Malta: ESMA Cracks Down On The Enforcement Of Financial Information

In July of 2017, the European Securities and Markets Authority ('ESMA') published the results of a peer-review conducted by an Assessment Group which considered National Competent Authorities' ('NCAs') compliance with the ESMA Guidelines on Enforcement of Financial Information ('Guidelines').

The Guidelines are principles-based and establish objectives for all competent authorities of EU Member States which undertake the enforcement of financial information under the Transparency Directive, as well as to those EEA states to which the same Directive applies. The Guidelines do not provide precise instructions which are to be followed, in fact NCAs have developed various was of approaching this enforcement.

The Transparency Directive establishes the financial information which is to be provided by persons whose securities are traded on a regulated market ('issuers'). This financial information is then examined by NCAs who determine whether it is compliant with the relevant financial reporting framework in place. Improved transparency of accurate and reliable financial information promotes market confidence and ensures investor protection. In Malta, the Malta Financial Services Authority ('MFSA'), as the National Competent Authority is tasked with the enforcement of financial information.

The peer-review was conducted through the use of self-assessment questionnaires (completed by NCAs) as well as on-site visits to seven jurisdictions; Germany, Italy, Malta, Norway, Portugal, Romania and the UK.  The Assessment Group focused on NCAs' compliance with Guidelines 2, 5 and 6 of the ESMA Guidelines. Therefore, focus was placed on three key issues:

  1. The sufficiency of human and financial resources and the experience and background of enforcers;
  2. The method through which the NCA selects an issuer to be examined; and
  3. The examination procedures in place.

Main Findings

Guideline 2

The Assessment Group has opined that a good level of experience and qualification is evident throughout the EU, however in certain states, the resources have not been adequate or sufficiently organised or allocated to permit enforcement of financial information effectively. In the UK, for example, it was held that the number of staff was not sufficient enough in order to ensure proper enforcement of financial information. When assessing Malta, the Assessment Group opined that although Malta has sufficient staff to conduct proper enforcement, the staff is not used effectively. The same was held to be true in Greece, Portugal and Romania.  It is relevant to observe in this regard that on the 3rd August 2017 the Maltese government announced the publication of a consultation document aimed at strengthening the Malta Financial Services Authority.

Guideline 5

From an analysis of the questionnaires and the on-site visits, it was determined that Malta, Portugal, Romania, Sweden and the UK were not compliant with this Guideline. In the case of Portugal, although an appropriate risk model was in place, it was not being used in practice. When assessing Malta and Romania, the Assessment Group noted that the risk model in place does not capture the intrinsic risk profile of an issuer. The risk indicators used are identified based on external factors and sources such as a referral from another department or authority, a complaint, the media or an auditor.  Although external factors are important and should be taken into account, more specific factors which relate to the intrinsic risk profile of an issuer should also be considered.

Guideline 6

The Guidelines provide a list of examples of examination procedures which may be used by NCAs when determining the most effective means of enforcing financial information. Upon examination, the Assessment Group found that some NCAs limit their examination of financial information to disclosure or presentation issues instead of entering into an in-depth analysis of financial statements or issues which are relevant to the issuer.


The Assessment Group believes NCAs should have staff dedicated to the enforcement of financial information. The number of staff dedicated to this function should be in proportion to the size of the market, to ensure proper enforcement. The enforcement of financial information should not be undermined and proper and sufficient resources should be allocated to it, with the staff's knowledge on the area being constantly updated and strengthened.

ESMA has considered the possibility of creating a common approach for the selection model by providing a consistent framework, including common risk factors, to be adopted by all NCAs. It has been suggested that the selection model in place should be based on a combination of a risk-based approach and a sampling and/or rotation approach, in order to ensure that there is always the possibility of an issuer being selected for review.

With respect to the examination procedure, the Assessment Group recommended that the procedures in place should ensure that issues of recognition, measurement, presentation and disclosure are reviewed and that an examination is conducted on all financial information which is published by the issuer. It was also recommended that following examination, a quality review should be conducted.

Next Steps

ESMA is to consider the recommendations put forward by the Assessment Group and work closely with NCAs to try and resolve the issues highlighted through this peer review, either through amendments of the Guidelines or by implementing new measures in this field.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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