Regulations, 2009

Suppliment tal-Gazzetta tal-Gvern ta’ Malta Nru. 18,412, 30 ta’ April, 2009

Taqsima B

L.N. 138 of 2009

FINANCIAL MARKETS ACT

(CAP. 345)

Central Securities Depository (Authorisation Requirements)

Regulations, 2009

IN exercise of the powers conferred by article 30 of the

Financial Markets Act, the Minister of Finance, the Economy and

Investment after consultation with the Malta Financial Services

Authority, has made the following regulations

The title of these regulations is the Central Securities

Depository (Authorisation Requirements) Regulations, 2009.

(1)

In these regulations unless the context otherwise

requires

“the Act” means the Financial Markets Act;

“applicant” means a person who has submitted an

application to the competent authority to operate or provide

the services of a central securities depository;

“market contract” means a contract entered into by

a member or participant in a regulated market or a user in

accordance with and subject to the bye-laws of such regulated

market or guidelines of a central securities depository

and which shall be brought into effect through the clearing

and settlement systems provided by a central securities

depository;

“users” means any person, body corporate or other entity

who makes use of the services provided by a central securities

depository, including members of a regulated market,

companies, investors, and members of the general public.

(2) Words and expressions used in these regulations

shall have the same meaning as is given to them in the Act, unless

otherwise defined herein.

(1) These regulations set out the authorisation

requirements which shall be satisfied by an applicant requesting

to qualify as a central securities depository and which shall be

satisfied by any central securities depository on a continuing and

ongoing basis if such depository is to remain a central securities

depository.

(2) The burden of proving to the competent authority

that the authorisation requirements have been or are being properly

satisfied rests exclusively on the applicant or the central securities

depository, as the case may be.

(1) The central securities depository must be fit

and proper to perform its functions and it shall also be of good

standing.

(2) The persons who

(a) effectively direct the business and operations of a

central securities depository; or

(b) are in a position to exercise, directly or indirectly,

significant influence over the management of the central

securities depository,

shall satisfy the fit and proper criterion by being of sufficient good

repute and, where relevant, sufficiently experienced to ensure

the sound and prudent management and operation of the central

securities depository.

(1) The constitution, governance, organisational

structure and management systems of the central securities

depository shall be adequate and appropriate for the scale and

nature of its business.

(2) The central securities depository shall have

systems and controls in place ensuring that the performance of its

functions are adequate and appropriate for the scale and nature of

its business.

(3) Without prejudice to the generality of sub-

regulations (1) and (2) of this regulation, the central securities

depository shall

(a) establish, implement and maintain decision-making

procedures and an organisational structure which clearly

and in a documented manner specifies reporting lines and

allocates functions and responsibilities;

(b) employ personnel with the skills, knowledge

and expertise necessary for the discharge of responsibilities

allocated to them and ensure that its officers are aware of the

procedures which shall be followed for the proper discharge

of their responsibilities;

(c) establish, implement and maintain adequate

internal control mechanisms designed to secure compliance

with decisions and procedures at all levels of the central

securities depository and to safeguard the security, integrity

and confidentiality of information as appropriate;

(d) maintain adequate and orderly records of its

business and internal organisation;

(e) ensure that the performance of multiple functions

by its officers does not and is not likely to prevent those

persons from discharging any particular function soundly,

honestly and professionally;

(f) establish, implement and maintain an adequate

business continuity policy aimed at ensuring, in the case of an

interruption to its systems and procedures, the preservation of

essential data and functions, or, where that is not possible, the

timely recovery of such data and functions.

(4) Without prejudice to regulation 16, the central

securities depository shall ensure that it is able to control the

performance and quality of any contractual commitments for any

services or facilities that it outsources to third parties.

(1) The central securities depository shall ensure that its

business is conducted in an orderly manner and affords proper and

adequate protection to users of its services.

(2) Without prejudice to the generality of sub-

regulation (1) of this paragraph, the central securities depository

shall, by virtue of appropriate procedures to the satisfaction of the

competent authority, ensure that

(a) satisfactory arrangements are made for securing the

timely discharge of the rights and liabilities of the parties to

transactions in financial instruments in relation to which the

central securities depository provides clearing and settlement

services;

(b) appropriate measures are adopted to reduce

the extent to which the facilities of the central securities

depository can be used for an unlawful purpose;

(c) satisfactory arrangements are made for the

safeguarding and administration of assets belonging to users

of those facilities, where relevant; and

(d) the integrity and accuracy of its records pertaining

to holders of financial instruments and transactions in

financial instruments.

(1) The central securities depository shall establish,

implement and maintain adequate policies and procedures designed

to detect any risk of failure by the central securities depository to

comply with its obligations under the Act, the regulations issued

thereunder and the Financial Market Rules, as well as with its

obligations under other applicable legislation, as well as to detect

the associated risks, and shall put in place adequate measures

and procedures designed to minimize such risk and to enable the

competent authority to exercise its powers effectively.

(2) The central securities depository shall establish

and maintain a permanent and effective compliance function

which operates independently and which has the following

responsibilities

(a) to monitor and, on a regular basis, to assess the

adequacy and effectiveness of the measures and procedures

put in place in accordance with the requirements of sub-

regulation (1) of this regulation, and the actions taken to

address any deficiencies in the central securities depository’s

compliance with its obligations;

(b) to advise and assist the relevant persons responsible

for carrying out the functions of the central securities

depository to comply with the central securities depository’s

legal and regulatory obligations;

(3) The central securities depository shall

(a) keep a record of all of its breaches of the Act or

the regulations arising therefrom or Financial Market Rules

issued thereunder; and

(b) notify the competent authority of all such breaches

as soon as the central securities depository becomes aware of

the breach.

