Malta Regulatory Updates – January/February 2019

At Alter Domus Malta, we understand how difficult it’s become to stay up-to-date in this constantly evolving regulatory environment. We’re committed to helping our clients remain aware of regulations that could potentially impact their operations.

We hope you find value in the below compilation of regulations that have gone into effect so far this year, both locally and internationally.

MFSA Circulars

14/01/2019 Circular – Brexit: UK FCA Temporary Permissions Regime

The purpose of this circular is to inform the industry that the MFSA have been informed by the UK Financial Conduct Authority (“FCA”) that fund managers and investment firms (hereunder referred to as “Maltese Licensed Entities”) currently passporting in to the UK need to apply to FCA under the Temporary Permissions Regime (“TPR”) in order to enable such entities to continue their regulated business within the scope of their current permissions in the UK. This regime would apply for a limited time period after the UK leaves the EU until Maltese Licensed Entities obtain full authorisation from the FCA.

It is pertinent to note that Maltese Licensed Entities currently passporting into the UK and intending to continue offering their services in the UK are urged to apply for the TPR via the FCA “Connect system.” Fund managers also need to notify the FCA of the passported funds they wish to continue to market in the UK.

The notification window will expire on 28 March 2019 and the notification procedure is free of charge.
Read the circular here.

 

14/01/2019 Circular to Collective Investment Schemes, Alternative Investment Funds Managers, UCITS Management Companies and Depositaries of Collective Investment Schemes relating to Commission Delegated Regulations on safe-keeping duties of depositaries

The purpose of this circular is to notify the industry of the publication of the Commission Delegated Regulation 2018/1618 amending Delegated Regulation 231/2013 (Level II law of AIFMD) and the Commission Delegated Regulation 2018/1619 amending Delegated Regulation (EU) 2016/438 (Level II law of UCITS V) (the “Regulations”) which were published on 30 October 2018.

The above mentioned Regulations set out rules on the safe-keeping duties of depositaries and aim to ensure stronger client protection. The changes introduced by the regulations include:

Changes to asset segregation rules (including the prohibition for the depository’s own assets to be co-mingled with UCITS and/or AIF assets held in omnibus accounts);

Considerations to be taken into account when determining the frequency of reconciliations of accounts and records of the depositaries with those of third parties; and

A requirement to seek independent legal advice confirming that the applicable insolvency law in the host Member State where the third party is located, provides for a level of protection afforded by segregated financial instruments accounts in that jurisdiction.

The new requirements contained in both regulations shall apply from 1 April 2020.
Read the circular here.

 

Legal Notices

LN 16 of 2019 Various Financial Services Laws (Amendment) Act, 2018 (ACT No.XXVI of 2018)

Further to Legal Notice XLIV of 2018 the Minister responsible for the regulation of Financial Services has established that the various amendments made to the Investment Services Act shall come into force as from 1st February, 2019.
Read the legal notice here.

ESMA News Releases

31/01/2019 ESMA publishes Opinion and Q&A on Disclosure Technical Standards under the Securitisation Regulation

ESMA has published an Opinion containing a revised set of draft regulatory and implementing technical standards (disclosure RTS/ITS) under the Securitisation Regulation, which concern the details of a securitisation to be published by the originator, sponsor and Securitisation Special Purpose Entity (SSPE).

Furthermore, in order to provide a comprehensive package of clarifications for market participants, ESMA has also developed its Q&As on the Securitisation Regulation, dealing with, inter alia, technical issues on how to complete template fields.

ESMA should be updating the said Q&As further in due course in order to provide guidance on certain unaddressed issues, such as STS Notifications and disclosure requirements.

Access the opinion here and Q&A here.

 

31/01/2019 EMIR Refit Implementation Issues

ESMA has issued a statement addressing Regulation (EU) No 648/2012 (“EMIR”) Refit implementation, as follows:

Clearing and trading obligations for small financial counterparties:

In terms of EMIR, the clearing obligation start date for counterparties in Category 3 (i.e. financial counterparties that are below €8 billion in aggregate month – end average of outstanding gross notional amount of non-cleared derivatives at group level that meet certain criteria), is 21 June 2019 for the interest rate and credit derivative classes subject to the clearing obligation. In this respect, the European Commission is proposing to amend EMIR in order to create a new category of financial counterparties whose derivative positions are below the clearing thresholds (so-called small financial counterparties) and therefore, will be exempt from the clearing obligations.

Given that Refit negotiations have not as yet been finalised, ESMA is communicating that it expects competent authorities not to prioritise their supervisory actions towards financial counterparties whose positions are expected to be below the clearing thresholds when Refit enters into force, and to generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in this are in a proportionate manner.

The back loading requirement for reporting entities:

ESMA and national competent authorities are aware of material operational challenges for reporting entities in complying with the requirements for reporting of derivatives that were outstanding on or after 16 August 2012 and terminated before the EMIR reporting start date (i.e.12February2014). The process is commonly referred to as back loading.

While the Refit proposals remove the back loading requirement from the EMIR, as the Refit negotiations have not as yet been finalised, ESMA is communicating that it expects competent authorities to apply their risk-based supervisory powers in their day-to-day enforcement of EMIR in a proportionate manner. This may include not prioritising counterparties’ reporting of back loaded transactions in their day-to-day supervision and enforcement of EMIR.

