Investment Services Act (Supervisory Review) Regulations, 2013

Suppliment tal-Gazzetta tal-Gvern ta’ Malta, Nru. 19,198, 24 ta’ Jannar, 2014

L.N. 30 of 2014

INVESTMENT SERVICES ACT

(CAP. 370)

Investment Services Act (Supervisory Review) Regulations, 2013

IN exercise of the powers conferred by article 12 of the

Investment Services Act and article 20D of the Malta Financial

Services Authority Act, the Minister for Finance, acting on the advice

of the Malta Financial Services Authority, has made the following

regulations:-

(1)

The title of these regulations is the Investment Citation and

purpose.

Services Act (Supervisory Review) Regulations, 2013.

(2) The purpose of these regulations is to implement articles 3

(in part), 4(1), 6, 7, 50, 52, 53(2), 56, 57, 58(1), 58 (3), 59, 60, 61,

74(4), 75(1), 75(3), 77(2), 78(2), 78(3), 78(4), 78(5), 86(3), 91(6),

91(11), 97, 98, 99, 100 to 105 inclusive, 107, 110, 143, 144, 151, 157,

159 of the CRD.

SUPERVISORY REVIEW AND EVALUATION

(Regulation 11)

(1) In addition to credit, market and operational risks, the review and

evaluation performed by the competent authority pursuant to regulation 11 shall

include at least

(a)

the results of the stress test carried out in accordance with

Article 177 of the CRR by investment firms applying an internal ratings

based approach to calculate their credit risk-weighted exposure;

(b)

the exposure to and management of concentration risk by

investment firms including their compliance with the Investment Services

Rules transposing the requirements of the CRD and the requirements set out

in Part Four of the CRR;

(c)

the robustness, suitability and manner of application of the

policies and procedures implemented by investment firms for the

management of the residual risk associated with the use of recognised credit

risk mitigation techniques;

(d)

the extent to which the own funds held by an investment firm in

respect of assets which it has securitised are adequate having regard to the

economic substance of the transaction, including the degree of risk transfer

achieved;

(e)

the exposure to, measurement and management of liquidity risk

by investment firms including the development of alternative scenario

analyses, the management of risk mitigants (in particular the level,

composition and quality of liquidity buffers) and effective contingency plans

(f)

the impact of diversification effects and how such effects are

factored into the risk measurement system;

(g)

the results of stress tests carried out by investment firms using

an internal model to calculate market risk own funds requirements under Part

Three, Title IV, Chapter 5 of the CRR;

(h)

the geographical location of investment firm’s exposures;

(i)

the business model of the investment firm;

(j)

the assessment of systemic risk, in accordance with the criteria

set out in regulation 11.

(2) For the purposes of point (e) of paragraph 1 of this Schedule, the

competent authority shall regularly carry out a comprehensive assessment of the

overall liquidity risk management by investment firms and promote the

development of sound internal methodologies. In its review, the competent

authority shall have regard to the role played by investment firms in the financial

markets. The competent authority shall also duly consider the potential impact of

their decisions on the stability of the financial system in all other Member States

concerned.

(3) The competent authority shall monitor whether an investment firm has

provided implicit support to a securitisation. If an investment firm is found to have

provided implicit support on more than one occasion the competent authority shall

take appropriate measures reflective of the increased expectation that it will

provide future support to its securitisation thus failing to achieve a significant

transfer of risk.

(4) For the purposes of the determination to be made under regulation

11(3), the competent authority shall consider whether the valuation adjustments

taken for positions or portfolios in the trading book, as set out in Article 105 of the

CRR, enable the investment firm to sell or hedge out its positions within a short

period without incurring material losses under normal market conditions.

(5) The review and evaluation performed by the competent authority shall

include the exposure of investment firms to the interest rate risk arising from non-

trading activities. Measures shall be required at least in the case of investment

firms whose economic value declines by more than 20% of their own funds as a

result of a sudden and unexpected change in interest rates of 200 basis points or

such change as defined in the EBA guidelines.

(6) The review and evaluation performed by the competent authority shall

include the exposure of investment firms to the risk of excessive leverage as

reflected by indicators of excessive leverage, including the leverage ratio

determined in accordance with Article 429 of the CRR. In determining the

adequacy of the leverage ratio of investment firms and of the arrangements,

strategies, processes and mechanisms implemented by investment firms to manage

the risk of excessive leverage, the competent authority shall take into account the

business model of those investment firms.

