New MFSA Conduct of Business Rulebook

Muscat Azzopardi | 10 Sep 2018

New MFSA Conduct of Business Rulebook

The Malta Financial Services Authority (MFSA) has recently updated its Conduct of Business Rulebook, originally issued on the 20th December 2017.

The Rulebook & the Insurance Sector

Further to the implementation of the EU Directive 2016/97, also referred to as the Insurance Distribution Directive, the Rulebook will now apply to insurance undertakings and insurance intermediaries as from the 1st October 2018. Moreover, industry participants are encouraged to contact the Conduct Supervisory Unit, with any difficulties they may encounter in implementing the requirements. This Unit will review such queries and provide a ‘Frequently Asked Questions’ documents to address the most common queries raised.

The draft Rules relating to insurance undertakings and intermediaries published on the 20th December 2017, have been amended as follows;

•    Disclosures are now to be made before certain insurance contracts are concluded – in essence, any non-life insurance products, insurance undertakings and insurance intermediaries, are required to provide standardised product information document in the language agreed upon by the client and distributor.

•    Inducement requirements are now twofold in application – those requirements applying to undertakings and intermediaries are now distinct from those applying to investment firms. This ensures that insurance undertakings and intermediaries are both subject to the aforementioned Directive, as well as the relevant implementing Regulations.

The Rulebook & the Securities Sector 

The Requirement to Provide a Suitability Statement

Rule 4.4.36 requires investment firms to provide clients with a suitability report when providing both investment advice and portfolio management services. The MFSA has now reconsidered its once strict interpretation of MIFID II. It now holds that a suitability settlement is only required when advisory services are provided.

Reporting Information on the Top 5 Execution Venues & Quality of Execution Obtained

Rule 1.3.14 requires an investment firm, executing client orders, to make public per annum, the top five execution venues in terms of trading volumes for each class of financial instruments. Such a rule will now express that investment firms should refer to the requirements of the EU Commission Delegated Regulation 2017/576 for guidance on the content, format and the way the information should be published. 

Reporting Obligations & Execution of Orders

Rule 1.4.45 required that investment firms who have carried out a subscription or redemption order from a unit holder, to notify the client. The client was then notified by means of a durable medium, intended to confirm execution of order, within the timeframes provided by the same clause.

The Rule has now been amended to clearly indicate the reporting obligations regarding the execution of orders to investment firms. Such firms must have carried out a subscription or redemption order from a unit-holder, particularly UCITs.

Reporting Requirements & Regulated Persons 

Rule 4.1.11 provides details relating to the procedure that Regulated Persons were expected to abide by when providing a product or service to a client. This included the contents of a contract note, invoice or receipt. This Rule applies to all Regulated Persons.

However, the MFSA has now amended the Rule in such which incorporates insurance undertakings and intermediaries. Thus, investment firms and credit institutions, subject to the MIFID II requirements, are no longer required to observe this Rule.

Additional Amendments Applicable to Regulated Persons

The Inclusion of a Regulatory Disclosure Requirement in Advertisements 

The regulatory statement mentioned in the Rule 1.2.13, required that advertisements issued by Regulated Persons, did not apply where the advert approved, disseminated or information provided consisted of;

i.    The name of the Regulated Person,

ii.    A logo or other image associated with said Regulated Person, 

iii.    A contact point, 

iv.    A reference to the services provided by the Regulated Person, 

v.    A reference to the fees or commissions charged by the Regulated Person. 

The MFSA, noting that Rule 1.2.13 was not consistent with the guidance provided with regards to those circumstances in which the regulatory disclosure statement is not required, amended the Rule in a way which communicates better clarity and improves consistency.

Issuing & Approval of Advertisements 

The MFSA has now added a guidance note to Rule 1.2.10. Such a note explains that while retaining responsibility for compliance with applicable legal and regulatory requirements for all advertisements that are to be issued by indicated intermediaries, Regulated Persons may consider issuing specific requirements to be adhered to by their insurance intermediaries or agents, particularly when advertisements are issued on social media. If the Regulated Person decides to indicate that advertisements issued by such intermediaries would also carry its deemed approval, said Regulated Person is required to carry out ex-post monitoring of the advertisements issued by such intermediaries.

Personal Visits & Contact with Clients 

Regulated Persons are not allowed to cold call potential clients, with the intention of setting up appointments for home visits to sell products or services. Regulated Persons are advised to avoid making unsolicited or unarranged calls as much as possible, unless they have been authorised to do so by the client. Thus, Rule 4.1.15 has been amended to convey this. 

Overview

Malta’s regulatory environment, alongside its fluent English-speaking workforce and professional resources, promote the islands as an ideal business-hub. The islands enjoy a favourable tax jurisdiction, comprehensive insurance law structures, as well as pro-EU approach – three factors which have prompted many insurance companies to conduct insurance business in Malta, and utilise the country as a base to write insurance at an EU-wide level.



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