Access the statement here.

MFSA Circulars

03/01/2019 Circular addressed to Credit Institutions providing an update on the Imposition of Negative Interest Rates on Euro Denominated Deposits

The purpose of this circular is to bring to the attention of Credit Institutions, a further update to the Circular on the Imposition of Negative Interest Rates on Euro denominated Deposits issued by the MFSA in September 2018. The said circular dealt with the position taken by the MFSA (in consultation with Central Bank of Malta) with respect to the imposition of negative interest by Maltese credit institutions on Euro denominated deposits, whereby credit institutions are not to impose negative interest rates on Euro denominated deposits held with them by their clients, independently of the amount of such deposits held, the liquidity there of or the type of client holding such balances.

Nonetheless, the MFSA (also in consultation with the Central Bank of Malta) has reconsidered the criteria established on the charge of maintenance fees on deposits held by credit institutions and decided to reduce the deposit threshold from EUR 2.0million to EUR 1.5million (or the equivalent amount in any other currency).

As established in the previous circular, the said maintenance fees may only be charged:

  • To non-personal customers;
  • Subject to other terms and conditions which may be decided by the credit institution, which shall be clearly disclosed to the client in good time prior to commencing the depositary services; and
  • If it corresponds to another service being provided by the credit institution and may cover any ancillary operational costs which maybe incurred in the course if providing such a service, is proportional there to and is of a reasonable amount.

Access the circular here.

 

11/01/2019 – Circular to Credit Institutions on Banking Rule BR/09

The MFSA would like to notify credit institutions that it has issued two annexes to Banking Rule BR/09 on Measures addressing credit risks arising from the assessment of the quality of asset portfolios of Credit Institutions authorised under the Banking Act, as follows:

  1. Annex 1 – Connected Clients under Article 4(1)(39) of Regulation (EU)No575/2013 (on prudential requirements for credit institutions and investment firms amending Regulation (EU)No.648/2012), which specifies the approach required by credit institutions in applying the requirement to group two or more clients into a “group of connected clients” since they constitute a single risk as defined in Article 4(1)(39) of the Capital Requirements Regulation (“CRR”);
  2. Annex 2 – Limits on exposures to shadow banking entities, which prescribes the approach and states the methodology which credit institutions shall adopt, as part of their internal processes and policies, for the purposes of handling risk arising from exposures to shadow banking. This relates to the limits on exposures to shadow banking entities and implements EBA Guideline EBA/GL/2015/20 setting limits on exposures to shadow banking entities that carry out banking activities outside a regulated framework under Article 395(2) of the CRR.

Additionally, the MFSA has also added two new paragraphs, 63A and 70A to BR/09 to allow for the inclusion of the above-mentioned annexes. The revised BR/09 shall come into force with immediate effect.

Access the circular here.

EBA News Publications

10/01/2019 EBA publishes report on cost and performance of structured deposits

The EU Commission requested the EBA (as part of the implementation of its Capital Market Union Action Plan), to issue a report on the cost and past performance of structured deposits in the EU. Structured deposits are defined within the context of MiFID II as a deposit that is fully repayable at maturity on terms and under interest or premium which will be paid or is at risk.

The report reproduced by the EBA includes a mapping of the specific regulatory requirements on pre-contractual and/or reporting applicable to structured deposits at European and national level, and the identification of available sources of the data that would be required to fulfil the European Commission request.

Nonetheless, The EBA’s analysis concluded that it would be challenging to respond in a comprehensive manner with the information obtained from the current requirements, including from national competent authorities, and that comprehensive data cannot be procured from private data providers either. In view of the small size of the market for structured deposits that is estimated by national competent authorities, and that appears to be confirmed by the additional steps taken by the EBA summarised in this report, any additional efforts to collect data by an adhoc data collection to all 6000 credit institutions in the EU, would be disproportionate at this stage.

Access the report here.

 

17/01/2019 EBA publishes final guidance regarding the exposures to be associated with high risk

Reference should be made to Article 128(3) of the Capital Requirements Regulation (Regulation (EU) No.757/2013) (the“CRR”) which provides for the characteristics that should be taken into consideration when assessing whether an exposure should be associated particularly with high risk. Nonetheless, exposures with particularly high risks shall include any of the following exposures–(i) investments in venture capital firms; (ii) investments in AIFs; (iii) investments in private equity; and (iv) speculative immovable property financing.

Accordingly, the purpose of the said guidelinesis to:

  1. Clarify the notions of investments in venture capital firms and private equity as referred to above (i.e. within the context of Article 128(2) of the CRR); and
  2. Specify the types of exposures other than those specifically listed which should be considered as high risk (including under which circumstances these should be considered as such).

Access the guidelines here.

Legal Notices

L.N.12 of 2019 Prevention of Money Laundering Act (Cap.373), National Coordinating Committee on Combating Money Laundering and Funding of Terrorism (Amendment) Regulations, 2019

The purpose of this Legal Notice is to amend regulation 5 of the said Regulations to impose an obligation on the National Coordinating Committee on Combating Money Laundering and Funding of Terrorism to keep national risk assessments up-to-date, which in turn, should be made available to the European Commission, the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), the European Securities and Markets Authority (ESMA) and other Member States.disproportionate at this stage.

Access the legal notice here.