(7) The review and evaluation conducted by the competent authority shall

include governance arrangements of investment firms, their corporate culture and

values, and the ability of members of the management body to perform their

duties. In conducting that review and evaluation, the competent authority shall, at

least, have access to agendas and supporting documents for meetings of the

management body and its committees, and the results of the internal or external

evaluation of performance of the management body.

(1)

In these regulations, unless the context otherwise Interpretation.

requires

"the Act" means the Investment Services Act;

"CRD" means Directive 2013/36/EU of the European

Parliament and of the Council of 26 June 2013 on access to the

activity of credit institutions and the prudential supervision of credit

institutions and investment firms, amending Directive 2002/87/EC

and repealing Directives 2006/48/EC and 2006/49/EC, as amended

from time to time, and includes any implementing measures that have

been or may be issued thereunder;

"credit institution" means a person licensed in terms of the

Banking Act, whose head office is in Malta or an undertaking whose Cap. 371.

business is to receive deposits or other repayable funds from the

public and to grant credits for its own account, authorised by a

European Regulatory Authority in terms of the CRD or authorised by

a European regulatory authority in an EEA Member State;

"CRR" means Regulation (EU) No. 575/2013 of the European

Parliament and of the Council of 26 June 2013 on prudential

requirements for credit institutions and investment firms and

amending Regulation Mi FIDU) No. 648/2012, as amended from time

to time, and includes any implementing measures that have been or

may be issued thereunder;

"EBA" means the European Banking Authority established by

Regulation (EU) No. 1093/2010 of the European Parliament and of

the Council of the 24 November 2010;

"EIOPA" means the European Insurance and Occupational

Pensions Authority as established by Regulation (EU) No. 1093/2010

of the European Parliament and of the Council of 24 November, 2010

establishing a European Supervisory Authority;

"ESCB central banks" shall have the same meaning as that

assigned to it in point 45 of Article 4(1) of the CRR;

"ESFS" means European System of Financial Supervision;

"ESRB" means the European Systemic Risk Board established

by regulation EU No. 1092/2010;

"European investment firm" means a firm as defined in article

4(1)(2) of the CRR, authorised by its European regulatory authority

within the meaning of Article 5 of the MiFID Directive, or authorised

by a European regulatory authority in an EEA State;

"home member state" means

(a)

in the case of an investment firm, within the

meaning of these regulations, Malta;

(b)

in the case of a "European investment firm", within

the meaning of these regulations, the Member State where such

European investment Firm is authorised by its European

regulatory authority;

"host member state" means a Member State or an EEA State

where an investment firm has established a branch or provides

services on a cross border basis in terms of the European Passport

Rights for Investment Firms Regulations;

"investment firm" means a person who holds an investment

services licence issued by the competent authority under the Act, and

which is subject to the requirements of the CRD;

"third country" means a country which is not a Member State or

an EEA State.

(2) Words and expressions used in these regulations which are

also used in the Act shall have the same meaning assigned to them as

in the Act.

SUPERVISORY EXAMINATION PROGRAMME

(Regulation 13)

(1) The annual supervisory examination programme referred to in

regulation 13, shall contain the following

(a)

an indication of how the competent authority intends to carry

out its tasks and allocate its resources;

(b)

an identification of which investment firms are intended to be

subject to enhanced supervision and the measures taken for such supervision

as set out in paragraph 3;

(c)

a plan for inspections at the premises used by an investment

firm, including its branches and subsidiaries established in other Member

States in accordance with regulation 7 of these regulations and regulations 3,

10, and 19 of the Supervisory Consolidation Regulations.

(2) Supervisory examination programmes shall include the following

investment firms

(a)

investment firms for which the results of the stress tests referred

to in points (a) and (g) of paragraph (1) of Schedule I and regulation 14, or

the outcome of the supervisory review and evaluation process under

regulation 11, indicate significant risks to their on going financial soundness

or indicate breaches of the Act and any regulations and rules issued

thereunder transposing the requirements of the CRD regulations and of the

CRR;

(b)

investment firms that pose systemic risk to the financial system;

(c)

any other investment firm for which the competent authority

deem it to be necessary.

(3) Where appropriate under regulation 11 the following measures shall, in

particular, be taken if necessary

(a)

an increase in the number or frequency of on-site inspections of

the investment firm;

(b)

a permanent presence of the competent authority at the

investment firm;

(c)

additional or more frequent reporting by the investment firm;

(d)

additional or more frequent review of the operational, strategic

or business plans of the investment firm;

(e)

thematic examinations monitoring specific risks that are likely

to materialise.

