europa.eu/sites/default/files/library/esma32-382-1138_guidelines_on_disclosure_requirements_under_the_prospectus_regulation.pdf
ESMA proposes Rules for Taxonomy-Alignment of Non-Financial Undertakings and Asset Managers
ESMA has published its final report concerning Article 8 of the Taxonomy Regulation, which covers the information to be provided by non-financial undertakings and asset managers to comply with their disclosure obligations in accordance with the Non-Financial Reporting Directive (‘NFRD’).
These recommendations provide a definition for the Key Performance Indicators (‘KPIs’) and indicate how, and to what extent, the activities of businesses that are under the scope of the NFRD are considered as environmentally sustainable in accordance with the Taxonomy Regulation.
ESMA’s proposals concentrate on how to further specify the three KPIs under Article 8(2) of the Taxonomy Regulations, which concern the following:
ESMA is further recommending that non-financial undertakings and asset managers use standardised templates, particularly vis-à-vis their reporting obligation under Article 8, in order to ease comparability of these disclosures and enhance accessibility to those investors that will reuse this information.
For more information: https://www.esma.europa.eu/press-news/esma-news/esma-proposes-rules-taxonomy-alignment-non-financial-undertakings-and-asset
ESMA Consultation on Draft Technical Standards under the ECSP Regulation
ESMA has issued a Consultation Paper which discusses draft technical standards on crowdfunding in accordance with the European Crowdfunding Service Providers (‘ECSP’) Regulation. The Regulation aims to regulate lending-based and equity-based crowdfunding services, and to introduce a single set of requirements applicable to crowdfunding service providers in the EU. The Regulation provides the obligation for ESMA to develop twelve technical standards, eight being regulatory technical standards and four implementing standards.
With the draft technical standards developed by ESMA, the Consultation Paper is seeking input on the following issues:
ESMA will continue to consider the feedback received in relation to the Consultation Paper until 28 May 2021.
For more information: https://www.esma.europa.eu/press-news/consultations/consultation-draft-technical-standards-under-ecsp-regulation
Publication of Final Report and draft RTS on disclosures under SFDR
The Joint Committee of the three European Supervisory Authorities has delivered to the European Commission (‘EC’) the final report which includes the draft Regulatory Technical Standards (‘RTS’) on the content, methodologies and presentation of disclosures under the EU Regulation on sustainability-related disclosures in the financial services sector (‘SFDR’).
With the proposed RTS, the Committee aims to further improve protection for end-investors, by enhancing Environmental, Social and Governance disclosures to end-investors on the principal adverse impacts of investment decisions and on the sustainability features of a wide range of financial products. The RTS would thus improve the response to investor demands for sustainable products and would reduce the risk of greenwashing.
The main proposals contained in the final report include entity-level principal adverse impact disclosures, which should take the form of a statement showing how investments would impact indicators that related to climate and environmental matters, as well as social and employee matters, respect for human rights, anti-corruption and anti-bribery aspects.
The other proposal concerns product level disclosures, where the sustainability characteristics or objectives of financial products are disclosed in an annex to the respective sectoral pre-contractual and periodic documentation in compulsory templates and on providers’ websites.
As the final report was published last February, the EC is expected to endorse the RTS within three months of its publication.
For more information: https://www.esma.europa.eu/press-news/esma-news/three-european-supervisory-authorities-publish-final-report-and-draft-rts
ESMA updates Q&As on MiFID II and MiFIR Market Structures topics
ESMA has updated its Q&As concerning market structures issues under MiFID II and MiFIR. The Q&As aim to provide clarification on:
Moreover, they intend to promote common supervisory approaches and practices when applying MifID II and MiFIR, and answer questions addressed by the general public regarding the practical application of level 1 and level 2 provisions for transparency and market structures topics.
For more information: https://www.esma.europa.eu/press-news/esma-news/esma-updates-qas-mifid-ii-and-mifir-market-structures-topics
Consultation on Guidelines on Appropriateness and Execution Only
ESMA has circulated a Consultation Paper on Guidelines on Appropriateness and Execution Only in relation to competent authorities and investment firms that are subject to Directive 2014/65/EU of the European Parliament and the Council (‘MiFID II’). The paper addresses:
The Consultation is also of particular importance for consumer groups, investors and trade associations, as the proposed guidelines seek to implement enhanced provisions to ensure investor protection, and to assess potential impacts for anyone engaged in dealing with or processing of financial instruments.
ESMA shall in turn consider all comments received by 29 April 2021.
For more information: https://www.esma.europa.eu/press-news/consultations/consultation-guidelines-appropriateness-and-execution-only
European Central Bank (ECB) Updates
ECB Opinion on proposal for Regulation on Markets in Crypto-Assets
The European Central Bank, in response to the European Council and Parliament, has recently published an opinion on the proposed regulation on markets in crypto-assets. The ECB, while welcoming the initiative to establish an EU-level harmonised framework for regulating crypto-assets and related activities and services, opines that further additions and amendments are warranted vis-à-vis certain aspects of the proposed regulation. Some of these aspects relate to (a) the responsibilities of the Bank, (b) the Eurosystem and (c) the European System of Central Banks in the context of prudential supervision of credit institutions and financial stability.
The ECB further notes that the definition of a ‘crypto-asset’ introduced by the proposed regulation contains a wide, catch-all definition and thus concludes that, in order to prevent diverging interpretations at national levels, the scope should thus be further clarified. The ECB is moreover recommending the following measures on financial stability and prudential supervisory aspects of the proposals:
The proposed regulation stipulates a dual supervisory arrangement for issuers of significant e-money tokens, supervised jointly by the national competent authority and EBA. The ECB believes that when the e-money tokens issuer is a credit institution, dual supervision would lead to complications particularly when the issuer of significant stablecoins is a significant credit institution. Thus, the tasks of the EBA and the ECB must be clarified to avoid duplication and conflicts. The EBA obligation to enforce the compliance of an issuer with the requirements laid down in the proposed regulation should not interfere with or inhibit the supervision of prudential requirements enforced by the ECB in its banking supervisory role.
2. Prudential supervisory aspects:
The dual supervisory arrangement between the relevant national competent authority and the EBA would apply where significant credit institutions issue significant asset referenced tokens and e-money tokens. The ECB believes that it is necessary to further explain the remit of EBA supervision. This dual supervisory arrangement would also need to comprise the supervisory role of the ECB vis-à-vis significant credit institutions, with specific coordination mechanisms including a clear notification framework. The proposed regulation should therefore explicitly refer to the prudential supervisory authorities for both significant asset-referenced tokens and e-money tokens.
3. Requirements for own funds and the investment of reserve assets:
The prudential and liquidity requirements imposed on issuers of stablecoins should be proportionate to the risks that those tokens may pose to financial stability. The ECB opines that additional Pillar-2-type powers should be accorded to the supervisor, especially for significant issuers. The ECB further points out that issuers of both asset-referenced and e-money tokens may be equally exposed to the risk of ‘runs’ and account for possible contagion risks to the rest of the financial system. Finally, the ECB states that the proposed regulation does not impose any restrictions to prevent a possible concentration of custodians or investment of the reserve assets, and should thus provide for the introduction of safeguards to prevent such concentration to be developed in regulatory technical standards.
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.