MFSA Newsle er. The MFSA has issued a Consulta on Document on the Proposed Conduct of Business Rules for the enhanced protec on of customers

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1 MFSA Newsle er January 2014 Inside this issue: S&P confirms Malta s ra ng, highlights stability of financial sector Proposed Conduct of Business Rules for the enhanced protec on of customers in investment services Economic and Market Overview Report Dra Rules for Company Services Providers Industry Updates EIOPA launches the 2014 Euro wide stress test for the insurance sector The Challenges Ahead The Financial Services Industry in 2014 Oliver Wyman MFSA Announcements S&P confirms Malta s ra ng, highlights stability of financial sector In the first credit ra ng assessment for 2014, Standard and Poor s confirmed Malta s ra ng at BBB+/A-2, while re-affirming the island s stable outlook. S&P based its judgement on its conclusion that "the stable outlook balances our view of Malta's improving prospects for economic reform against its recurrent, albeit declining, fiscal imbalances and external data inconsistencies." The agency added that the ra ngs were supported by its view of Malta's fairly strong ins tu onal and governance effec veness and its economic growth. S&P forecasted the economy to growth an average of 1.8% from 2013 to Focusing on the financial services sector, S&P noted that the domes cally owned financial system appeared to be stable while the presence of foreign-owned, interna onally oriented banks posed li le threat to the government by way of con ngent liabili es, as these ins tu ons have li le or no impact on the domes c economy. "A subset of the system is funded by resident deposits (which are partly guaranteed under the depositor compensa on scheme) and short-term foreign bank lines, but has no domes c assets. These ins tu ons could become increasingly important if they develop domes c ac vi es. The agency pointed out that Malta's external data is skewed by the presence of foreignowned ins tu ons doing li le business with the domes c economy. For this reason, the country's reported net external asset posi on of about 7% of current account receipts (10% of GDP) may be overstated. If we exclude these banks, Malta appears to have a modest net external liability posi on. Proposed Conduct of Business Rules for the enhanced protec on of customers in investment services The MFSA has issued a Consulta on Document on the Proposed Conduct of Business Rules for the enhanced protec on of customers in investment services. A Conduct of Business (Investment Services) Task Force within MFSA has presented the Board of Governors with proposals for the review of the current Conduct of Business regulatory regime in investment services and the defini on of appropriate policy changes for the enhanced protec on of customers in investment services. Some of the recommenda ons also have a bearing on the protec on of customers in the wider area of financial services. This paper summaries some of the salient features of these ini al recommenda ons as approved by the MFSA. The Consulta on Document is available on h p://goo.gl/j22yvb. Any comments and feedback are to be addressed to the MFSA Communica ons Unit by on communica- ons@mfsa.com.mt. Interested par es are kindly asked to submit any comments in wri ng by not later than 14 th March 2014.

