Newsletter - MFSA

MFSA

August 2018

Newsletter

What’s Inside This Issue MFSA to participate in DELTA Summit

A practical approach to the understanding of Conduct Risk

Consultation on Higher Degree of Investor Protection under The Virtual Financial Assets Act

ESMA to renew prohibition on binary options

Credit agency highlights strength of banking system

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MFSA Newsletter

MFSA to participate in DELTA Summit The Malta Financial Services Authority will participate in the upcoming Delta Summit, a major international event on blockchain and digital innovation, being held in Malta this October.

comprehensively encompasses the DLT

from the fintech team shall also be

sphere. Crucially, the Maltese approach

manning a stand in order to answer any

provides legal certainty to a sector

questions.

still in its infancy until such time that international consensus is reached on a

In this context, the MFSA invites interested

more harmonised regime.

parties to visit its stand to discuss the regulatory framework with its officials.

During the summit, MFSA CEO, Joseph The Delta Summit will be a major

Cuschieri and SMSU Director, Dr

> Further information on this

milestone in what has been a very busy

Christopher P. Buttigieg shall be delivering

event is available on its website

year for the Authority with regards to

presentations in order to provide further

https://delta-summit.com

the regulation of the crypto-asset sector.

details on the Authority’s efforts to

The MFSA’s vision establishing itself as

regulate and supervise the sector. The

a regulator which fosters innovation,

importance of legal certainty, how the

is already bearing fruit with leading

three main objectives of financial services

companies considering Malta as an ideal

regulation (market stability, market

location to expand their business.

integrity and consumer protection) are achieved through the regulatory

Malta is the first country to provide a

framework and the main elements thereof,

holistic regulatory framework which

will all be discussed. Moreover, officials

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MFSA Newsletter / August 2018

A practical approach to the understanding of Conduct Risk By Sara Antonia Magri / Senior Analyst, Conduct Supervisory Unit

S

ince the advent of the Markets in

are misaligned, then a detrimental

Financial Instruments Directive

effect on the investment firm’s conduct

[‘MiFID’], investment firms operating

and customer relationships is bound to

within the investment services industry

happen which could result in high level

have become familiar with the term

of consumer complaints; poor first-

‘conduct risk’. The latter has also been

line assurance and weak compliance

prioritised by regulators. A case in point

monitoring results.

is the UK wherein a twin peaks regulatory approach was adopted through the set-up

Small investment firms might be

of the Financial Conduct Authority (FCA)

discouraged by the widely-defined

and the Prudential Regulatory Authority

obligations to tackle conduct risk.

(PRA). In Malta’s case, the Malta Financial

Nonetheless this should not act as a

Services Authority (MFSA) still remained

deterrent. As a starting point, firms should

the single regulator for financial services,

examine their business model, strategy

with the difference that a new supervisory

and structure in order to critically assess

unit was created specifically focused on

whether any of the drivers and forward-

conduct supervision, namely, the Conduct

looking risks apply to their own business.

Supervisory Unit. The concept of conduct risk needs to be Conduct risk arises when an investment

given adequate thought and thereafter

firm fails to treat customers fairly, thereby

applied to the firm’ situation.

resulting in poor or unfair outcomes for the customer. By inference, the key focus

Senior management in tandem with the

should always be on those processes

investment firm’s Compliance Officer

which directly or indirectly feature

should consider the extent of regulatory

customer interaction. If these processes

risk to which the firm is exposed to, such as: What are these regulatory risks?

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“The concept of conduct

Does the investment firm deal with

risk needs to be given

level of protection? Does it design

adequate thought...”

products that may not be understood

retail clients who require the highest and/or distribute complex financial


by its potential client base? Safeguards

encourage employees to act against the

around interaction with the customer are

customers’ best interests. One cannot

critical to the mitigation of conduct risks.

underestimate the effect of human

In particular, advisory investment firms

element on the investment firm’s ability

should implement processes in order

to mitigate conduct risk – obviously this

to ensure that advice to customers is

also features the evaluation of conflicts

suitable – undoubtedly such firms should

of interest. Clearly, the ‘tone at the top’ is

focus on the client on-boarding process as

crucial in order to gain an understanding

well as ensure that their relationship with

of the organisational culture. The latter

the customer is not one where post-sale

captures the manner in which ‘things are

neglect could lead to customer detriment.

done’; ‘how decisions are made and people are treated when they agree or disagree

Conduct risk should also rank high on

with a decision’, and ‘how people act

the Board of Directors’ agenda and it is

when no one is looking’. All these facets of

expected that new business initiatives

organisational culture have a direct impact

are scrutinized for conduct risk. Senior

on the firm’s business outcomes and

management should also ensure that

consequently on its level of conduct risk. º

the firm’s remuneration structures do not

Consultation on Higher Degree of Investor Protection under The Virtual Financial Assets Act Regulation safeguarding market integrity and protecting consumers of financial services

The MFSA is currently

is crucial for market confidence. The Malta Financial Services Authority has taken note of a

analysing, evaluating and

number of articles in international media which cite an increase in fraudulent activity and scams in relation to the cryptocurrency field.

