Joeline Barbara, provides an overview of the latest circulars from the Malta Financial Services Authority (MFSA) for January to August 2024, focusing on the Capital Requirements Directive (CRD) IV and Investment Firms Regulation (IFR) packages. Key updates include amendments to the digital operational resilience framework, new requirements for the use of benchmarks, and macroprudential policies for non-bank financial intermediaries. Additionally, the MFSA highlights submission requirements for EBA XBRL returns and changes to investment services rulebooks. These updates ensure financial institutions comply with evolving regulatory expectations.
CRD IV Package Circulars
February 1, 2024: Establishing and Classifying the Organisation Size
To comply with new EU legislation, specifically Regulation (EU) 2022/2554 on Digital Operational Resilience for the Financial Sector, the MFSA will start collecting data on the organization size of applicants and existing Authorized Persons. Applicants must establish their organization size and submit a Self-Declaration form classifying themselves as:
- Microenterprise
- Small Enterprise
- Medium-sized Enterprise or
- Non-SME.
Existing Authorized Persons must update their organization size within their Corporate Profile on the License Holder Portal and submit a self-declaration form. The MFSA will contact Authorized Persons sector by sector for this classification process. Guidance for determining organization size will be based on Commission Recommendation 2003/361/EC and additional resources from the European Commission.
CRD IV Package Circulars
July 15, 2024: Circular on the Benchmarks Regulation ('BMR') – Update to the Information Gathered relating to the Use of Benchmarks
This circular is directed at market participants, specifically those using benchmarks covered under Regulation (EU) 2016/1011 (the Benchmarks Regulation or BMR). Benchmarks are critical in determining the prices of financial instruments, contracts, and the performance of investment funds. To function effectively, they must accurately represent the market or economic reality they aim to measure. If they do not, there could be negative consequences for market integrity, financing, and financial stability.
The Benchmarks Regulation categorizes benchmarks and sets specific requirements for each type. The MFSA, as the regulatory authority overseeing users, administrators, and contributors of benchmarks, has been gathering information on benchmark usage in the local industry. To continue this assessment, the MFSA requires all market participants (excluding insurance intermediaries) to submit a form detailing their use of critical and other benchmarks as of August 31, 2024 (Benchmarks Return Template). This form must be emailed to benchmarks@mfsa.mt by September 20, 2024. Entities not using benchmarks as of this date do not need to respond, and failure to submit the form will result in being classified as non-users for regulatory purposes.
The circular applies to all MFSA license holders, including credit institutions, financial institutions, investment funds, service providers, insurance undertakings, and market operators. The use of a benchmark includes various activities such as issuing financial instruments, determining payable amounts under financial contracts, and measuring the performance of investment funds based on indices.
CRD IV Package Circulars
August 9, 2024: European Commission: Targeted Consultation Assessing the Adequacy of Macroprudential Policies for Non-Bank Financial Intermediation (NBFI)
The MFSA highlights a Consultation launched by the European Commission (EC) on May 22, 2024, focused on evaluating the adequacy of macroprudential policies for non-bank financial intermediation (NBFI). NBFI includes all financial sector entities except banks, central banks, and public financial entities. The consultation aims to identify vulnerabilities and risks within NBFIs, assess the current macroprudential framework , gather feedback on supervision challenges, and explore potential improvements. Key concerns include liquidity mismatches, excessive leverage, and interconnectedness within the NBFI sector and between NBFIs and banks. The EC will use the feedback to inform the policy planning for the 2024-2029 term of the College of Commissioners. Responses are due by November 22, 2024, and NBFI entities are encouraged to participate.
IFR Package Circulars
January 22, 2024: Submission of EBA XBRL Returns
This circular provides clarification for Investment Services Licence Holders on the submission of EBA XBRL Returns. Licence Holders must ensure that their submissions are correctly inputted and error-free. They should verify that the submission status is accepted by the EBA and check for and rectify any warnings in the EBA validation report, even if the submission is initially accepted. Licence Holders are also advised to review previous circulars on this matter and are requested to re-submit any past returns that contained errors.
IFR Package Circulars
February 5, 2024: Various Amendments to the Investment Services Rulebooks
The MFSA has issued a circular to announce amendments to the Investment Services Rulebooks. These amendments cover various aspects, including the application process for different types of funds and investment service providers, such as Alternative Investment Funds (AIFs), Professional Investor Funds (PIFs), and Retail Collective Investment Schemes (RCISs). Changes also include updates to rules for MiFID firms, UCITS management companies, AIFMs, and depositaries, as well as adjustments to cross-references and terminology in related appendices.
Overview of Amendments
- Part A AIFs, PIFs, and RCISs: The requirement for a shareholder's resolution when surrendering a Collective Investment Scheme license has been replaced with a resolution from the governing body, confirming written consent from shareholders.
- MiFID Part BI: New rules have been introduced regarding Subordinated Loan Agreements (SLAs). License holders must obtain MFSA approval before entering, amending, or terminating a SLA. These agreements must meet eligibility criteria for inclusion in own funds calculations and be supported by an auditor's declaration.
- UCITS Part BII, AIFMs Part BIII, and Depositaries Part BIV: These sections have been updated in line with changes made to SLAs under MiFID Part BI.
- Part CIV: Initially created to implement Article 37 of the AIFMD regarding the third-country passport, has not come into effect because Article 37 itself never became active. The note at the top of the Rulebook has been updated to clarify that this Rulebook will only come into force when officially communicated by the MFSA.
Next Steps
The revised rulebooks become effective the day following the publication of the circular. Stakeholders should review the amendments and ensure compliance with the new requirements. Queries can be directed to the Investment Services Supervision Function at the MFSA.
IFR Package Circulars
June 12, 2024: Circular to Investment Firms in relation to the Call for Advice on the Investment Firms Prudential Framework by the EBA and ESMA
The MFSA informs all investment firms of a call for advice from the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) on a discussion paper related to the potential review of the Investment Firms Prudential Framework. Investment firms are encouraged to provide their feedback on the proposals via the EBA consultation page by September 3, 2024, and to also send a copy of their comments to the MFSA's Investment Services Supervision Function.
Additionally, the EBA has launched an ad-hoc data collection exercise for investment firms and groups under the Markets in Financial Instruments Directive (MiFID). While participation is voluntary, it is strongly encouraged. The completed data templates should be submitted to the MFSA by July 19, 2024.
CRD IV Package Circulars
Concluding Remarks
In summary, the MFSA's recent circulars highlight important regulatory updates that financial sector participants must follow to ensure compliance. Staying informed and responsive to these changes, including new classification requirements and feedback requests, is essential for maintaining regulatory alignment and contributing to a stable financial environment.
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.