(4) Adoption of a supervisory examination programme by a home Member

State European regulatory authority with respect to a European Investment Firm

which has established a branch in Malta, shall not prevent the competent authority

in its capacity as the host Member State from carrying out, on a case-by-case basis,

on-the-spot checks and inspections of the activities carried out by branches of

investment firms in Malta in accordance with the Act and these regulations.

(1)

The Malta Financial Services Authority established Designation and

by the Malta Financial Services Authority Act shall be the designated powers

competent

competent authority in Malta for the purposes of implementing the authority.

relevant provisions of the CRD and the CRR and any reference in

these regulations to the competent authority shall be read and

construed accordingly.

(2) The competent authority shall exercise all the functions,

obligations and powers pursuant to the CRD and the CRR and shall

satisfy all the requirements imposed on competent authorities by the

CRD and the CRR.

SUPERVISORY POWERS

(Regulations 11, 16, 17, paragraph (4) Schedule I, and regulation 15(4))

(1) For the purposes of regulations 11, 16, 17 and paragraph (4) of Schedule

I, regulation 15(4), and the application of the CRR, the competent authority shall

have at least the following powers

(a)

to require investment firms to hold own funds in excess of the

requirements set out in Investment Services Rules transposing the

requirements of Chapter 4 of Title VII of the CRD, and in the CRR relating to

elements of risks and risks not covered by Article 1 of the CRR;

(b)

to require the reinforcement of the arrangements, processes,

mechanisms and strategies implemented in accordance with the Investment

Services Rules transposing the requirements of Articles 73 and 74 of the

CRD and regulation 8 of these regulations;

(c)

to require investment firms to present a plan to restore

compliance with supervisory requirements pursuant to the Act, regulations or

Investment Services Rules issued thereunder, and to the CRR and set a

deadline for its implementation, including improvements to that plan

regarding scope and deadline;

(d)

to require investment firms to apply a specific provisioning

policy or treatment of assets in terms of own funds requirements;

(e)

to restrict or limit the business, operations or network of

institutions or to request the divestment of activities that pose excessive risks

to the soundness of an investment firm;

(f)

to require the reduction of the risk inherent in the activities,

products and systems of investment firms;

(g)

to require investment firms to limit variable remuneration as a

percentage of net revenues where it is inconsistent with the maintenance of a

sound capital base;

(h)

to require investment firms to use net profits to strengthen own

funds;

(i)

to restrict or prohibit distributions or interest payments by an

investment firm to shareholders, members or holders of Additional Tier 1

instruments within the meaning of the CRR, where the prohibition does not

constitute an event of default of the investment firm;

(j)

to impose additional or more frequent reporting requirements,

including reporting on capital and liquidity positions;

(k)

to impose specific liquidity requirements, including restrictions

on maturity mismatches between assets and liabilities;

(l)

to require additional disclosures.

(2) The additional own funds requirements referred to in paragraph 1(a) of

this Schedule, shall be imposed by the competent authority at least where

(a)

an investment firm does not meet the requirement set out in the

Investment Services Rules transposing articles 73 and 74 of the CRD and

regulation 8 of these regulations or in Article 393 of the CRR;

(b)

risks or elements of risks are not covered by the own funds

requirements set out in Investment Services Rules transposing the

requirements of Chapter 4 of Title VII of the CRD or in the CRR;

(c)

the sole application of other administrative measures is unlikely

to improve the arrangements, processes, mechanisms and strategies

sufficiently within an appropriate timeframe;

(d)

the review referred to in paragraph (4) of Schedule I and

regulation 15(4), reveals that the non-compliance with the requirements for

the application of the respective approach will likely lead to inadequate own

funds requirements;

(e)

the risks are likely to be underestimated despite compliance with

the applicable requirements of the Act, regulations or the Investment services

Rules issued thereunder, and of the CRR; or

(f)

an investment firm reports to the competent authority in

accordance with Article 377(5) of the CRR that the stress test results referred

to in that Article materially exceed its own funds requirement for the

correlation trading portfolio.