2 Economic and Market Overview Report Economies in the Euro Area are showing ini al signs of recovery a er experiencing distress during the crisis. Economic data for 2013 indicate that the Euro Area registered growth for the first me a er 18 months of economic contrac on. Fiscal consolida- on is underway however this is overshadowed by an accumula ng general government debt. Infla on con nued to decline during 2013 falling well below the ECB s two per cent target, and is an cipated to remain low also in A major concern lies within the high unemployment rates recorded especially amongst youths which is restric ng economic progress. From a local perspec ve, economic growth con nued to outperform that of the Euro Area average, and is an cipated to grow further based on an an cipated recovery in domes c demand. Malta s growing general government debt con nues to put pressure for further fiscal consolida- on in order to a ain sustainable public finances. Infla on during 2013 followed the downward trend as that experienced in the Euro Area. Conversely, Malta s unemployment rate remained stable over the year in contrast to that experienced in the Euro Area. The financial services sector con nued to grow during 2013 increasing further its contribu on towards the economy. Further informa on on the economic performance of Malta and the Euro Area may be found in the fi h issue of the Economic and Market Overview report. This report analyses key economic indicators, comparing sta s cs and trends on Malta s economic performance as against that of the Euro Area average. Economic and licencing trends on Malta s financial services sector noted during the second part of the year are also presented. Addi onally, the report provides an economic outlook for 2014 on both the Euro Area and Malta. This report may be accessed from the MFSA website under Publica ons. Dra Rules for Company Services Providers published The Company Service Providers Act, 2013 has been published on the 24 th December, 2013 and is now in force. On the 7 th January 2014, the Authority has issued its dra Rules for Company Service Providers for consulta on with the Industry. The consulta on period closes on the 31 st January, The Company Service Providers Act, 2013 has been published on the 24 th December, 2013 and is now in force. On the 7 th January 2014, the Authority has issued its dra Rules for Company Service Providers for consulta on with the Industry. The consulta on period closes on the 31 st January, Persons who are currently providing company services within the meaning of the Company Service Providers Act have un l the 24 th March, 2014 to submit an applica on to the Authority for registra on as a company service provider. The relevant applica on form and suppor ng documents are available for download from the Authority s website (h p://goo.gl/ipe78r). Further details about the proposed dra Rules for Company Service Providers may be found on the Authority s website. Any queries regarding the proposed Regula ons are to be directed to: Dr. Michelle Mizzi Buontempo, Securi es and Markets Supervision Unit Tel: , mmizzibuontempo@mfsa.com.mt or Dr. Sarah Pulis, Securi es and Markets Supervision Unit Tel: spulis@mfsa.com.mt. Any queries rela ng to the registra on procedure may be directed to Ms. Cynthia Debono Mizzi, Authorisa on Unit Tel: , cdebonomizzi@mfsa.com.mt 2

3 Industry Updates EMIR In terms of L.N. 81 of 2013, the Malta Financial Services Authority ( MFSA ) was designated as the competent authority in Malta for the purposes of implemen ng the relevant provisions of EMIR. The MFSA is currently performing a number of EMIR related on-site inspec ons to verify the extent of implementa on of this regula on by the industry. Undertakings which will be subject to an on-site inspec on will be no fied beforehand by way of a le er. We urge all undertakings falling within the scope of EMIR to have all necessary procedures and documenta on in place. These documents will be requested during the inspec on. We would like to highlight that those undertakings falling within the scope of EMIR and which enter into OTC deriva ve contracts, are expected to have the relevant risk mi ga on techniques already in place. Furthermore, may we remind you that the repor ng obliga on under EMIR will commence on the 12 th February 2014, meaning that the relevant procedures and arrangements should at this stage be in the process of being finalised. Updated ESMA Q&A The European Securi es and Markets Authority ( ESMA ) published a set of ques ons and answers on EMIR. The Q&A provides responses to ques ons raised by the general public, market par cipants and competent authori es in rela on to the prac cal implementa on of the requirements in EMIR. ESMA last updated this Q&A on the 20 th December, Amongst others, this update includes explana ons on a number of issues rela ng to the repor ng of ETDs. A copy of this Q&A may be accessed through the following link. Contacts Should you have any queries on EMIR, please do not hesitate to contact: Mr Christopher P. Bu gieg, Deputy Director, Securi- es and Markets Supervision Unit, (cbu gieg@mfsa.com.mt), Mr Edward Grech, Analyst, Securi es and Markets Supervision Unit (egrech@mfsa.com.mt), or Mr Nathan Fenech, Analyst, Securi es and Markets Supervision Unit (nfenech@mfsa.com.mt). Publica on of RSPV Rules and Regula ons On 27 th December 2013, the Reinsurance Special Purpose Vehicles Regula ons (L.N. 452 of 2013) were published in the Government Gaze e. These Regula ons provide for the authorisa on and supervision of Reinsurance Special Purpose Vehicles (RSPVs) opera ng in Malta. In a typical RSPV transac on, an insurance or reinsurance undertaking, collec vely termed as a ceding undertaking in the Regula ons, uses a RSPV to cede risks through a reinsurance contract, or similar arrangement. The ceding undertaking transfers risks to the RSPV upon paying an agreed premium. The RSPV funds its maximum liability under the contract through the issuance of notes or bonds to the capital market, and invests its assets for profitability. One of the key characteris cs of the RSPV is that it is required by the RSPV Regula ons, to be fully funded at all mes, meaning that it is required to have at all mes assets the value of which is equal to or exceeds the aggregate maximum risk exposure, in order for the RSPV to be able to pay the amounts it is liable for as they fall due. On 16 th January 2014, the Authority issued Insurance Rule 32 of 2014 to supplement the Regula ons. Insurance Rule 32 contains an applica on form and details the requirements applicable for the authorisa on of RSPVs. This Insurance Rule came into force on 17 th January The RSPV Regula ons and Insurance Rule 32 of 2014 are both available for download from the MFSA website. An informa on note has also been issued, within which reference is made to other relevant Legisla on. Any queries or requests for clarifica ons in respect of the above should be addressed to Dr. Emaliese Lofaro Analyst, Regulatory Development Unit (elofaro@mfsa.com.mt). 3

