Regulations, 2004

L.N. 87 of 2004

INVESTMENT SERVICES ACT

(Cap. 370)

European Passport Rights for Investment Firms

Regulations, 2004

IN exercise of the powers conferred by article 12 of the

Investment Services Act, the Minister of Finance and Economic

Affairs, acting on the advice of the Malta Financial Services

Authority as the competent authority appointed for the purposes of

the Act, has made the following regulations>-

(1) The title of these regulations is the European Passport

Rights for Investment Firms Regulations, 2004.

(2) These regulations shall come into force on the 1 st May,

2004.

Annex to the Directive

“SECTION A

Services

1. (a) Reception and transmission, on behalf of investors, of orders in relation

to one or more of the instruments listed in Section B.

(b) Execution of such orders other than for own account.

2. Dealing in any of the instruments listed in Section B for own account.

3. Managing portfolios of investments in accordance with mandates given by

investors on a discriminatory, client-by-client basis where such portfolios include

one or more of the instruments listed in Section B.

4. Underwriting in respect of issues of any of the instruments listed in Section

B and,or the placing of such issues.

SECTION B

Instruments

1. (a) Transferable securities.

(b) Units in collective investment undertakings.

2. Money-market instruments.

3. Financial-futures contracts, including equivalent cash-settled instruments.

4. Forward interest-rate agreements (FRAs).

5. Interest-rate, currency and equity swaps.

6. Options to acquire or dispose of any instruments falling within this section

of the Annex, including equivalent cash-settled instruments. This category includes

in particular options on currency and on interest rates.

SECTION C

Non-core services

1. Safekeeping and administration in relation to one or more of the instruments

listed in Section B.

2. Safe custody services.

3. Granting credits or loans to an investor to allow him to carry out a transaction

in one or more of the instruments listed in Section B, where the firm granting the

credit or loan is involved in the transaction.

4. Advice to undertakings on capital structure, industrial strategy and related

matters and advice and service relating to mergers and the purchase of undertakings.

5. Services related to underwriting.

6. Investment advice concerning one or more of the instruments listed in

Section B.

7. Foreign-exchange service where these are connected with the provision of

investment services.”

