MFSA announces changes to investment services rules – Finance and Banking

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29and March 2022, the Malta Financial Services Authority (“MFSA“) issued a circular to the industry in which several amendments to the Investment Services Regulations were detailed. These amendments cover the following points:

  • amendments to the transparency provisions in the Investment Services Regulations to clarify the appropriate channels that Licensees may use to disclose the information required under the Shareholder Rights Directive (“SRD II Directive“);

  • additional whistleblower protection provisions regarding employee reporting of violations;

  • updates to references to investment services rules for investment services providers, Part BI: rules applicable to investment services licensees who qualify as MiFID firms (“‘SRI ISP Part BI“‘); and

  • other miscellaneous changes relating to capital and equity requirements, reporting requirements and removal of obsolete provisions.

Changes to the ISR ISP Part BI

Transparency provisions

Minor changes have been made to the “Transparency provisions” section of the ISR ISP Part BI to clarify the appropriate channels that investment firms can use to publish the information required under Article 3i of the SRD II directive. This information is provided in the report on the audited annual financial statements for the financial year, or together with the periodic communications referred to in Article 25(6) of Directive 2014/65/EU to the institutional investor or a collective investment scheme, or published on the licensee’s website.

Whistleblowing provisions

Two new definitions have been inserted in the ISR ISP Part BI, namely the Approved Publication Arrangement definitions (“PAA“) and approved reporting mechanism (“ARM“) to accompany the provisions of Article 23.

A new section 23 dealing with the reporting of violations by employees has been included in Title 1. This new section imposes on certain institutions the obligation to develop and maintain appropriate mechanisms allowing employees to internally report potential or proven violations through a specific, independent and autonomous channel. Article 23 applies to the following establishments:

  • investment firms, ARMs and APAs subject to a derogation in accordance with Article 2(3) of the MiFIR;

  • credit institutions in the area of ​​investment services or activities and ancillary services; and

  • branches of companies from third countries.

In addition, such entities will also be required to refer to and comply with the applicable provisions of the Whistleblower Protection Act (Cap 527 of the Laws of Malta).

Amendments to the Investment Services Rules for Investment Services Providers, Part BII: Standard License Conditions Applicable to Investment Services Licensees Qualifying as UCITS Management Companies (” SRI ISP Part BII”)

Own funds and capital requirements

Two standard license terms have been introduced in place of the cross-references found in SLC 1.04 to regulate the licensee’s own funds and capital requirements. Namely, the composition and amount of own funds, as well as the calculation of the own funds requirement aligning these provisions with the ISR ISP Part BI.

Reporting requirements

The amendments also added several rules requiring licensees to submit to the Authority;

  1. the original declaration sheet of the annual financial report;

  2. the audited annual financial report;

  3. the original declaration sheet,

  4. the annual monitoring fee calculator, and

  5. the original of the declaration sheet of the interim financial report, all duly signed.

The annual financial report must be submitted in electronic copy.

Transparency provisions

The “Transparency provisions” section of the ISR ISP Part BII has also been amended to specify the appropriate channels that UCITS management companies can use to disclose the information required under article 3i of the directive. SRD II.

Amendments to the Investment Services Rules for Investment Services Providers, Part BIII:

Standard license terms applicable to investment services licensees who qualify as alternative investment fund managers (“ISR ISP Part BIII”) ISR ISP Part BI Cross References

The changes made to the ISR ISP Part BIII are identical to those of the ISR ISP Part BII insofar as the cross-references of the ISR ISP Part BI are in the SLC 1.09, the SLCs concerning equity and capital requirements, SRD reports and declarations II.

Various

References to categories have been removed as they are now considered obsolete given the introduction of classes following the IFD package.

Amendments to the rules on investment services for alternative investment funds, part B:

Notification and reporting requirements

Part B of the ISR AIF has been amended to remove the obligation to inform the AMSF of changes of address and clarifies the deadline for the submission of annual reports by AIFs admitted to listing on a regulated market in accordance with the ‘AIFMD. These entities must now report every six months.

In addition, the provision to extend the deadline for submitting financial statements for annual reports has been deleted.

Transparency provisions

The “Transparency Provisions” section of SRI AIF Part B has been amended to clarify the appropriate channels AIF managers can use to disclose the information required under SRD II.

Changes to Investment Services Rules for Retail Mutual Funds

Part BII: UCITS Collective Investment Schemes based in Malta (“SRI RCIS Part BII”)

Transparency provisions

The “Transparency Provisions” section of Part BII of the RCIS RSI has been amended to clarify the appropriate channels that UCITS may use to disclose the information required under the SRD II Directive.

Amendments to the Rules on Investment Services for Professional Investor Funds, Part BI:

Professional Investor Fund targeting Experienced Investors (“SRI PIF Part BI”)

Minimum entry levels

Minor changes have been made to replace the reference to the USD currency in the rulebook with the phrase “currency equivalent” to be in line with the relevant permissions rulebook.

Amendments to the Rules on Investment Services for Professional Investor Funds, Part BII:

Minimum entry levels

The same changes as those explained in the section on the SRI PIF Part BI have been reflected in the SRI PIF Part BII.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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