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The Investment Firms Regulation and Directive (the “IFR/D Package”) became applicable on the 26th of June 2021, introducing a new prudential framework applicable to investment firms. Before the introduction of the new prudential framework, investment firms were subject to the Capital Requirements Regulation and the Capital Requirements Directive. Investment firms must note that certain small firms will still be subject to the Capital Requirements Regulation (“CRR“). Furthermore, investment firms will still be subject to MiFIR and MiFID II irrespective of the classification as explained below.

Credit institutions offering MiFID related services are out of scope of the IFR/D package and therefore will continue to be subject to the CRD V/CRR II framework.

Investment firms had to carry out a self-assessment to determine under which classification they fall. It is important to note that the licence categories (Category 1; Category 2; Category 3 and Category 4 Investment Services Licence) were based on a local framework and will no longer be in place. Therefore, going forward, the licence certificates as issued by the Malta Financial Services Authority (“MFSA”) will no longer include the Category type but there shall be indicated:

  • The investment services that the licensed entity can offer to its clients;
  • The type of clients it can service; being, retail, professional and/or eligible counterparties; and
  • The list that financial instruments can offer to its clients.

During 2020 and 2021, the MFSA issued various Briefings and Circulars for the industry to start familiarising themselves with the new framework.

Investment firms can fall within one of the following three Classes as explained below:

  • Class 1 Investment Firms – This type of Class is mainly applicable to large investment firms that [1] have their total consolidated assets amounting to or exceed EUR 15 billion, and [2] which place financial instruments on a firm commitment basis and/or deal on their own account and/or underwrite financial instruments. The above are the two main criteria which determine whether an investment firm will fall within the Class 1 classification. However, there are other principles to be taken into consideration apart from the above.
  • Class 1 Minus Investment Firms (this is a Sub-Class of Class 1) –The Investment Firms classifying under this Class shall: [1] have a total value of consolidated asset that is equal to or more than EUR 5 billion but is less than EUR 15 billion and [2] deal on own account and/or underwrite financial instruments and/or place financial instruments on a firm commitment basis. This classification does not come into force automatically, but it is within the MFSA’s discretion.

Investment firms falling within the Class 1 or Class 1 Minus must apply the CRR package in full. These investment firms will be treated as a credit institution and the reporting and disclosures must be in accordance with the CRR/CRD framework.

  • Class 3 Investment Firms – An investment firm falling within the Class 3 must at all times satisfy the following criteria:

i.  Assets under management are less than EUR 1.2 billion;

ii.  Client orders handled are less than either:

     a.  EUR 100 million/day for cash trades or

     b.  EUR 1 billion/day for derivatives.

iii.  Assets safeguarded and administered are zero;

iv.  Clients’ money held are zero;

v.   Daily trading flow is zero;

vi.  Net Position Risk or Clearing Margin Given is zero;

vii. Trading Counterparty Default is zero;

viii.The on- and off-balance sheet total of the investment firm is less than EUR 100 million;

ix.  The total annual gross revenue from investment services and activities of the investment firm is less than EUR 30 million calculated as an average on the basis of the annual figures from the two-year period immediately preceding the given financial year.

  • Class 2 Investment Firms –Firms that do not satisfy neither the requirements for Class 1, nor for Class 1 Minus, and neither for Class 3 are to be classified as Class 2.It must be noted that there is no specific list which these investment firms must adhere to.

On the 8th of October 2021, the MFSA issued another Circular where it has informed the industry that it has revised Part A of the Investment Services Rules for Investment Services (“the Rulebook”) in order to reflect the above. The main changes carried out relate to:

  • Section Four: Investment Services Licence Holders,
  • Section Seven: Fees, and
  • Section Ten: Investment Services Rules.

Amendments to Section Four of the Rulebook were carried out in order to reflect the newly adopted classification framework of Investment Service Licence Holders. The MFSA revisited this section by removing any reference to the local nomenclature ‘Categories’. Moreover, the MFSA will classify Investment Service Licence Holders in relation to their licence type; being, Depositary, Depositary Lite, UCITS Management Company, AIF Manager, De Minimis AIFM, or Investment Firm. Furthermore, the MFSA provided further guidance by enlisting the licensable activities that each entity may offer.

Further amendments were made to the wording of Section Seven of the Rulebook to reflect the novel licensing classification framework. In addition, Section Ten of the Rulebook was revised in order to implement the minimum initial capital requirements for each Licence Class that were introduced by the IFRD Package for Investment Firms.

Investment firms are to refer to the EBA Technical Standards on reporting requirements and disclosures include draft Implementing Technical Standards (“ITS“) on the levels of capital, concentration risk, liquidity, the level of activities as well as disclosure of own funds; and draft Regulatory Technical Standards (“RTS“) specifying the information that investment firms have to provide in order to enable the monitoring of the thresholds that determine whether an investment firm has to apply for authorisation as credit institution. These documents can be accessed via this link.

Reporting Requirements

Before the introduction of the new prudential framework, MiFID firms were subject to the COREP reporting. The COREP return will be replaced by the EBA XBRL template. The new XBRL return will be applicable as from Q3 2021 with the last reporting period being 30th June 2021.As per the MFSA Circular dated 11th October 2021, Investment firms had till the 1st of November 2021 to inform the Authority of their classification and submit the excel sheet via the LH portal.


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. Anthea Sammut.