B

In these regulations, unless the context otherwise requires-

“the Act” means the Investment Services Act<

“branch” means a place of business which is a part of the

investment firm, and which has no legal personality and which

provides the services for which the investment firm has been

authorised< all the places of business set up in the same Member

State or EEA State by an investment firm with headquarters in

another Member State or EEA State shall be regarded as a single

branch<

“Commission” means the Commission of the European

Communities<

“competent authority” means the Malta Financial Services

Authority appointed under article 2A of the Act<

“core investment service” means a service listed in Section

A of the Annex to the Directive, incorporated in Schedule 1 to

these regulations<

“Directive” means Council Directive 93#22#EEC of the 10 th

May 1993 on investment services in the securities field as

amended from time to time<

“EEA State” means a State which is a contracting party to

the agreement on the European Economic Area signed at Oporto

on the 2 nd May 1992 as amended by the Protocol signed at

Brussels on the 17 th March 1993 and as amended from time to

time<

“European investment firm” means an investment firm as

defined in Article 1(2) of the Directive authorised by its foreign

authority within the meaning of Article 3 of the Directive or

authorised by a foreign authority in an EEA State<

“European right” means the entitlement of a person to

establish a branch, or provide services, in a Member State or

EEA State other than that in which it has its head office –

(a) in accordance with the Treaty as applied in the

Member State or EEA State< and

(b) subject to the requirements of the Directive and

subject to any rules, regulations, or Guidelines made under

the Act implementing such requirements<

“foreign authority” means the body or bodies designated

by a Member State or EEA State>

(a) to act as a supervisory authority in relation to

the European investment firm concerned in that Member

State or EEA State within the meaning of the Directive,

or

(b) to carry out the duties provided for in the

Directive in relation to a Maltese investment firm

exercising or proposing to exercise a European right<

“Guidelines” means the Investment Services Guidelines within

the meaning of article 6 of the Act<

“home Member State or EEA State” means

(a) where the European investment firm is a natural person,

the Member State or EEA State in which the head office of that

person is situated< or

(b) where the European investment firm is a legal

person, the Member State or EEA State in which its

registered office is situated or, if under its national law it

has no registered office, the Member State or EEA State

in which its head office is situated<

“host Member State or EEA State” means the Member State

or EEA State where a Maltese investment firm exercises or

proposes to exercise European rights<

“investment firm” means any person, other than persons

to whom the Directive does not apply in terms of Article 2 of

the said Directive incorporated in Schedule 2 to these

regulations, whose regular occupation or business is the

provision of any one or more core investment services to third

parties on a professional basis<

“Maltese rules” means rules –

(a) made in accordance with the Directive< and

(b) which are the responsibility of the competent

authority (as to implementation, supervision and

compliance) in accordance with the Directive and subject

to the provisions of the Act and any rules, regulations and

Guidelines made thereunder<

“Maltese investment firm” means a person licensed in

terms of the Act, whose head office is in Malta and who is

entitled to carry on an activity in a Member State or EEA State

other than Malta in exercise of a European right<

“Member State” means a Member State of the European

Communities<

“non-core service” means a service listed in Section C

of the Annex to the Directive, incorporated in Schedule 1 to

these regulations<

“supervisory authority” means the foreign authority in a

Member State or EEA State<

“Treaty” means Treaty of Rome signed in 1957, establishing

the European Economic Community as subsequently amended<

“Tribunal” means the Financial Services Tribunal established

in terms of the Malta Financial Services Authority Act.

Part I – Exercise of Passport Rights by European investment

firms

Article 2(2) of the Directive

“2. This Directive shall not apply to>

(a) insurance undertakings as defined in Article 1 of Directive 73#239#EEC

or Article 1 of Directive 79#267#EEC or undertakings carrying on the

reinsurance and retrocession activities referred to in Directive 64#225#EEC <

(b) firms which provide investment services exclusively for their parent

undertakings, for their subsidiaries or for other subsidiaries of their parent

undertakings<

(c) persons providing an investment service where that service is provided

in an incidental manner in the course of a professional activity and that activity

is regulated by legal or regulatory provisions or a code of ethics governing

the profession which do not exclude the provision of that service<

(d) firms that provide investment services consisting exclusively in the

administration of employee-participation schemes<

(e) firms that provide investment services that consist in providing both

the services referred to in (b) and those referred to in (d)<

(f) the central banks of Member States or EEA States and other national

bodies performing similar functions and other public bodies charged with or

intervening in the management of the public debt<

(g) firms

- which may not hold clients’ funds or securities and which for that

reason may not at any time place themselves in debit with their clients,

and

- which may not provide any investment service except the reception

and transmission of orders in transferable securities and units in collective

investment undertakings, and

- which in the course of providing that service may transmit orders

only to

(i) investment firms authorized in accordance with this Directive<

(ii) credit institutions authorized in accordance with Directives

77#780#EEC and 89#646#EEC<

(iii) branches of investment firms or of credit institutions which are

authorized in a third country and which are subject to and comply with

prudential rules considered by the foreign authority as at least as stringent

as those laid down in this Directive, in Directive 89#646#EEC or in

Directive 93#6#EEC<

(iv) collective investment undertakings authorized under the law of

a Member State or EEA State to market units to the public and to the

managers of such undertakings<

(v) investment companies with fixed capital, as defined in Article

15 (4) of Directive 77#91#EEC (13), the securities of which are listed or

dealt in on a regulated market in a Member State or EEA State<

- the activities of which are governed at national level by rules or by

a code of ethics<

(h) collective investment undertakings whether coordinated at Community

level or not and the depositaries and managers of such undertakings<

(i) persons whose main business is trading in commodities amongst

themselves or with producers or professional users of such products and who

provide investment services only for such producers and professional users to

the extent necessary for their main business<

(j) firms that provide investment services consisting exclusively in dealing

for their own account on financial-futures or options markets or which deal

for the accounts of other members of those markets or make prices for them

and which are guaranteed by clearing members of the same markets.

Responsibility for ensuring the performance of contracts entered into by such

firms must be assumed by clearing members of the same markets<

(k) associations set up by Danish pension funds with the sole aim of

managing the assets of pension funds that are members of those associations<

(l) ‘agenti di cambio’ whose activities and functions are governed by

Italian Royal Decree No 222 of 7 March 1925 and subsequent provisions

amending it, and who are authorized to carry on their activities under Article

19 of Italian Law No 1 of 2 January, 1991.”