(3) For the purposes of determining the appropriate level of own funds on

the basis of the review and evaluation carried out in accordance with these

regulations, the competent authority shall assess whether any imposition of an

additional own funds requirement in excess of the own funds requirement is

necessary to capture risks to which an investment firm is or might be exposed,

taking into account the following

(a)

the quantitative and qualitative aspects of an institution's

assessment process referred to in the Investment services rules;

(b)

an institution's arrangements, processes and mechanisms

referred to in the Investment Services Rules and regulation 8 of these

regulations;

(c)

the outcome of the review and evaluation carried out in

accordance with regulations 11 and 15 of these regulations;

(d)

the assessment of systemic risk.

In the exercise of its duties, the competent authority shall Co-operation

take into account the convergence in respect of supervisory tools and within

European

supervisory practices in the application of the laws, regulations and system

financial

administrative requirements adopted pursuant to the CRD and the supervision.

CRR. For that purpose, the competent authority

(a)

as party to the ESFS shall cooperate with trust and

full mutual respect, in particular when ensuring the flow of

appropriate and reliable information between the other parties to

the ESFS in accordance with the principle of sincere

cooperation set out in Article 4(3) of the Treaty on European

Union;

(b)

shall participate in the activities of the EBA and, as

appropriate, in the colleges of supervisors;

(c)

shall make every effort to comply with those

guidelines and recommendations issued by the EBA in

accordance with Article 16 of Regulation (EU) No. 1093/2010

and to respond to the warnings and recommendations issued by

the ESRB pursuant to Article 16 of Regulation (EU) No. 1092/

2010;

(d)

shall cooperate closely with the ESRB;

(e)

shall not be inhibited by other national legislative

provisions in the performance of its duties as member of the

EBA and the ESRB, or its duties under the CRD and the CRR.

DISCLOSURE REQUIREMENTS

(Regulation 22)

(1) The competent authority shall publish the following information

pursuant to regulation 22 herein

(a)

the general criteria and methodologies adopted to review

compliance with Articles 405 to 409 of the CRR;

(b)

without prejudice to the confidentiality provisions in the Act, a

summary description of the outcome of the supervisory review and

description of the measures imposed in cases of non-compliance with

Articles 405 to 409 of the CRR identified on an annual basis.

(2) If the competent authority exercises the discretion laid down in Article

7(3) of the CRR it shall publish the following information

(a)

the criteria it applies to determine that there is no current or

foreseen material practical or legal impediment to the prompt transfer of own

funds or repayment of liabilities;

(b)

the number of parent investment firms or credit institutions

which benefit from the exercise of the discretion laid down in Article 7(3) of

the CRR and the number of those which incorporate subsidiaries in a third

country;

(c)

on an aggregate basis for Malta

(i) the total amount of own funds on the consolidated basis of

the parent investment firm or credit institution in Malta, which benefits

from the exercise of the discretion laid down in Article 7(3) of the CRR,

which are held in subsidiaries in a third country;

(ii) the percentage of total own funds on the consolidated basis

of parent investment firms in Malta which benefit from the exercise of

the discretion laid down in Article 7(3) of the CRR, represented by own

funds which are held in subsidiaries in a third country;

(iii) the percentage of total own funds required under Article 92

of the CRR on the consolidated basis of parent investment firms or

credit institutions in Malta, which benefit from the exercise of the

discretion laid down in Article 7(3) of the CRR, represented by own

funds which are held in subsidiaries in a third country.

(3) If the competent authority exercises the discretion laid down in Article

9(1) of the CRR it shall publish all the following

(a)

the criteria it applies to determine that there is no current or

foreseen material practical or legal impediment to the prompt transfer of own

funds or repayment of liabilities;

(b)

the number of parent investment firms or credit institutions

which benefit from the exercise of the discretion laid down in Article 9(1) of

the CRR and the number of such parent investment firms which incorporate

subsidiaries in a third country;

(c)

on an aggregate basis for Malta

(i) the total amount of own funds of parent investment firms

which benefit from the exercise of the discretion laid down in Article

9(1) of the CRR which are held in subsidiaries in a third country;

(ii) the percentage of total own funds of parent investment

firms or credit institutions which benefit from the exercise of the

discretion laid down in Article 9(1) of the CRR represented by own

funds which are held in subsidiaries in a third country;

(iii) the percentage of total own funds required under Article 92

of the CRR of parent investment firms or credit institutions which

benefit from the exercise of the discretion laid down in Article 9(1) of

the CRR represented by own funds which are held in subsidiaries in a

third country.