4 Updated rules for markets in financial instruments (MiFID II/MIFIR) On 14th January 2014 the European Parliament and the Council reached an agreement on the updated rules for markets in financial instruments (MiFID II/MIFIR). The agreement on the legisla ve texts represents a cri cal milestone of the review that has been over two years in development since the Commission's proposals were first published. Background The new rules will be set as two pieces of legisla on: [i] a directly applicable regula on (MiFIR) dealing inter alia with transparency and access to trading venues and [ii] a direc ve (MiFID II) governing authorisa on and organisa on of trading venues and investor protec on. [i] The Direc ve (MiFID II) amends specific requirements regarding the provision of investment services, the scope of exemp- ons from the current Direc ve (MiFID I), requirements for investment firms on their organisa on and the conduct of their business, organisa onal requirements for trading venues, powers available to competent authori es, sanc ons and rules applicable for third party firms. [ii] The Regula on (MiFIR) sets out requirements in rela on to the disclosure of trade transparency data to the public and transac on data to competent authori es, the authorisa on and ongoing obliga ons applicable to providers of data services, the mandatory trading of deriva ves on organised venues, and specific supervisory ac ons regarding financial instruments and posi ons in deriva ves. Applicability The new rules will apply to investment firms; market operators and services providing post-trade transparency informa on in the EU. Key elements of the agreement The key elements of the agreement are as follows: The introduc on of a market structure framework the objec ve of which is to ensure trading (whenever appropriate) takes place on a regulated pla orm; The increase in equity market transparency and the establishment of the transparency principle for non-equity instruments such as bonds and deriva ves; Harmonised posi on-limits regime for commodity deriva ves with the objec ve to improve transparency; Implementa on of a new framework which will improve condi ons for compe on in the trading and clearing of financial instruments as well as the introduc on of trading controls for algorithmic trading ac vi es; Stronger investor protec on by means of the following measures: the introduc on of be er organisa onal requirements; strengthened conduct rules; the dis nc on between independent and non-independent advice; and harmonised powers and condi ons for ESMA to prohibit or restrict the marke ng and distribu on of certain financial instruments; Strengthening the exis ng regime in order to ensure effec ve and harmonised administra ve sanc ons; Harmonised regime for gran ng access to EU markets for firms from third countries based on an equivalence assessment of third country jurisdic ons by the Commission. The MFSA will keep the industry updated on any further developments. 4

