MFSA Consults on Single Conduct of Business Rulebook

MFSA Consults on Single Conduct of Business Rulebook

In terms of a Notice published by the Malta Financial Services Authority (“MFSA”) on the 29th May 2015, the period of the consultation described herein regarding the creation of a proposed Conduct of Business Rulebook has been extended to the 10th July, 2015.

On the 6th May 2015, the MFSA issued a Consultation Document representing the first phase of the implementation of a comprehensive Conduct of Business Rulebook of broad application, which will effectively extend to investment firms, UCITS management companies and insurance companies and intermediaries and, limitedly, credit institutions which sell or advise clients in relation to structured deposits.

the Investment Services task force proposed the creation of a single, unified Code regulating Conduct of Business in financial services

The Consultation Paper is the product of the work of 2 internal task forces, appointed by the MFSA over the course of 2013, comprising an Investment Services task force and a task force to analyse Consumer Redress to review the existing Conduct of Business regulatory regime in investment services, with a view to enhancing protection of customers in investment services. To this end, the Investment Services task force proposed the creation of a single, unified Code regulating Conduct of Business in financial services.

Accordingly, the scope of the MFSA’s Consultation is ostensibly to obtain the financial services industry’s views on:

  • The first three draft Chapters in the Conduct of Business Rulebook dealing with (i) Client Disclosure Requirements, (ii) Product Governance and Oversight and (iii) Conflicts of Interest;
  • Regulatory approaches which the MFSA proposed to adopt in relation to specific areas such as the selling of complex products, the application of the Rulebook to structured deposits, documents to be provided to clients in Maltese and English.

It is understood that subsequent phases of the MFSA’s consultation will tackle various other chapters of the proposed Rulebook and will be issued in due course.

The Rulebook will initially apply to persons providing investment services (excluding custodians) and to persons carrying on insurance activities, however, it is understood that the conduct of other regulated persons would also fall under the remit of the Conduct Supervisory Unit, at a later stage.

The Code should be geared towards consolidating existing legal instruments into a single document and also encompassing new conduct of business practices driven by domestic experiences and EU legislation

The MFSA indicated that this initial phase of implementing the Code should be geared towards consolidating existing legal instruments into a single document and also seek to encompass new conduct of business practices driven by domestic experiences and EU legislation. Accordingly, the MFSA Conduct of Business Rulebook seeks to transpose the various requirements of MiFID II, the current Insurance Mediation Directive (“IMD I”) and the proposed new IMD (IMD II) and, to a lesser extent certain, provisions relating to Solvency II and UCITS IV and V (together with the relevant Level 2 measures) and also the Technical Advice issued by ESMA and which was presented to the Commission for the latter to issue Level 2 Measures under MiFID II.

It is anticipated that the “Regulated persons” that will be subject to the MFSA Conduct of Business Rulebook will include:

  • persons holding an Investment Services licence within the meaning of the Investment Services Act, other than Alternative Investment Fund Managers (AIFMs) or persons licensed to act as custodians in relation to collective investment schemes, including a European investment firm which has established a branch in Malta in exercise of a European right in terms of the ‘European Passport rights for Investment Firms Regulations’ and a European management company which has established a branch in Malta in terms of the ‘Investment Services Act (UCITS Management Company Passport) Regulations, in so far as it provides MiFID services in terms of Article 6(3) of the UCITS IV Directive or if it markets its UCITS in Malta;
  • persons registered under the Investment Services Act (Tied Agents) Regulations, 2007;
  • persons authorised to carry on the business of insurance under the Insurance Business Act;
  • persons enrolled under the Insurance Intermediaries Act to act as insurance brokers, insurance agents, insurance managers or tied insurance intermediaries; and
  • persons licensed as credit institutions under the Banking Act who sell or advise clients in relation to structured deposits.

It is understood that the Conduct of Business Rulebook will be divided into the following broad Chapters:

  1. Client Disclosures and Reporting
  2. Product Governance
  3. Conflicts of Interest
  4. Selling Process and Practices
  5. Contractual Agreement with Retail Clients
  6. Execution of clients’ orders
  7. Governance of Regulated persons.

The MFSA’s Consultation Process, as duly extended by the MFSA, in respect of this first phase closes on the 10th July 2015.

It is anticipated that the MFSA will publish the final Conduct of Business Rulebook once all the parts of the proposed Rulebook have been issued for consultation to the financial services industry.

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