The competent authority shall, in the exercise of its general Union

duties, duly consider the potential impact of its decisions on the dimension

supervision.

stability of the financial system in the other Member States concerned

and, in particular, in emergency situations, based on the information

available at the relevant time.

BODIES WITH WHOM THE COMPETENT AUTHORITY MAY

EXCHANGE INFORMATION

(Regulation 6)

The competent authority may exchange information with

(1) Other European regulatory authorities and may transmit information to

the ESRB, EBA, or ESMA in accordance with the CRD, the CRR and with article

15 of Regulation (EU) No. 1092/2010, with Articles 31, 35 and 36 of Regulation

(EU) No. 1093/2010 and with Articles 31 and 36 of Regulation (EU) No. 1095/

2010;

(2) Authorities entrusted with the public duty of supervising other financial

sector entities and the authorities responsible for the supervision of financial

markets;

(3) Authorities or bodies charged with responsibility for maintaining the

stability of the financial system in Member States through the use of macro

prudential rules;

(4) Reorganisation bodies or authorities aiming at protecting the stability of

the financial system;

(5) Contractual or institutional protection schemes as referred to in Article

113(7) of the CRR;

(6) Bodies involved in the liquidation and bankruptcy of institutions and in

other similar procedures;

(7) Persons responsible for carrying out statutory audits of the accounts of

institutions, insurance undertakings and financial institutions;

(8) Bodies which administer deposit-guarantee schemes and investor

compensation schemes of information necessary for the exercise of their functions;

(9) Authorities responsible for overseeing

(a)

the bodies involved in the liquidation and bankruptcy of

institutions and in other similar procedures;

(b)

contractual or institutional protection schemes as referred to in

Article 113(7) of the CRR;

(c)

persons charged with carrying out statutory audits of the

accounts of institutions, insurance undertakings and financial institutions;

In the cases referred to sub-paragraphs (a) to (c) above, the exchange of

information shall be subject to the following conditions

(i) that the information is exchanged for the purpose of

performing the tasks referred to;

(ii) (ii) where the information originates in another Member

State, that it is not disclosed without the express agreement of the

authorities which have disclosed it and, where appropriate, solely for

the purposes for which those authorities gave their agreement;

(10) (a)

Authorities or bodies responsible under law for the detection

and investigation of breaches of company law subject to the following conditions

(i) that the information is exchanged for the purpose of

detecting and investigating breaches of company law;

(ii) where the information originates in another Member State,

that it is not disclosed without the express agreement of the authorities

which have disclosed it and, where appropriate, solely for the purposes

for which those authorities gave their agreement.

(b)

Where the authorities or bodies referred to in paragraph (a)

above perform their task of detection or investigation with the aid, in view of their

specific competence, of persons appointed for that purpose and not employed in

the public sector, information may be exchanged with such persons under the

conditions specified in points (i) and (ii) of sub-paragraph (a) of this paragraph.

The competent authority shall communicate to the EBA the names of the

authorities or bodies which may receive information pursuant to this Article;

(11) ESCB central banks and other bodies with a similar function in their

capacity as monetary authorities when the information is relevant for the exercise

of their respective statutory tasks, including the conduct of monetary policy and

related liquidity provisions, oversight of payments, clearing and settlement

systems and the safeguarding of stability of the financial system;

(12) Contractual or institutional protection schemes as referred to in Article

113(7) of the CRR;

(13) Other public authorities responsible for overseeing payment systems

where appropriate;

(14) The ESRB, EIOPA and ESMA, where that information is relevant for

the exercise of their tasks under Regulations (EU) No 1092/2010, (EU) No 1094/

2010 or (EU) No. 1095/2010;

(15) In an emergency situation as referred to in regulation 5 of the

Supervisory Consolidation Regulations, the competent authority shall

communicate, without delay, information to the ESCB central banks where that

information is relevant for the exercise of their statutory tasks, including the

conduct of monetary policy and related liquidity provision, the oversight of

payments, clearing and settlement systems, and the safeguarding of the stability of

the financial system, and to the ESRB where such information is relevant for the

exercise of its statutory tasks;

(16) (1)

Other departments of Member States central government

administrations responsible for law on the supervision of institutions, financial

institutions and insurance undertakings and to inspectors acting on behalf of those

departments provided that

(a)

such disclosures may be made only where necessary for reasons

of prudential supervision, and prevention and resolution of failing

institutions.

(b)

persons having access to such information shall be subject to

professional secrecy.