5 Automated COREP Return The Automated COREP return s file size has grown considerably when compared to the previous financial return. This is mainly due to the increased automa on and number of templates issued by the European Banking Authority (EBA). As a result, the MFSA has decided to make use of a custom built database Financial Repor ng Engine & Database - (FRE/D) in order to receive the Automated COREP Return electronically. This system will replace the by a achment approach currently being used, between the Licence Holder and the Authority. The MFSA will shortly be providing the industry with the link to access the database together with the FRE/D Instruc on Manual. As a result of the new submission method and the increased number of templates, the MFSA is also proposing the use of a Digital Cer ficate to electronically sign the Automated COREP return. With this proposal, Licence Holders will no longer be required to submit the return in hardcopy. The MFSA is planning to implement this system in order to further secure confiden- al informa on with a digital cer ficate and reduce the number of printed documents. To obtain a personal Digital Cer ficate one should register for an e-id issued by the Government of Malta Cer fica on Authority by following the procedures as established on the mygov.mt web portal: h p://bit.ly/1f5hifo The MFSA invites comments or feedback by Licence Holders and their Auditors on the proposed change men oned in this circular by not later than 31 January Any queries in rela on to the implementa on of COREP to investment firms should be addressed to Mr. Andrew Said, Analyst, Securi es and Markets Supervision Unit Tel: or by on asaid@mfsa.com.mt. Stress tests represent one of the regular supervisory tools that help to assess the resilience of the insurance sector to adverse EIOPA launches the 2014 Euro wide stress test for the insurance sector situa ons and to extract valid conclusions to support the stability of the financial system. The aim of the 2014 Euro-wide exercise in 2014 is to test the resilience of insurers regarding market risk under a combina on of historical and hypothe cal scenarios. This was announced in a Press Release issued by EIOPA. The Agency also announced that addi onally, insurance risk will be tested and, as a follow-up to its Opinion on Supervisory Response to a Prolonged Low Interest Rate Environment, EIOPA will also include a low yield element in the exercise. The exercise will be run in close coopera on with the na onal supervisory authori es: the NSAs will iden fy and contact prospec ve par cipants in the test. As of now, EIOPA will provide industry par cipants with the regular updates on the status and all the upcoming steps of the stress test. Consulta ons are planned for March Timeline 30 April 2014 Launch of a Europe-wide stress test for the insurance sector; May 2014 Workshop with industry par cipants; 20 June 2014 Collec on and valida on of undertakings data by the na onal supervisory authori es (NSAs); 21 July 2014 Centralized valida on of all the submissions by EIOPA; November 2014 Disclosure of the results of the stress test analysis. 5

6 The Challenges Ahead The Financial Services Industry in 2014 Oliver Wyman Oliver Wyman s recent State of the Financial Services Industry report briefly analyses the road the industry is on and further dwells on the key challenges and opportuni es which will be se ng the scene during the coming months. Some of them are common theme whether new technologies, new business models, increased opera ng and capital costs, these are having a significant impact. In parallel, there are local economic challenges, where weak economic performances could hamper even the best financial ins tu ons, par cularly in banking and insurance. Developing regula on remains a key issue. Wyman points out to increasing regulatory burdens at the na onal, regional (EU), and interna onal level. As a natural reac on to any crisis, governments of the countries hardest hit by the crisis have responded with the strictest new regula ons. In parallel, there has been a worrying breakdown in interna onal coordina on on regula on. US and European regulators some mes pursue quite different paths from each other, par cularly on stress tes ng or on remunera on. In conclusion, Wyman takes a cau ous approach in forecas ng 2014, seeing an unstable road and an uncertain state of affairs. At this point in me, it may be a rac ve and temp ng to simply stay in line, but that is not enough when the road ahead contains obstacles, and therefore hard work remains to be done, not solely to regain lost ground but also to remain on a sustainable, constant course. A copy of the full report can be accessed at h p://goo.gl/ayzw17 European Supervisory Authori es Press Releases issued during December 2013 European Central Bank 09/01/ ECB Press Release: New Directors General for Supervision Appointed European Securi es and Markets Authority (ESMA) 15/01/ ESMA publishes updated Q&A on the Prospectus Directive European Insurance and Occupa onal Pensions Authority (EIOPA) 31/01/ EIOPA issues report outlining good practices for websites that compare insurance products 20/01/ EIOPA launches a web-section dedicated to the Insurance Stress Test