Mitbug[ fl-Istamperija tal-Gvern — Printed at the Government Printing Press

(1) A European investment firm which is seeking to Exercise of

establish a branch in Malta in exercise of a European right shall passport

by European

satisfy the establishment conditions specified in subregulation (2) investment firms-

establishment.

of this regulation and shall be exempt from the provisions of article

3 of the Act.

(2) The establishment conditions for the purposes of this

regulation are that –

(a) the European investment firm has given the

supervisory authority in its home Member State or EEA State a

notice containing the requisite details of that State in terms of

Article 17 of the Directive<

(b) the competent authority has received a consent notice

in accordance with paragraph (c), from the supervisory authority

of such European investment firm stating that it has given its

consent to the investment firm to establish a branch in Malta<

and

(c)

the consent notice shall –

(i)

be given in accordance with the Directive<

(ii) certify that the European investment firm is

authorised to act as an investment firm by the foreign

authority<

(iii)

identify the activities to which the consent

relates<

(iv) contain the information stated in the notice

given by the European investment firm in terms of

paragraph (a) above< and

(v) contain details of any compensation scheme

which is intended to protect the branch’s clients.

(3) The supervisory authority of the European investment

firm shall inform the competent authority of any change in the details

of a compensation scheme referred to in subregulation (2) of this

regulation.

(4) A branch of a European investment firm shall not

commence business unless –

(a) it has been informed by the competent authority of

any applicable provisions and that it may establish the branch<

or

(b) two months have elapsed from the date when the

competent authority received the consent notice.

(5)

In the event of a change in any of the following

particulars, the European investment firm shall give written notice

of that change to the competent authority and its supervisory authority

at least one month before implementing the change -

(a) the programme of operations setting out inter alia

the types of business envisaged and the organizational structure

of the branch<

(b) the address in Malta from where documents may be

obtained< and

(c) the names of those responsible for the management

of the branch.

(6)

For the purposes of this regulation “applicable

provisions” means the Maltese rules with which the European

investment firm is required to comply when carrying on an activity

identified in the consent notice through a branch in Malta.

(1) A European investment firm which is seeking to

provide services in Malta in exercise of a European right shall satisfy

the service conditions specified in subregulation (2) of this regulation

and shall be exempt from the provisions of article 3 of the Act.

(2)

The service conditions for the purposes of this

regulation are that -

(a) the European investment firm has given its

supervisory authority a notice of intention to provide services

in Malta with the requisite details in terms of Article 18 of the

Directive< and

(b) the competent authority has received a notice of such

intention from the supervisory authority of the European

investment firm.

(3) When the competent authority has received such a

notice and has been informed of the intention of the European

investment firm to provide services in Malta, it shall, where

appropriate –

(a) prepare for the supervision of the European

investment firm< and

(b) notify the European investment firm of the applicable

provisions, if any.

(4) In the event of a change in the content of the

information given in relation to the programme of operations stating

in particular the investment service or services which the European

investment firm intends to provide, the European investment firm

shall give written notice of that change to the competent authority

and its supervisory authority before implementing such change.

(5) For the purposes of this regulation “applicable

provisions” means the Maltese rules with which the European

investment firm is required to comply when carrying on an activity

identified in the notice from the supervisory authority of the European

investment firm by providing services in Malta.

(1) The competent authority may, for statistical purposes, Reporting to the

competent

require a European investment firm which has established a branch authority.

in Malta in terms of these regulations, to report periodically on its

activities in Malta.

(2) In discharging its responsibilities within the meaning

of Article 19 of the Directive, the competent authority may require

such a European investment firm to provide the same particulars as

Maltese investment firms for that purpose.

(3) The competent authority may require a European

investment firm providing services in Malta, to provide the

information necessary for the monitoring of its compliance with the

standards set by the competent authority to the extent permitted by

the Directive.

A European investment firm shall not be prohibited from Advertising.

advertising its services through any available means of

communication in Malta provided that it complies with any

applicable laws and Guidelines.

(1) Where a European investment firm carries on business

in Malta through a branch in exercise of a European right, its

supervisory authority may, after informing the competent authority,

either directly or through an intermediary it appoints for the purpose,

carry out on-site verification of the information within the meaning

of Article 23 (3) as referred to in Article 24 of the Directive.

(2) The foreign authority may also ask the competent

authority to have such on-site verification carried out. The competent

authority shall, within the framework of its powers under the law,

act upon the request by carrying out the verification itself or by

allowing the requesting authority to carry it out or by allowing

auditors or experts to do so.

