EXCITING TIMES FOR THE MALTESE FINANCIAL SERVICES INDUSTRY

We are pleased to inform you of some of the latest developments that have occurred over the second quarter of this year, which illustrate Malta’s continued efforts to reinforce its reputation as a financial services hub including the further development of its regulatory framework. As explained in our latest Financial Services Newsletter: 

 

 

The Malta Financial Services Authority (“MFSA”) has issued a revised Banking Rule, BR/03 on Own Funds of Credit Institutions;  

 

The MFSA has issued the amended Banking Rule BR/03 on Own Funds of Credit Institutions. The purpose of the proposed amendments to BR/03 is threefold: 

 

(1) to implement Chapter 2 “Technical Instruments of Prudential Supervision” of Directive 2006/48/EC. The major changes introduced include the requirement that interim net profits are to be verified by persons responsible for the auditing of the accounts (i.e. external auditors) if they are to be utilised for own funds purposes, while any participations held in insurance undertakings, reinsurance undertakings and insurance holding companies need to be deducted from own funds;  

 

(2) to include innovative and non-innovative instruments (subject to a 15% limit) as part of Original Own Funds. Although presently, Directive 2006/48/EC does not cater for such instruments, the forthcoming amendments to Directive 2006/48/EC include the introduction of such instruments. These amendments have been approved and are to be transposed by 31st October 2010; and 

 

(3) to include prudential filters as per CEBS “Guidelines on Prudential Filters for Regulatory Capital”. These Guidelines had been issued as a response to the new International Financial Reporting and Accounting Standards (IFRS and IAS) rules. The objective of the prudential filters is to maintain the current definition and quality of regulatory capital.  

 

 

The MFSA has circulated three consultation documents issued by CESR on the review of the Markets in Financial Instruments Directive (MiFID); 

 

MFSA continued creating awareness with respect to the upcoming changes to Markets in Financial Instruments Directive (MiFID) by circulating amongst industry players, CESR’s latest three consultation documents on the review of MiFID. The consultation documents deal with CESR’s proposed technical advice to the Commission on the revision of certain provisions relating to investor protection and intermediaries, equity markets and transaction reporting. 

 

 

A second guidance paper vis-à-vis Solvency II was issued by the MFSA; 

 

MFSA issued a second guidance paper on the System of Governance with the aim of further highlighting and explaining key elements of the Solvency II regime, in order to continue to assist insurance undertakings in their preparations for the implementation of the Solvency II regime. The guidance paper focuses on the requirements of Pillar 2, providing guidance to having an effective risk management system as well as to a prospective risk identification process through the Own Risk and Solvency Assessment (ORSA). 

 

 

CEBS seminar on Internal Governance held in Malta; 

 

The importance of stronger adherence by the European banking industry to Internal Governance Principles issued by the Committee of European Banking Supervisors (CEBS) was emphasised during a training program for European regulators held in Malta on the 20th and 21st May, 2010. The updating of CEBS Guidelines on the Supervisory Review Process for the banking sector and the enhancement of supervisory techniques with respect to internal governance processes were two of the main issues discussed at the CEBS training event focused on the practical internal governance issues that emerged in the course of the financial crisis. 

 

 

MFSA is currently consulting with the industry on EC Regulation 1060/2009 on credit rating agencies (CRA); 

 

The MFSA is currently consulting with the industry on EC Regulation 1060/2009 on credit rating agencies (CRA). The EU CRA Regulation introduces a harmonised approach to the regulation of credit rating activities in the EU and creates a registration regime for credit rating agencies which are established in the EU. The Regulation will come into force on the 7th December, 2010 and will have full legal effect in Malta without requiring transposition. 

 

 

Malta domiciled funds offered to institutional and accredited investors in Singapore; 

 

The MFSA has clarified the position of Maltese domiciled funds offered to institutional and accredited investors in Singapore with the Monetary Authority of Singapore (MAS). In terms of Section 304 of the Singapore Securities and Futures Act, Malta domiciled funds may benefit from an exemption from the recognition and prospectus requirements for offers of collective investment schemes made to institutional investors. Section 305 of the SFA provides a similar exemption, subject to prescribed modifications, for offers made to accredited investors. Through a recently launched online portal, CISNET, offerors can log on to and submit an online notification for the offering of CISs to accredited investors in Singapore. 

 

 

The MFSA launched a consultation procedure on the proposed Companies Act (Tenth Schedule) Regulations, 2010;  

 

The MFSA circulated the proposed text of the Companies Act (Tenth Schedule) Regulations, 2010 for consultation purposes. In the explanatory note accompanying the draft Regulations, it is explained that these are being proposed in order to align - to the extent possible - the provisions on Limited Partnerships in the Tenth Schedule of the Companies Act to those related to SICAVs as per the Companies Act (Investment Companies with Variable Share Capital) Regulations (Legal Notice 241 of 2006, as amended). It is also stated in the same note that “Following the coming into force of these amendments both SICAVS and Limited Partnerships will benefit from a similar legislative framework. Accordingly, it will be possible for Limited Partnerships to be formed either as a multi class partnership or as a multi fund partnership. In the latter case the multi fund partnership may also elect for the segregation of assets and liabilities of each separate fund.” 

 

 

An updated MFSA Guidance Note on The use of Side Pockets by Collective Investment Schemes was issued;  

 

The MFSA updated its Guidance Note on the use of side-pockets by collective investment schemes. Essentially, all forms of Professional Investor Funds are permitted to use side pockets in the manner described in the Guidance Note and subject to the prescribed disclosures to investors being made in the offering document.  

 

 

Investment Services Act (Financial Capital Adequacy Consolidation) Regulations, 2010; 

 

The MFSA is currently consulting with the industry on the draft legal notice Investment Services Act (Financial Capital Adequacy Consolidation) Regulations, 2010, which has the purpose of transposing the relevant articles relating to supervision on a consolidated basis. The legal notice will not apply to investment services licence holders which only provide fund management services or custody services to collective investment schemes given that these investment services licence holders do not fall within the definition of investment firm in terms of the Capital Requirements Directive. 

 

 

Consultations - Corporate Governance in Financial Institutions; 

 

The European Commission has launched a public consultation on reforming corporate governance in financial institutions. The Commission considers that an effective corporate governance system, achieved through control mechanisms and checks, should lead to the main stakeholders in financial institutions (boards of directors, shareholders, senior management, etc) assuming a higher degree of responsibility. 

 

 

Malta removed from Italian blacklists; 

 

The Italian Government has removed Malta from all its fiscal blacklists. This issue arose recently when the Italian Ministry of the Economy and Finance established new VAT reporting requirements for Italian companies with links to any country on its blacklists. By Ministerial decree dated 27th July 2010, Malta has been removed from the blacklist. The decree will take effect once it has been officially published. The news has already been made public in a number of Italian financial newspapers and in the Maltese media. 

 

 

Titles I and II of the Payment Services Directive have in large part been transposed into Maltese Law; 

 

Titles I and II the Payment Services Directive were partly transposed into Maltese law by Act II of 2010 which amends the Financial Institutions Act and partly by the MFSA Financial Institutions Rule (FIR/01/2010). However, the forthcoming Financial Institutions Rule (FIR/02/2010) will transpose the rest of the provisions in Titles I and II of the PSD. 

 

For further reading on the Maltese law regulating the Payment Institution, the new category of firms introduced by the same Directive, please click here.