As a result of the current crisis in which we find ourselves, due to the COVID-19 pandemic, the Malta Financial Services Authority (“MFSA“) issued a notice on 13th March 2020, urging investment firms, custodians, fund managers and collective investment schemes (collectively referred to as “Licence Holders“) to take into account how their operations may be affected by this pandemic. In light of this, the MFSA expects Licence Holders to take the necessary measures and precautions to deal with the evolving situation and to be able to cater for any eventuality, by having appropriate business continuity and contingency plans in place.
Business Continuity Plan (“BCP“)
Licence Holders are expected to have a BCP in place in order to ensure business continuity so when faced with a disruption, such as the one we are currently facing, any impact or loss is mitigated to the greatest extent possible. A BCP is the management process which defines the advance planning and preparations that are necessary to minimise loss and guarantee the continuity of the core business functions of the Licence Holder in the event of a disruption.
The MFSA recommends that each Licence Holder reviews, tests and, if needs be, updates their respective BCP in light of the current pandemic. Furthermore, in order to avoid disruptions vis-a-vis communication with clients and investors, Licence Holders are encouraged to review their BCP to this effect, and to share their BCPs with personnel and stakeholders. Those Licence Holders which do not have adequate BCPs in place must inform the MFSA without delay.
Physical Board Meetings
The requirement to hold physical board meetings in Malta is being waived temporarily, and instead the MFSA is encouraging Licence Holders to hold board meetings via tele or video conferencing. Notwithstanding this, Licence Holders are still obligated to minute the discussions as well as the rationale for holding the meeting via conference call, whilst the frequency of board meetings shall, as much as possible, remain the same.
Communicating with Clients and Investors
In light of the current pandemic, there have been unparalleled and unpredictable movements in the financial markets, and thus Licence Holders may experience a significant increase in the volume of client communication, which in turn may lead to temporary operational challenges. Those Licence Holders who face such a challenge and are thus unable to communicate with, or provide services to, clients are expected to upload a notice to that effect on their website and seek to provide alternative points of contact.
Moreover, Licence Holders are still expected to comply with the relevant conduct of business requirements and are thus obligated to provide comprehensive and factual information and to disclose all possible risks pertaining to investments as well as the potential effects of price volatility, interest rate fluctuations and exchange rate movements on the value of investments.
Use of Algorithmic Trading
For the purpose of avoiding detrimental effects on investors and maintaining market integrity, Licence Holders who make use of computer-driven algorithmic trading systems and pre-set orders are expected to switch off any computerised automatically executed trades based on pre-programmed instructions.
Due to the fact that the majority of Licence Holders are utilising remote working systems, which tend to be prone to cyber-attacks, the MFSA is urging Licence Holders to ensure that all the necessary measures and precautions have been taken in order to safeguard against such attacks.
The European Securities and Markets Authority (“ESMA“) also published a notice wherein it proposed a number of recommendations for financial market participants.
In unprecedented times like these, it is imperative that all stakeholders cooperate and coordinate with each other in order to mitigate, as much as possible, the adverse effects of this pandemic, so as to safeguard the main goals of financial regulation, being the orderly functioning of markets, financial stability and investor protection.
This document does not purport to give legal, financial or tax advice. Should you require further information or legal assistance, please do not hesitate to contact Dr. Giulio Sammut