considering all feedback received and shall be making

As a result, and in line with the functions of the Authority as set out in the Malta Financial

amendments to the proposed

Services Authority Act (Chapter 330 of the Laws of Malta), the MFSA is proposing additional

regulations and rules, as

regulation in relation to Initial VFA Offerings to complement the rules proposed in the Consultation Paper on the Virtual Financial Assets Rules for Issuers of Virtual Financial

may be necessary. In order

Assets, Chapter 2 of the proposed Virtual Financial Assets Rulebook (‘Chapter 2 of the

to further mitigate risks and

Rulebook’).

enhance investor protection,

Chapter 2 of the Rulebook which was issued for consultation on the 30 August 2018,

the Authority is proposing a

already sets out a number of measures which are aimed at safeguarding investors and

number of changes set out in

ensuring market integrity. These inter alia include the appointment of a number of

subsequent sections of this

functionaries, such as the Money Laundering Reporting Officer, requirements relating

consultation document. The

to cyber-security and record keeping, transparency and admission to trading on a DLT exchange. The consultation period for Chapter 2 of the Rulebook closed on the 13 August

scope of this Consultation,

2018 and the Authority is pleased to note that numerous feedback has been submitted by

which is available on www.

various stakeholders.

mfsa.com.mt/vfa is to obtain industry feedback in relation to the Authority’s proposals.

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ESMA to renew prohibition on binary options The European Securities and Markets Authority (ESMA) has agreed to renew the prohibition of the marketing, distribution or sale of binary options to retail clients, in effect since 2 August, from 2 October 2018 for a further threemonth period. ESMA has also agreed on the exclusion of a limited number of products from the scope of the measure, as detailed below. ESMA considers that a significant investor protection concern related to the offer of binary options to retail clients continues to exist.

In addition, products that at the end of

(c) the binary option does not expose

the term have one of two predetermined

the provider to market risk throughout

payouts, neither of which is less than

the term of the binary option and the

the initial investment of the client, will

provider or any of its group entities do

be excluded. The pay-out for this type

not make a profit or loss from the binary

of binary option could be the higher or

option, other than previously disclosed

lower one but in either circumstances the

commissions, transaction fees or other

investor would not lose money compared

related charges.

to their total investment. ESMA will continue to keep these products As the investor’s capital is not at risk these

under review during the prohibition

products should be explicitly excluded.

period. The renewal was agreed by ESMA’s

Hence, ESMA agreed to exclude from the

Board of Supervisors on 22 August 2018.

scope of the renewal the following binary options:

ESMA intends to adopt the renewal measure in the official languages of the

During its review of the intervention

A binary option for which the lower of the

EU in the coming weeks, following which

measure, ESMA considered the specific

two predetermined fixed amounts is at

ESMA will publish an official notice on

features of binary options currently within

least equal to the total payment made by a

its website. The measure will then be

the scope of the measures. Certain binary

retail client for the binary option, including

published in the Official Journal of the EU

options were found to have specific features

any commissions, transaction fees and

and will start to apply from 2 October 2018

which mitigate the risk of investor detriment,

other related costs; and a binary option

for a period of three months.

namely; they are sufficiently long-term

that meets cumulatively the following

(at least 90 days); are accompanied by a

three (3) conditions:

prospectus; and are fully hedged by the provider or another entity within the same

(a) the term from issuance to maturity is

group as the provider.

at least ninety (90) calendar days;

Should you have any queries regarding the above, kindly

ESMA considers that a binary option that

(b) a prospectus drawn up and approved

benefits from the cumulative effect of

in accordance with the Prospectus

these three criteria is less likely to lead to a

Directive (2003/71/EC) is available to

significant investor protection concern.

the public; and

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contact the Conduct Supervisory Unit [email protected] or [email protected]


Credit agency highlights strength of banking system The stability of Malta’s financial services received a strong endorsement by credit rating agency DBRS, highlighting local banks’ healthy Tier 1 capital ratios, the high levels of liquidity as well as good profitability levels. DBRS also positively remarked on the local banks’ lending strategies, which lessen the potential negative impacts on the economy.

Malta’s government debt, relative to its

current account surplus was sustained

GDP, continues to decline. It peaked at

reflecting the solid performance of the

70.1 per cent of the economy in 2011 and

internationally-oriented services sector.

stood at 50.7 per cent last year, DBRS said,

Earlier in August, another credit rating

and is now among the EU’s lowest. The IMF,

agency, Fitch, has also issued a strong

European Commission and Central Bank of

endorsement in its regular review, and

Malta all expect it to continue dropping.

confirmed Malta’s credit rating as A+ with a stable outlook.

The 2018 Summer Forecast positively notes that moderate wage dynamics and regulated prices in the electricity market have helped keep inflation slightly below

The agency welcomed efforts to introduce

the euro area average. Inflation is expected

stricter anti-money laundering legislation,

to gradually pick up but remain under the

increase resources and establish national

2 per cent, next year.

coordinating mechanisms by 2020.

The European Commission further acknowledges that Malta’s sizeable

Looking at the economy in general, the agency highlighted Malta’s economic growth, which still exceeds the European average, while remarking on the consolidation of its financial position, which is registering a fiscal surplus.