(2) In an emergency situation as referred to in Article 114(1) of the CRD, to

disclose information which is relevant to the departments referred to in the first

subparagraph of this article in all Member States concerned;

(17) (1)

Parliamentary enquiry committees, courts of auditors and other

entities in charge of enquiries relating to the prudential supervision of institutions

in Malta, subject to the following conditions

(a)

that the entities have a precise mandate under national law to

investigate or scrutinise the actions of authorities responsible for the

supervision of institutions or for laws on such supervision;

(b)

that the information is strictly necessary for fulfilling the

mandate referred to in sub-paragraph (a);

(c)

the persons with access to the information are subject to

professional secrecy requirements under national law;

(d)

where the information originates in another Member State that it

is not disclosed without the express agreement of the authorities which have

disclosed it and, solely for the purposes for which those authorities gave their

agreement.

(2) Information received pursuant to paragraphs (1) to (8) inclusive of this

Schedule, and information obtained by means of an on-the-spot check or

inspection referred to in regulation 7 of these regulations, shall not be disclosed to

the bodies referred to in paragraphs 16 and 17(1) of this Schedule save with the

express consent of the authorities which disclosed the information or of the

authorities of the Member State in which such an on-the-spot check or inspection

was carried out.

(18) (1)

Recognised clearing houses or other similar bodies responsible

for the provision of clearing or settlement services in order to ensure the proper

functioning of those bodies in relation to defaults or potential defaults by market

participants of the information referred to in paragraph (1) of this Schedule and

articles 17(7) and 17F of the Act.

(2) The information received under paragraph (1) of this Schedule shall not

be disclosed in the circumstances referred to in sub-paragraph (1) of this paragraph

without the express consent of the competent authorities, which have disclosed it.

€1.17

(1)

The competent authority shall collaborate closely

with European regulatory authorities in order to supervise the

activities of investment firms and operating in particular through a

branch, in one or more Member States other than Malta. The

competent authority shall supply all information concerning the

management and ownership of such investment firms to the relevant

European regulatory authorities in the Member States concerned, that

is likely to facilitate their supervision and the examination of the

conditions for their licensing, and all information likely to facilitate

the monitoring of investment firms, in particular with regard to

liquidity, solvency, the limiting of large exposures, other factors that

may influence the systemic risk posed by the investment firm,

administrative and accounting procedures and internal control

mechanisms.

(2) The competent authority shall provide the European

regulatory authorities of the host Member State immediately with any

information and findings pertaining to liquidity supervision in

accordance with Part Six of the CRR and the Supervisory

Consolidation Regulations, 2013, of the activities performed by an

investment firm through its branches, to the extent that such

information and findings are relevant to the protection of investors in

the host Member State.

(3) The competent authority shall inform the European

regulatory authorities of all the investment firms’ host Member States

immediately where liquidity stress occurs or can reasonably be

expected to occur. That information shall also include details about

the planning and implementation of a recovery plan and about any

prudential supervisory measures taken in that context.

(4) (a)

Where Malta is the home member state of the

investment firm, the competent authority shall communicate and

explain upon request to the European regulatory authorities of the

host Member State of that investment firms’ branch, how information

and findings provided by the latter have been taken into account.

(b)

Where the competent authority disagrees with the

measures to be taken by the European regulatory authority of the host

Member State in relation to the information and findings referred to

in paragraph (a), the competent authority may refer the matter to the

EBA and request its assistance in accordance with Article 19 of

Regulation (EU) No. 1093/2010.

(c)

Where Malta is the host member state of a branch

belonging to a European investment firm and the competent authority,

following communication by the European regulatory authority of the

said European investment firm, of information and findings relating

to the said European investment firm, maintains that no appropriate

measures have been taken by the said European regulatory authority,

the competent authority may, after informing the European regulatory

authority concerned and the EBA, take appropriate measures to

prevent further breaches in order to protect the interests of investors

and others to whom services are provided or to protect the stability of

the financial system.

(5) The competent authority may refer to the EBA situations

where a request for collaboration to a European regulatory authority,

in particular to exchange information, has been rejected or has not

been acted upon within a reasonable time.

(6) The competent authority may exchange information with

the bodies listed and in the manner specified in Schedule V for the

better carrying out of its supervisory functions in accordance with the

CRD and the CRR

Provided that the information received or exchanged by the

competent authority or by its officers, employees or agents as well as

inspectors, auditors and experts engaged by the competent authority,

from the bodies listed in the said Schedule, shall be treated as

confidential and protected by the duty of professional secrecy.