7 MFSA Licences December 2013 LICENCES ISSUED Collec ve Investment Schemes Professional Investor Funds targe ng Qualifying Investors Collec ve Investment Scheme licence issued to Innocap Fund SICAV plc in respect of one sub-fund. Collec ve Investment Scheme licence issued to NBCG Fund SICAV plc in respect of one sub-fund. Collec ve Investment Scheme licence issued to Ananea Funds SICAV plc in respect of one sub-fund. Collec ve Investment Scheme licence issued to Palladium Fund SICAV plc in respect of one sub-fund. Collec ve Investment Scheme licence issued to Swiss Investment Funds SICAV plc in respect of one sub-fund. Collec ve Investment Scheme licence issued to TTC SICAV plc in respect of one sub-fund. Incorporated Cells Collec ve Investment Scheme licence issued to Wake World Equi es IC SICAV plc. Collec ve Investment Scheme licence issued to Wake World Equi es Hedged IC SICAV plc. UCITS Collec ve Investment Scheme licences issued to Vilhena Funds SICAV plc in respect of four sub-funds. Collec ve Investment Scheme licences issued to Falcon Funds SICAV plc in respect of three sub-funds. Collec ve Investment Scheme licences issued to Tortuga Fonds SICAV plc in respect of three sub-funds. Insurance Insurance Undertakings Licence issued to Building Block Insurance (Malta) PCC Limited to carry on business of insurance in all classes of the general business. Trustees and Fiduciaries Authorisa on issued to Confiance Malta Limited to act as a trustee and to provide other fiduciary services including ac ng as an administrator of private founda ons. Authorisa on issued to Praxis Trustee & Corporate Services (Malta) Limited to act as a trustee and to provide other fiduciary services including ac ng as an administrator of private founda ons. 7

8 SURRENDERED LICENCES Collec ve Investment Schemes Professional Investor Funds targe ng Qualifying Investors Surrender of licence issued to Renaissance Ins tu onal Equi es Fund SICAV plc. Surrender of licence issued to Renaissance Ins tu onal Diversified Alpha Fund SICAV plc. Surrender of licence issued to Ama Fund SICAV plc in respect of one sub fund. Retail Non UCITS Surrender of licences issued to La Vale e Funds SICAV plc in respect of five sub-funds. EXTENDED LICENSES Banking Financial Ins tu ons Extension of licence issued to Northway Financial Corpora on Limited to provide longer term credit which is not restricted to microlending (payday lending). Extension of licence issued to Northway Broker Limited to provide longer term credit which is not restricted to microlending (payday lending). Investment Services Extension of licence issued to Pamplona PE Investments Limited to provide investment advice to professional clients (including Collec ve Investment Schemes) solely in rela on to transferable securi es. Trustees and Fiduciaries Extension of licence issued to FJV Fiduciary Limited to include ac ng as an administrator of private founda ons. 8

9 Registry of Companies New Registra ons December 2013 Companies Partnerships Total MFSA Announcements MFSA Consulta on Consulta on Document 07/01/2014 Consulta on on the Proposed Rules for Company Services Providers 10/01/2014 Consulta on on Amendments to Insurance Business (Assets and Liabili es) Regula ons, /01/2014 Proposed Conduct of Business Rules for the enhanced protec on of customers in investment services MFSA Circulars MFSA Circulars 27/12/2013 Informa on Note - Insurance Rule 31 of 2013 Preparatory Measures for Solvency II Implementa on 31/12/2013 Circular to the Banking Sector on the Amendments to Banking Rule BR/09 Measures Addressing Credit Risks arising from the Assessment of the Quality of Asset Por olios of Credit Ins tu ons Authorised under the Banking Act /01/ Circular addressed to Category 2 and 3 Investment Services Licence Holders subject to fill in the Automated COREP Return 16/01/ Circular - EMIR - MFSA On-site Inspec ons and Updated ESMA Q&A MFSA Media Releases 16/01/ Circular addressed to Investment Firms and Market Operators regarding MiFID II and MiFIR 30/01/2014 Note for Informa on - Amendments to Insurance Rule 30 of 2012 MFSA Media Releases 09/01/ Update to investors who hold investment in ARM Asset Backed Securi es SA - Catalyst Investment Group 17/01/ Update to investors who hold investments in ARM Asset Backed Securi es SA Warnings 13/01/ Update on Warning against St. Publius Corporate Services Limited - h p:// 9

10 MFSA Lis ng Authority Announcements 10/01/ Extension of period of Suspension of public offer - A25 Gold Producers Corp 24/01/ Extension of period of Suspension of public offer - A25 Gold Producers Corp Forthcoming Events Educa on Consulta ve Council (ECC) Training by members of the ECC: Malta Interna onal Training Centre Malta Ins tute of Accountants Ins tute of Financial Services You can keep up-to-date on our news and regulatory developments by regularly visi ng our website or by subscribing to our RSS feeds. Notabile Road, A ard BKR 3000, Malta Phone: ; Fax: registry.mfsa.com.mt mymoneybox.mfsa.com.mt 10