(3) This regulation shall not affect the right of the

competent authority, in discharging its responsibilities under the

Directive, to carry out on-site verifications of branches established

in Malta.

Part II – Exercise of Passport Rights by Maltese investment

firms

(1) A Maltese investment firm may exercise a European

right to establish a branch if it satisfies the requirements set out in

the following provisions of this regulation.

investment firms –

(2) The Maltese investment firm shall give the competent

authority a notice of intention to establish a branch which shall

contain -

(a) the Member State or EEA State within the territory

of which the investment firm plans to establish a branch<

(b) a programme of operations identifying the activities

which it seeks to carry on through the branch<

(c) the address of the proposed branch from where

documents may be obtained<

(d) the proposed organisational structure of the branch

and the names of the proposed managers< and

(e) such other information as may be specified by means

of Guidelines.

(3) Without prejudice to subregulations (6) and (8) of this

regulation the competent authority shall give a consent notice within

the terms of subregulation (4) of this regulation to the foreign

authority within three months of receiving a complete notice of

intention.

(4) The consent notice shall –

(a)

be given in accordance with the Directive<

(b) certify that the Maltese investment firm is licensed

to act as such an investment firm by the competent authority<

(c)

identify the activities to which consent relates<

(d) contain the information stated in the notice of

intention of the Maltese investment firm<

(e) contain details of any compensation scheme which is

intended to protect the branch’s investors< and

(f) include such other information as may be specified

by means of Guidelines.

(5) The foreign authority shall be informed by the

competent authority of any change in the details of a compensation

scheme referred to in subregulation (4) of this regulation.

(6) If the European right of the Maltese investment firm

derives from the Directive and the requirements specified in

subregulation (2) of this regulation are satisfied, the competent

authority shall issue a consent notice to the foreign authority unless

it has reason to doubt the adequacy of the administrative structure

or the financial situation of the Maltese investment firm, taking into

account the activities envisaged>

Provided that in the event of change in any of the particulars

referred to in this subregulation the competent authority shall inform

the foreign authority accordingly.

(7) If the competent authority decides to refuse to give a

consent notice –

(a) it shall, within three months from the date when it

received a complete notice of intention, give the person who

gave that notice the reasons for its decision in writing< and

(b) that person may appeal to the Tribunal and the

provisions of article 19 of the Act shall apply mutatis mutandis.

(8) A branch of the Maltese investment firm shall not

commence business unless –

(a) the foreign authority notifies the Maltese investment

firm of the applicable provisions< or

(b) two months have elapsed from the date on which the

competent authority has given the consent notice without receipt

of any communication from the foreign authority.

(9) In the event of change in any of the particulars

communicated in accordance with paragraphs (b), (c) and (d) of

subregulation(2) of this regulation, the Maltese investment firm shall

give written notice of that change to the competent authority and

the foreign authority at least one month before implementing the

change.

(10) The prudential supervision of a Maltese investment

firm shall be the responsibility of the competent authority whether

the investment firm establishes a branch or provides services in

another Member State or EEA State or not, without prejudice to

those provisions of the Directive which give responsibility to the

foreign authority.

(11) In this regulation, “applicable provisions” means

the host state rules with which the Maltese investment firm will be

required to comply when conducting business through the proposed

branch in the Member State or EEA State concerned.

(12)

In this regulation, “host state rules” means rules –

(a)

made in accordance with the Directive< and

(b) which are the responsibility of the foreign authority

of the Member State or EEA State concerned (as to

implementation, supervision and compliance) in accordance

with the Directive.

(13) The competent authority shall inform the Commission

of the number and type of cases in which there have been refusals in

terms of subregulation (7) of this regulation.

(1) A Maltese investment firm may not exercise a European Exercise

passport rights by

right to provide services unless the Maltese investment firm has given Maltese

the competent authority, a notice of its intention to provide services investment

services.

as specified in subregulation (2) of this regulation.

(2)

For the purposes of this regulation, a notice of

intention shall –

(a) identify the services which it intends to provide

together with a programme of operations<

(b) set out the Member State or EEA State in which it

intends to operate< and

(c) include such other information as may be specified by

means of Guidelines.

(3) If the European right of the Maltese investment firm

derives from the Directive, the competent authority shall, within one

month of receiving a notice of intention, send a copy of it to the

foreign authority.It shall also communicate details of any applicable

compensation scheme intended to protect investors.