(1)

Where a European investment firm carries out its On the spot

activities through a branch in Malta, the competent authority may checks

inspection of

permit the European regulatory authority of the home Member State branches

another Member

concerned, after it has notified the competent authority, to carry out, State.

itself or through an intermediary appointed for that purpose, on-the-

spot checks of the information referred to in regulation 6 and

inspections of such branches.

(2) For the purposes of sub-regulation (1), the European

regulatory authority may request the competent authority to carry out

the on-the-spot checks referred to in the said sub-regulation on its

behalf, in accordance with the procedures set out in regulation 12 of

the Supervisory Consolidation Regulations, 2013.

L.N.

(3) The competent authority may carry out, on a case-by-case

basis, on-the-spot checks and inspections of the activities carried out

by branches of European investment firms in Malta and require

information from a branch about its activities and for supervisory

purposes, where it considers it relevant for reasons of stability of the

financial system in Malta. Before carrying out such checks and

inspections, the competent authority shall consult the European

regulatory authority of the home Member State concerned.

(4) On-the-spot checks and inspections of branches when

carried out in Malta shall be conducted in accordance with the laws of

Malta.

(5) After the checks and inspections referred to in sub-

regulation (4), the competent authority shall communicate to the

European regulatory authority of the home Member State, the

information obtained and findings that are relevant for the risk

assessment of the investment firm or the stability of the financial

system in Malta.

(6) When determining the supervisory examination

programme referred to in regulation 13, the competent authority shall

duly take into account the information and findings provided by the

European regulatory authority of a host Member State pursuant to its

on-the-spot checks and inspections of the activities carried out by

branches of investment firms, and shall also have regard to the

stability of the financial system in the host Member State concerned

Provided that the European regulatory authority may also,

for the purposes of the inspection of branches, have recourse to one of

the other procedures set out in regulation 12 of the Supervisory

Consolidation Regulations, 2013.

(1)

The competent authority shall ensure that an

investment firm has in place an appropriate recovery plan for the

restoration of that firm’s financial situation following a significant

deterioration, and that such restoration plans are put into place, as

well as the relevant resolution plans.

(2) The requirements for an investment firm to draw up,

maintain

and

update

recovery

plans

and

for

the

resolution authority to prepare resolution plans after consultation with

the competent authority, may be reduced if, after consultation with

the Central Bank of Malta, the competent authority considers that the

failure of a specific investment firm due, inter alia, to its size, to its

business model, to its inter-connectedness to other institutions, or to

the financial system in general, will not have a negative effect on the

financial markets, o1stn other investment firms or on funding

conditions.

(3) The competent authority shall inform the EBA in advance

of the meetings relating to the development and coordination of

recovery and resolution plans so as to enable the EBA to fully

participate in and contribute to the development and coordination of

effective and consistent recovery and resolution plans. The competent

authority shall inform the EBA of the main issues to be discussed

during the meetings and of the activities to be considered.

(1)

The competent authority shall collect the Oversight of

information disclosed publicly by investment firms in relation to remuneration.

points (g), (h) and (i) of Article 450(1) of the CRR and shall use it to

benchmark remuneration trends and practices and shall provide this

information to the EBA.

(2) The competent authority shall collect information on the

number of natural persons per investment firm that are remunerated

EUR 1 million or more per financial year, in pay brackets of €1

million, including data on their work responsibilities, the business

area involved and the main elements of their salary, including

bonuses, long-service awards and pension contributions, and shall

forward this information to the EBA.

(1)

Where the competent authority chooses to develop Supervisory

specific portfolios of internal approaches permitted to be used by benchmarking

of internal

investment firms, it shall do so in consultation with the EBA and shall approaches.

ensure that investment firms report the results of the calculations for

these specific portfolios separately from the results of the calculations

for the benchmark portfolios required under Article 78 of the CRD.

(2) The competent authority shall, on the basis of the

information submitted by investment firms, monitor the range of risk

weighted exposure amounts or own funds requirements, as

applicable, except for operational risk, for the exposures or

transactions in the benchmark portfolio resulting from the internal

approaches of those investment firms. The competent authority shall

make an assessment at least annually of the quality of those

approaches paying particular attention to

(a)

those approaches that exhibit significant

differences in own fund requirements for the same exposure;

(b)

approaches where there is particularly high or low

diversity, and also where there is a significant and systematic

under-estimation of own funds requirements.