(1) The central securities depository shall take the

following actions with a view to manage its risks

(a) establish, implement and maintain adequate risk

management policies and procedures which identify the risks,

including, particularly operational risk relating to the central

securities depository’s activities, processes and systems, and

where appropriate, set the level of risk tolerated by the central

securities depository;

(b) adopt effective arrangements, processes and

mechanisms to manage the risks relating to the central

securities depository’s activities, processes and systems,

within the context of that level of risk tolerance;

(c) monitor the following criteria

(i) the adequacy and effectiveness of the central

securities depository’s risk management policies and

procedures;

(ii) the level of compliance by the central

securities depository and its relevant persons with the

arrangements, processes and mechanisms adopted in

accordance with sub-paragraph (b) of this paragraph;

(iii) the adequacy and effectiveness of measures

taken to address any deficiencies in those arrangements

and procedures, including failures by the relevant

persons to comply with such arrangements or follow

such procedures.

(2) The central securities depository shall establish and

maintain a risk management function that implements the policy

and procedures referred to in sub-regulation (1) of this regulation.

(1) The central securities depository shall have financial

resources sufficient for the proper performance of its functions.

(2) Without prejudice to the generality of the foregoing,

each central securities depository shall satisfy at all times those

minimum financial resources requirements and minimum financial

reporting requirements that may be prescribed by the competent

authority from time to time.

(1) The central securities depository shall maintain

proper accounting records to show and explain its transactions,

assets and liabilities.

(2) Without prejudice to the generality of the

foregoing, the accounting records of a central securities depository

shall

(a) disclose with reasonable accuracy, at all times, the

financial position of the central securities depository;

(b) enable the financial statements which may be

required by the competent authority to be prepared within the

time limits specified by the competent authority.

(3) This regulation shall apply in addition to other

obligations regarding reporting and accounting as may be

applicable under any other law.

(1) The central securities depository shall cooperate, at

all times and on an ongoing basis, by sharing of information or in

any other manner, with the competent authority.

(2) For the purposes of the foregoing provision, the

central securities depository shall have appropriate arrangements

with its users enabling it to obtain confidential information from its

users and disclose such information to the competent authority and

in particular, to assist and collaborate with the competent authority

without delay in response to a specific written request received

from the competent authority in the performance of its functions

according to law.

(1) The central securities depository shall make

guidelines to better regulate the use of its services and to regulate

access to its systems and matters connected therewith.

(2) Without prejudice to the generality of sub-

regulation (1) of this regulation, the central securities depository

shall ensure that its guidelines adequately address each of the

functions which it is authorised to perform.

(3) The central securities depository shall have

effective arrangements for monitoring and enforcing compliance

with its guidelines.

(4) Any guidelines or amendments made thereto shall

be subject to the prior approval of the competent authority.

(1) The central securities depository shall have in Complaints.

place effective arrangements for the investigation and resolution

of complaints arising in connection with the performance of, or

failure to perform, any of its functions.

(2) The arrangements shall include arrangements for

a complaint to be fairly and impartially investigated by a person

independent of the central securities depository, and for such

person to report on the result of his investigation to the central

securities depository and to the complainant.

(3) The arrangements shall confer on the person

mentioned in sub-regulation (2) hereof the power to recommend, if

he thinks it appropriate, that the central securities depository

(a) makes a compensatory payment to the

complainant;

(b) remedies the matter complained of, or takes both

of those steps.

(4) Sub-regulation (2) hereof is not to be construed

as preventing the central securities depository from making

arrangements for the initial investigation of a complaint to be

conducted by the central securities depository.

(1) The central securities depository shall have rules

to deal with any default which, in the event of a user of the central

securities depository being or likely to become unable to meet

his obligations in respect of one or more market contracts, enable

action to be taken in respect of unsettled market contracts to which

he is a party.

(2) The bye-laws may authorise the taking of the same

or similar action in relation to a user who appears to be likely to

become unable to meet his obligations in respect of one or more

market contracts.

(3) The central securities depository shall have

adequate arrangements for ensuring that parties to the contract are

notified as soon as reasonably practicable of the default, the identity

of the other parties to the contract and of any decision taken under

the bye-laws in relation to contracts to which they are a party.

(4) The central securities depository shall cooperate,

by the sharing of information or otherwise, with any other

authority or body having responsibility for any matter arising out

of, or connected with, the default of a user of the central securities

depository.

(1) Where the board of directors or other similar

governing body of a central securities depository becomes aware

that the central securities depository is unable to pay its debts

or is imminently likely to become unable to pay its debts or

becomes aware of any other reason or circumstance which may

lead to the central securities depository’s suspension or cessation

of its activities or of its winding up, it shall forthwith inform the

competent authority in writing.

(2) In any such event, whether advised by the central

securities depository or otherwise, the competent authority may

issue such directives in writing as it may deem appropriate to

the central securities depository, and its directives may include

the appointment of a controller to take control of the central

securities depository’s operations and assets or the appointment of

a liquidator as may be specified by the competent authority in such

directives.

(3) The competent authority may issue Financial

Market Rules for the better implementation of the provisions of

this regulation.

In considering whether an applicant or a central

securities depository satisfies the authorisation requirements

applying to it under these regulations, the competent authority shall

take into account all relevant circumstances.

An applicant or a central securities depository may be

allowed to satisfy some of the authorisation requirements applying

to it under these regulations by entering into an agreement to the

satisfaction of the competent authority for any functions specified

in the said agreement to be performed on its behalf by another

person. The provisions of the Financial Market Rules may further

regulate such agreements.

€0.37