Updates to Part A of the Investment Services Rulebook for Investment Services Providers

On 26 June 2021, a new prudential framework targeting investment firms authorised and supervised under the Markets in Financial Instruments Directive (‘MiFID II’), known as the ‘IFRD Package’ was brought into effect comprising two main legislative instruments – the Investment Firms Regulation (EU) 2019/2033 (the ‘IFR’ or the ‘Regulation’) and the Investment Firms Directive (EU) 2019/2034 (the ‘IFD’ or the ‘Directive’).

In August 2021, the Malta Financial Services Authority (‘MFSA’) updated the Investment Services Rules, ‘Part BI: Rules Applicable to Investment Services License Holders which Qualify as MiFID Firms’, to reflect certain revisions introduced by the IFRD Package.

As of 8 October 2021, the MFSA also enacted changes to the Investment Services Rules for Investment Services Providers, ‘Part A: The Application Process’ (hereinafter referred to as the ‘Rulebook’), to incorporate the remaining revisions put forward by the IFRD Package. Changes are also expected to be introduced to the Investment Services Act (Chapter 370 of the Laws of Malta) (‘ISA’) and to various Subsidiary Legislations (‘S.L.’) under the ISA, in particular to S.L. 370.15, 370.25 and 371.15 of the Laws of Malta, in order to complete the process of implementing the IFR and transposing the IFD into local legislation.

Changes to the Rulebook

In light of the precepts of the IFRD Package mandating the classification of investment firms into three classes and one sub-class, namely, (i) Class 1 and its sub-class, Class 1 Minus; (ii) Class 2; and (iii) Class 3, the MFSA has carried out changes to Sections 4, 7 and 10 of the Rulebook.

A. Section 4 – Classification of Investment Service License Holders

Under the amended Section 4, all references to the local nomenclature ‘Categories’ have been removed, whereas Investment Services License Holders (‘ISLHs’) are to be classified according to their respective License Type, as follows:

• Investment Firm (of either Class as specified above);
• Alternative Investment Fund Manager (‘AIFM’);
• De Minimis AIFM;
• Management Companies of Undertakings for the Collective Investment in Transferable Securities (‘UCITS’);
• Depositary;
• Depositary Lite.

The revised Section 4 further specifies the licensable activities that each of the aforementioned License Types may be authorised to provide following their classification.

B. Section 7 – Fees

Although the application fees have remained intact as under the unrevised Rulebook, any reference to license categories has now been substituted for an equivalent definition of the licensable activities to be provided by each respective ISLH as authorised.

C. Section 10 – Capital Requirements

The IFRD Package requires investment firms brought in scope to hold minimum initial own funds. In this regard, the updated Section 10 caters for the new minimum initial capital requirements to which investments firms falling into any one of the classes described above must adhere. Although any reference to license categories has been erased and replaced with License Types and their corresponding licensable activities, the minimum share capital requirement for ISLHs, which are not licensed as Investment Firms, has not changed.

MFSA process

On 11 October 2021, the MFSA issued a Circular on the local implementation of the IFRD Package and the process to be followed for the submission of investments firms ‘self-certified’ classification according to the criteria found under the Regulation. Investments Firms are required to monitor their compliance with the classification prerequisites on an ongoing basis and notify the MFSA in the event of a change in their Class. Furthermore, the MFSA has launched a testing phase of XBRL submissions, whereby investment firms are to assess their compliance with the reporting obligations as arising from the IFRD Package both on a technical and substantive basis. Investment firms are highly encouraged to participate in the XBRL testing phase.

Deloitte Malta will be monitoring developments in the furtherance and implementation of the IFRD package.