The transposition of the CRDV’

On 28 December 2021, the Capital Requirements Directive (EU/2019/878) (hereinafter referred to as ‘CRDV’), forming part of the so-called ‘CRDV Package’, which consists of (i) the Capital Requirements Regulation (‘CRRII’) and (ii) the CRDV, as well as the changes enacted to it by virtue of Article 62 of the Investment Firms Directive (EU/2019/2034) (hereinafter the ‘IFD’) were transposed into national legislation by means of Act No. LXXI of 2021 and Act. No LXXII of 2021, respectively.

Prior to the ‘IFRD Package’, being a recently enacted prudential framework targeting investment firms authorised and supervised under the Markets in Financial Instruments Directive (‘MiFID II’) and comprising the Investment Firms Regulation (‘IFR’) and the IFD, investment firms were generally subject to the same prudential framework as credit institutions, that of CRRII/CRDV framework. Following the introduction of four different Classes by the said legislative package, the CRRII/CRDV regime intends to target investment firms of significant size (otherwise referred to as systemic firms), being those firms falling under Class 1 or Class 1 Minus.

In view of the above, amendments have been affected to the Investment Services Act (Chapter 370 of the Laws of Malta) (hereinafter referred to as the ‘Act’ or ‘ISA’) and to various Subsidiary Legislation (‘S.L.’) issued under the Act, in particular to S.L. 370.15, 370.25 and 371.15 of the Laws of Malta, with the latter being repealed and replaced by S.L. 370.46 of the Laws of Malta. In addition, the Malta Financial Services Authority (‘MFSA’ or the ‘Authority’) has also enacted numerous changes to Part BI: Rules applicable to Investment Services License Holders which qualify as MiFID Firms (hereinafter the ‘Rulebook’).

The principal amendments brought upon the overarching local framework by virtue of transposing the CRDV are as follows:

Amendments to the Act

• (Mixed) Financial Holding Companies

The Act, under Article 10CA, stipulates a new approval (or exemption from approval) requirement for Financial Holding Companies and Mixed Financial Holding Companies (collectively referred to as [‘(M)FHCs’] having an investment firm as a subsidiary and fulfilling the conditions stipulated in the CRDV.

In cases, where (M)FHCs do not meet or cease to meet the conditions for approval or exemption from approval, the Act, under Article 29AA, empowers the competent authority to take any administrative action as deemed appropriate in order to ensure compliance with the consolidated requirements put forward by the relevant legislation.

• Intermediate EU Parent Undertaking

Article 10D of the Act establishes a new requirement for investment firms licensed in terms of the Act and being part of a third-country group, which has as part of the same group, one or more other credit institutions or investment firms, licensed in Malta or in another Member State. Such requirement prescribes license holders to have a single intermediate EU parent undertaking established in Malta or in another Member State, unless the total value of assets of the third-country group in the EU is less €40bn.

Amendments to Subsidiary Legislation

• S.L. 370.15 | Supervisory Review Regulations

The enacted changes incorporate, inter alia, updates to the additional own funds requirements to be met by investment firms and endow the competent authority with enhanced supervisory powers in terms of regulatory reviews of firms’ internal capital both within the regular supervisory circle and upon request.

• S.L. 370.25 | Administrative Penalties, Measures and Investigatory Powers Regulations

The amended Regulations authorise the competent authority to impose an administrative penalty or any other measure as deemed appropriate upon (M)FHCs when their conduct results in an infringement of their obligations as prescribed under the Act, any S.Ls issued thereunder and the Rulebook.

• S.L. 370.46 (repealed S.L. 371.15) | Supervisory Consolidation Regulations (CRDV)

These Regulations have been introduced in response to the IFRD legislative Package coming into force last June 2021. Whereas under the previous regime the (now repealed) Regulations used to regulate both investment firms and credit institutions, the newly introduced Regulations, serving the benefit of all parties concerned, place the focus solely on investment firms and their consolidating supervision. To that end, the said Regulations specify the instances where the MFSA, in its capacity as competent authority, may also act as the consolidating supervisor.

Amendments to the Rulebook

The enactment of the CRDV brought substantive changes upon the previous regime, that of CRDVI. 14 Articles of CRDVI, which were previously transposed in the Rulebook, had been amended, whilst 3 new Articles had been introduced by virtue of CRDV. As a result, the transposition of the CRDV effected numerous changes to the Authority’s Rulebook, with several Rules being revised to reflect the precepts of the CRDV).

The amendments introduced in the Rulebook relate, inter alia, to (i) firms’ obligations to maintain capital buffers as applicable along with exemptions thereto; (ii) restrictions on distributions; (iii) firms’ internal capital adequacy assessment process; (iv) procedures as regards Global and Other Systematically important institutions (‘G-SIIs’ and ‘O-SIIs’).

Deloitte Malta will be closely monitoring developments in the furtherance and transposition of the CRDV.