(4) When the competent authority sends the copy under

subregulation (3) of this regulation or gives a consent notice, it shall

give written notice to the Maltese investment firm concerned. The

Maltese investment firm may then start to provide the service or

services in question in the host Member State or EEA State>

Provided that where appropriate, the foreign authority shall, on

receipt of the information from the competent authority, indicate to

the Maltese investment firm the conditions, including the rules of

conduct, with which, in the interest of the general good, the provider

of the services in question shall comply in the host Member State or

EEA State.

(5)

In the event of a change in any of the particulars

provided by the Maltese investment firm in accordance with

paragraph (a) of subregulation (2) of this regulation, the Maltese

investment firm shall give written notice of that change to the

competent authority and the foreign authority before implementing

such change.

A European right shall entitle a Maltese investment firm Entitlement to

provide core and

to provide one or more core investment services>

non-core services.

Provided that a European right may additionally entitle a

Maltese investment firm to provide one or more non-core service,

but it shall in no case be exercised solely in relation to non-core

services.

Part III – Contraventions by European investment firms

(1) Where the competent authority ascertains that a

European investment firm which has a branch or provides services

in Malta -

(a) has contravened or is likely to contravene the Maltese

rules or any provision of the Act or any rules or regulations

made thereunder< or

(b) in purported compliance with any such provision, has

furnished it with false, inaccurate or misleading information<

the competent authority shall in writing require the investment firm

concerned to remedy and rectify its position.

(2) If the European investment firm concerned fails to

take the necessary steps to remedy and rectify its position, the

competent authority shall inform the foreign authority of such failure.

(3) If despite the actions taken by the foreign authority or

because such actions prove inadequate or are not available in Malta,

the European investment firm persists in violating the legal or

regulatory provisions referred to in subregulation (1) of this

regulation in force in Malta, the competent authority may, after

informing the foreign authority, take appropriate measures to prevent

or to penalize further irregularities and, in so far as necessary, to

prevent that European investment firm from initiating any further

transactions in Malta.

(4) The foregoing subregulations shall not affect the

powers of thecompetent authority to take appropriate measures to

prevent or penalize irregularities committed in Malta which are

contrary to the rules of conduct introduced pursuant to Article 11 of

the Directive as well as to other legal or regulatory provisions adopted

in the interest of investors and the general public. This shall include

the possibility of preventing European investment firms that have

committed such irregularities from initiating any further transactions

in Malta.

(5) Any measure adopted pursuant to this regulation shall

be communicated to the European investment firm concerned in

writing, together with reasons justifying such measures and shall be

subject to a right of appeal to the Tribunal and the provisions of

article 19 of the Act shall apply mutatis mutandis.

(6) Notwithstanding the provisions of this regulation, the

competent authority may, in exceptional circumstances, take any

precautionary measures necessary to protect the interests of investors

and others for whom services are provided. The competent authority

shall inform the Commission and the foreign authority concerned of

such measures at the earliest opportunity.

(7) In the event of withdrawal of authorization by the

foreign authority, the competent authority shall be informed by the

said authority and shall take appropriate measures to prevent the

European investment firm concerned from initiating any further

transactions in Malta and to safeguard the investors’ interests and

others for whom services are provided.

(8)

A prohibition under this regulation may be –

(a)

absolute< or

(b) limited, that is, imposed for a specified event or until

specified conditions are complied with,

and any period, event or condition specified in the case of a limited

prohibition may be varied by the competent authority and any such

notice shall take effect on such date as is specified in the notice.

Part IV – Applicability Provisions

(1) A person who, on the date of the coming into force of Applicability

Provisions.

these regulations was in possession of a licence issued by the

competent authority which covers the provision of an investment

service classified as a core service in terms of Section A of the Annex

to the Directive incorporated in Schedule 1 to these regulations, shall

be deemed to be a Maltese investment firm for the purposes of these

regulations>

Provided that such person conforms with all applicable

Guidelines issued by the said competent authority>

Provided further that such person may if already so licensed

also provide a non-core service in terms of Section C of the Annex

to the Directive incorporated in Schedule 1 to these regulations.

(2) Every licence issued after the coming into force of

these regulations shall indicate whether the licence holder is an

investment firm in terms of these regulations.

Part V – Interpretation

(1) The objective of these regulations is to implement

the relevant provisions of the Directive as amended and shall be

interpreted and applied accordingly.

(2) In the event that any of these regulations conflict

with the provisions of the Directive, the latter shall prevail.

B