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MFSA Newsletter

MFSA Circulars

02/08/2018

Circular to Collective Investment Schemes licensed in Malta in relation to submission of Central Bank of Malta statistical returns

13/08/2018

Spots and Foreign Exchange (FX) Forward Contracts and their scope in MiFID II

MFSA Consultation Documents & Feedback Statements

27/08/2018

ESMA to renew prohibition on Binary Options

21/08/2018

Consultation Paper on achieving a Higher Degree of Investor Protection under the Virtual Financial Assets Act

31/08/2018

Consultation Paper on the Virtual Financial Assets Rules for VFA Service Providers

MFSA Media Releases

02/08/2018

MFSA statement regarding S&P’s global rating on Bank of Valletta

Warnings

Foreign warnings received by MFSA can be viewed on MFSA Website / Announcements / Warnings

European Supervisory Authorities’ Announcements

24/08/2018

ESMA to renew prohibition on binary options for a further three months

29/08/2018

EBA launches consultations on supervisory reporting for the reporting framework

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MFSA Newsletter

MFSA Licences – August 2018

New Licences

Extension and Revised Licences

UCITS

Collective Investment Schemes


Surrender of licence issued to 2.1

Alternative Investor Fund

Professional Investor Funds

Alternative Investments SICAV plc (“the

Collective Investment Scheme licence

Revision of licence issued to Clerkenwell

Scheme”) in respect of it’s one and only

issued to RohFund Global SICAV plc (“the

SICAV plc (“the Company”) in relation

sub-fund.

Scheme”) in respect to one sub-fund.

to one sub-fund so as to reflect the

Professional Investor Fund

conversion of the Sub-Fund into a Sub-

Surrender of licence issued to Libero

Fund targeting Qualifying Investors.

International SICAV plc (“the Scheme”) in respect of one sub-fund.

Collective Investment Scheme licence issued to Audentia Capital SICAV II plc (“the

Insurance

Scheme”) in respect to one sub-fund.

Revision of licence issued to Propgen

Trusts and Trustees

Insurance Limited to reflect a change in

Cancellation of Authorisation issued to DF

the classes of insurance business.

Corporate Services Limited.

issued Eiger SICAV plc (“the Scheme”) in

Investment Services

Investment Services

respect to one sub-fund.

Revision of Category 2 licence issued to SDP

Surrender of Category 1 licence issued

Capital Management (Malta) Limited

to Hyde Park Investment International

Pensions

(“the Company”) to include Management

Limited.

Personal Retirement Scheme

of Investments for Professional Clients

Registration of The Ohio Pension Scheme

(including Collective Investment Schemes)

Surrender of Category 1 licence issued

as a personal retirement scheme in terms

in relation to all the instruments listed in the

to W & J Coppini Investment Services

of Article 4 of the Retirement Pensions Act.

Company’s licence.

Limited.

Company Service Provider

Revision of Category 2 licence issued to

Surrender of Category 2 licence issued to

Registration certificate issued to Vista

Standard Advisory Services Limited

Thybo Investment Management (Malta)

Marine & Aviation Limited.

(“the Company”) to provide (i) Investment

Limited.

UCITS Collective Investment Scheme licence

advice, (ii) Management of investments, Registration certificate issued to AML-

(iii) Reception and transmission of order,

Surrender of Category 2 licence issued to

Atlantis Management Ltd.

and (iv) Execution of orders on behalf

Somerset Management (Malta) Limited.

of other persons to Professional Clients Registration certificate issued to Integra

(excluding collective investment schemes)

Company Service Provider

Corporate Services Limited.

and to Eligible Counterparties.

Cancellation of registration issued to Geofocus Solutions Limited (“the

Investment Services

Surrendered Licences

Category 2 licence issued to Huber &


Partners Limited.

Professional Investor Funds

Company”).

Surrender of licence issued to J8 Umbrella

Registry of Companies - New Registrations - August 2018

Securitisation Vehicle

Funds SICAV plc (“the Scheme”) in respect

Companies 280

Acknowledgment issued to Knight

of one sub-fund.

Partnerships

7

Capital Cell.

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Forthcoming Events 11 September 2018

3-5 October 2018

Seminar on Due Diligence and

Delta Summit

Cybersecurity in relation to DLT

Training by members of the ECC: •

Malta International Training Centre

•

PricewaterhouseCoopers

•

Malta Institute of Accountants

•

Malta College of Arts, Science and

•

Malta Stock Exchange Institute (MSEI)

Technology (MCAST), Institute of

•

Institute of Financial Services

Business & Commerce

•

Institute of Legal Studies

•

Institute of Financial Services

Finance, Faculty of Economics,

Practitioners

Management & Accountancy, The

•

Malta Institute of Management

University of Malta

•

Castille Institute

•

Communications to be addressed to: The Secretary, Educational

Consultative Council, MFSA, Notabile Road, Attard.

The Department of Banking &

A portal of financial information from the regulator about financial products and services.

You can keep up-to-date on our news and regulatory developments by regularly visiting our website or by subscribing to our RSS feeds.

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