Revisions made to the Conduct of Business Rulebook

The Malta Financial Services Authority (the “MFSA”) has recently published a circular on the 4^th July outlining a number of revisions made to the Conduct of Business Rulebook (the “Rulebook”). These amendments to the Rulebook are listed and summarised below:

Requirements Applicable to the Investments Sector

1. ESMA Guidelines on certain aspects of the MiFID II appropriateness and execution- only requirements

On the 3^rd January 2022, ESMA published its final report relating to the new Guidelines on certain aspects of the MiFID II Appropriateness and Execution-only requirements, which will apply six months after the publication on ESMA’s website in all official EU languages. The MiFID appropriateness and execution-only framework is an important element of investor protection with regard to the provision of services other than investment advice or portfolio management. The aim of the new Guidelines is to provide clarity on the application of various areas of the appropriateness assessment and execution-only requirements, thus ensuring a consistent level of investor protection.

The said Guidelines cover several important aspects of the appropriateness assessment, such as, information to be provided to clients about the purpose of the assessment, the arrangements necessary to collect information and understand clients and products, matching of clients with appropriate products and the effectiveness of warnings issued to clients; as well as clarification of other requirements, mainly the execution-only exemption, the record-keeping requirements and necessary controls.

The Guidelines are applicable to investment firms and credit institutions providing investment services and activities and to investment firms and credit institutions when selling structured deposits. Thus, the Rulebook has been amended so as to implement these Guidelines which will apply to those persons falling under points (i), (ii) and (v) of the definition of ‘Regulated Person’ in the Glossary when providing non-advised services. 

2. Amendments to the Requirements related to the Submission of Conduct-Related Data

The Rulebook has been amended to include certain requirements to reflect the submissions to MFSA of conduct-related reporting which investment firms have been complying with based on relevant MFSA Circulars which had been issued in this respect. In this regard, a new proviso to Rule R.4.1.25 (a) has been added to clarify that a Regulated Person with a different financial year end from 31 December, must submit the MiFID Firms Quarterly Reporting 42 days following the end of the reporting quarter, according to its financial year end.

3. Other Amendments to the Rulebook

R.4.2.22 of the Rulebook has been amended so that, in accordance with Article 71(2) of the MIFID II Implementing Regulation (Commission Delegated Regulation (EU) 2017/565), reference is made to R.4.2.14 of the Rulebook, the latter transposing the second subparagraph of Article 30(2) of MIFID II. R.4.2.23 of the Rulebook has also been revised to explain that in cases referred to in R.4.2.22, where a per se Eligible Counterparty requests a higher level of protection, the Regulated Person must inform the said Eligible counterparty that as a result of such request it would be benefiting from certain protections.

Requirements Applicable to the Investments and Insurance Sector

4. The Pan-European Personal Pension Product (PEPP)

The MFSA issued a Circular in March of 2021 on the implementation of Regulation (EU) 2019/1238 on a pan-European Personal Pension Product (PEPP) (the “PEPP Regulation”), which has been applicable since 22 March 2022.  The development of a PEPP has the objective of increasing choices for retirement saving, in particular for mobile workers, and establish a Union market for PEPP providers. The PEPP Regulation sets out uniform rules on the registration, provision, distribution and supervision of personal pension products that are distributed in the Union under the designation of a PEPP.

The PEPP Regulation is directly applicable and thus, a new Chapter 6 on Pan-European Personal Pension Product has been included within the Rulebook to give an overview of the relevant conduct requirements and make any relevant references to the new PEPP regulatory framework. The Rules provided in Chapter 6 are applicable to: (a) Regulated Persons which fall under point (i) and (iii) of the Regulated Person who are considered to be a “PEPP Provider” pursuant to Article 2 of the PEPP Regulation; and (b) Regulated Persons which fall under point (i), (ii), (iii) and (iv) of the definition of “Regulated Person” in the Glossary to these Rules, who are considered to be a “PEPP Distributor” pursuant to Article 2 of the PEPP Regulation.

About the Authors

This article has been authored by Dr Simon Mangion, Regulatory & Business Advisor and Dr Edward Meli, Lead Corporate Services Advisor. For further information they may be contacted on [email protected].