Malta Financial Services Authority (MFSA) Updates
- MFSA Guidance Paper on Money Laundering Reporting Officer
The MFSA has issued a Guidance Paper on the role of the MLRO within entities which are Subject Persons operating in the regulated financial services sector. The Guidance Paper focused on the role played by the MLRO and on its obligations not just with regards to the entity with whom the MLRO is engaged but also on the MLRO's responsibility towards protecting the integrity of the financial system.
The Guidance Paper states that the MLRO is the responsible personnel within the financial entity, being a subject person, who must make the informed decision as to whether the entity is being used to launder the proceeds of criminal activity or to support terrorism. In conjunction with this responsibility, the Guidance Paper also reminds its reader that the MLRO should receive internal reports and where grounds are found, submit Suspicious Transaction Reports (STRs).
The MLRO may also be responsible for AML/CFT related activities, including designing of policies and procedures and being the contact person with the FIAU for that Subject Person.
The Guidance Paper stresses that the MLRO must be a person of sufficient seniority within the entity and must function in an independent manner.
You can read a more detailed summary of the Guidance Paper here: https://afilexion.com/f/mfsa-published-guidance-paper-on-the-role-of-mlros
2. MFSA launches Fintech Regulatory Sandbox
The MFSA has launched a Fintech Regulatory Sandbox for Fintech Operators to test their innovations within a regulatory environment for a specified period of time and under certain prescribed conditions.
The term "Fintech Operators" captures: (i) FinTech Service Providers, meaning persons who are duly licensed or authorised to provide or who intend to provide a licensable service utilising fintech; (ii) Fintech Supplies, meaning persons who provide fintech solutions which are not captured by financial services law.
The Sandbox is based on four main objectives:
- Sustainability, in the sense that the MFSA will monitor Participants in order to see whether their innovations legitimately offer value to the consumer and the financial sector;
- Certainty, it being legal certainty within the financial services market; and
- Knowledge, it being an opportunity for the MFSA to enhance its capacity in regard to the regulatory implications and gaps of FinTech Solutions.
You can read more about the Sandbox here: https://www.gtgadvocates.com/mfsa-launches-fintech-regulatory-sandbox/
European Securities and Markets Authority (ESMA) Updates
- Proposal for Postponement of Coming into force of CSDR Settlement Discipline
ESMA has announced that it is currently working on a proposal for the postponement of the coming into force of the CSDR Settlement Discipline Regime until February of 2022 due to the COVID-19 Pandemic's implementation of regulatory projects and IT deliveries by CSDs.
The Regulatory Technical Standards on settlement discipline cover measures to prevent and address settlement fails including:
- rules for the trade allocation and confirmation process;
- cash penalties on failed transactions;
- mandatory buy-ins; and
- monitoring and reporting settlement fails.
2. ESMA Guidelines on disclosure requirements under the Prospectus Regulation
ESMA has issued guidelines on disclosure requirements in terms of the Prospectus Regulation, comprising of guidance to participants of the financial market on financial and non-financial information to be included in the prospectus.
The Guidelines cover:
- Working capital statements
- Capitalisation and indebtedness
- Profit forecasts and estimates
- Historical financial information
- Operating and financial review
- Options agreements
- Collective investment undertakings
The Guidelines clarify ESMA's expectation of the working capital statement, as well as pro forma information and for working capital statements and provides new guidance as to how offerings are to be considered when determining whether an issuer can provide a clean working capital statement.
You can read a more detailed summary here: https://www.gtgadvocates.com/esma-guidelines-on-disclosure-requirements-under-the-prospectus-regulation/
3. ESMA published its First Review Reports on the MiFIR Transparency Regime
ESMA has issued two reports reviewing key elements of MiFIR/MiFID II. The first report reviewed the MiFIR transparency regime for equity instruments and includes proposals for targeted amendments regarding the transparency obligations for trading venues and the double volume cap mechanism.
The report makes recommendations on the trading obligation for shares and the transparency provisions applicable to systematic internalisers in equity instruments. The second Report reviews the pre-trade transparency obligations applicable to systematic internalisers in non-equity instruments.
Steven Maijoor, ESMA's Chair stated:
"The reports published today shed light on existing limitations to transparency and, at the same time, clearly demonstrate ESMA's ability to deliver concrete recommendations based on the data following the implementation of MiFID II. The proposals aim to simplify the transparency regime and increase transparency available to market participants. These important reports provide a solid foundation for any review of the MiFIR transparency regime in the future".
European Banking Authority (EBA) Updates
- Financial Institutions to Finalise Preparations for the End of the Transitional Arrangements between the EU and UK
The EBA has issued an announcement reminding financial institutions of the expiry date of the transition period between the EU and UK, being the 31st December 2020. Following the lapse of the transition period, UK-based financial institutions will not be able to offer financial services to EU customers on a cross-border-basis through passporting, and must obtain the necessary authorisations or otherwise be forced to cease offering their services to the EU.
Moreover, financial institutions should make all adequate preparations and finalise the full execution of their contingency plans. UK based financial institutions should ensure that they do not outsource all of their activities which will effectively see them operating as a shell enterprise and must increase their EU footprint.
Adequate information should be provided to EU customers to be affected by the UK's withdrawal from the EU.
2. Final Q&As Published by EBA
On the 24th of July the EBA published several final replies relating to questions on the Payment Services Directive 2 (PSD2). Such questions were submitted by national competent authorities and licensees.
The following are some of the questions relating to the topic of fraud reporting pursuant to PSD2:
- If a card has both an e-money and non e-money function, how should a payment be recorded? Should the recording be different based on the type of the reporting institution (for example, depending on whether is an electronic money institution (EMI) or a bank)? For more information : https://eba.europa.eu/single-rule-book-qa/qna/view/publicId/2019_5046
- Does the breakdown on "card payments by fraud types" in Table E of the EBA Guidelines on fraud reporting under PSD2 refer only to cards with a credit/delayed debit function? For more information: https://eba.europa.eu/single-rule-book-qa/qna/view/publicId/2019_5056
- Should payment initiation service provider (PISP) initiated payments be reported under both Table A (1.1) and Table H (8.x)? More specifically how should these transactions be reported where the customer initiates a payment via a PISP, from their bank account, to one of their payees flagged in the bank's online channel as "trusted beneficiaries" (Article 13 of the RTS on SCA&CSC). For more information: https://eba.europa.eu/single-rule-book-qa/qna/view/publicId/2019_5042
- In relation to the direct debits fraud, please clarify the reporting criteria for direct debit fraud. For more information: https://eba.europa.eu/single-rule-book-qa/qna/view/publicId/2019_5043
- If a card issued by an E-money institution has a cash function, how should the cash withdrawal from that card be recorded? Should it be recorded on the debit card withdrawal, as the E-money breakdown section does not include a cash withdrawal category? For more information: https://eba.europa.eu/single-rule-book-qa/qna/view/publicId/2019_5044
- Should e-commerce card-based payment transactions – falling within the scope of the EBA Opinion on the elements of strong customer authentication under PSD2 (EBA-Op-2019-06) and for which no strong customer authentication was applied – be reported under the higher-level category "Of which authenticated via non-strong customer authentication"? For more information: https://eba.europa.eu/single-rule-book-qa/qna/view/publicId/2020_5070
European Insurance and Occupational Pensions Authority (EIOPA) Updates
- EIOPA Outlines Key Financial Stability Risks of the European Insurance and Pensions Sector
The EIOPA has published its July 2020 Financial Stability Report of the (re)insurance and occupational pensions sectors in the European Economic Area.
The Report includes two thematic articles, focusing on (i) The EU sustainable finance taxonomy from the perspective of the insurance and reinsurance sector; and (ii) The impact of EIOPA statement on insurers' dividends: Evidence from equity market.
The Report discusses the effectiveness of the Solvency II regulatory framework and how a market-consistent and risk-based approach helped insurers to better align capital to risk, build-up resilience and enhance the risk management practices.
The report discusses the impact of the COVID-19 pandemic and the financial impacts on insurers' underwriting profitability and lack thereof.
2. ESAs notify the European Commission about the outcome of the review of the PRIIPs key information document
The EIOPA announced that the European Supervisory Authorities (ESAs) have informed the European Commission of the outcome of a review conducted by the same ESAs of the key information document (KID) for packaged retail and insurance-based investment products (PRIIPs) following a consultation paper published on 16 October 2019 on draft regulatory technical standards (RTS) to amend the technical rules on the presentation, content, review and revision of KID (Delegated Regulation (EU) 2017/653). In a letter to the European Commission it was noted that the draft RTS did not receive a qualified majority support by the EIOPA Board. It was generally argued that a partial revision of the PRIIPs Delegated Regulation is not appropriate prior to a comprehensive review of Regulation (EU) No 1286/2014 as envisaged in Article 33 of the Regulation. It was also indicated that for investment funds, they would prefer the past performance graph from the UCITS key investor information document to be included in the PRIIPs KID itself, rather than in a separate publication.
In view of the fact that the draft RTS was not adopted by the three ESA Boards, the ESAs were thus not in a position to formally submit an RTS to the Commission.
This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.
Originally published August 1, 2020.
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.