(3) Where particular investment firms diverge significantly

from the majority of their peers or where there is little commonality

in approach leading to a wide variance of results, the competent

authority shall investigate the reasons therefor and, if it can be clearly

identified that an investment firm’s approach leads to an

underestimation of own funds requirements which is not attributable

to differences in the underlying risks of the exposures or positions,

the competent authority shall take corrective action.

(4) The competent authority shall ensure that its decisions on

the appropriateness of corrective actions as referred to in sub-

regulation (3) comply with the principle that such actions must

maintain the objectives of an internal approach and therefore do not

(a)

lead to standardisation or preferred methods;

(b)

create wrong incentives; or

(c)

cause herd behaviour.

(1)

The competent authority shall, taking into account

the technical criteria set out in Schedule I, review the arrangements,

strategies, processes and mechanisms implemented by investment

firms to comply with the CRR, the Act, regulations or Investment

Services Rules issued thereunder and evaluate

(a)

risks to which investment firms are or might be

exposed;

(b)

risks that an investment firm poses to the financial

system taking into account the EBA’s technical criteria for the

identification and measurement of systemic risk in terms of

Article 23 of Regulation (EU) No. 1093/2010, or

recommendations of the ESRB, where appropriate; and

(c)

risks revealed by stress testing taking into account

the nature, scale and complexity of an investment firm’s

activities.

(2) The scope of the review and evaluation referred to in sub-

regulation (1) shall cover all requirements of the CRR, the Act,

regulations or Investment Services Rules issued thereunder.

(3) On the basis of the review and evaluation referred to in

sub-regulation (1), the competent authority shall determine whether

the arrangements, strategies, processes and mechanisms implemented

by investment firms and the own funds and liquidity held by them

ensure a sound management and coverage of their risks.

(4) The competent authority shall establish the frequency and

intensity of the review and evaluation referred to in sub-regulation (1)

having regard to the size, systemic importance, nature, scale and

complexity of the activities of the investment firm concerned and

taking into account the principle of proportionality. The review and

evaluation shall be updated at least on an annual basis for investment

firms covered by the supervisory examination programme referred to

in regulation 13.

(5) Where a review shows that an investment firm may pose

systemic risk in accordance with the EBA’s technical criteria for the

identification and measurement of systemic risk established in terms

of Article 23 of Regulation (EU) No. 1093/2010, the competent

authority shall inform the EBA without delay about the results of the

review.

In carrying out its supervisory review and evaluation the Criteria for

competent authority shall apply the technical and other criteria set out supervisory

review and

in Schedule I.

evaluation.

The competent authority shall adopt an annual supervisory Supervisory

examination programme for the investment firms it supervises. Such examination

programme.

programme shall take into account the supervisory review and

evaluation process referred to in regulation 11, and shall contain the

elements set out in Schedule II.

The competent authority shall carry out as appropriate but Supervisory

at least annually, supervisory stress tests on investment firms it stress testing.

supervises, to facilitate the review and evaluation process under

regulation 11.

(1)

The competent authority shall review on a regular Ongoing review

basis, and at least every three years, investment firms’ compliance of

use internal

with the requirements regarding approaches that require permission approaches.

by the competent authority for the calculation of own funds

requirements in accordance with Part Three of the CRR. In this regard

it shall take cognizance of changes in an investment firm’s business

and to the implementation of those approaches to new products.

Where material deficiencies are identified in risk capture by an

investment firm’s internal approach, the competent authority shall

ensure they are rectified or take appropriate steps to mitigate their

consequences, including by imposing higher multiplication factors, or

imposing capital add-ons, or taking other appropriate and effective

measures.

(2) The competent authority shall in particular review and

assess whether the investment firm uses well developed and up-to-

date techniques and practices for those approaches.

(3) If for an internal market risk model numerous

overshootings as referred to in Article 366 of the CRR indicate that

the model is not or is no longer sufficiently accurate, the competent

authority shall revoke the permission for using the internal model or

impose appropriate measures to ensure that the model is improved

promptly.

(4) If an investment firm has received permission from the

competent authority to apply an approach for the calculation of own

funds requirements in accordance with Part Three of the CRR but no

longer meets the requirements for applying that approach, the

competent authority shall require the investment firm to either

demonstrate to the satisfaction of the competent authority that the

effect of non-compliance is immaterial, where applicable in

accordance with the requirements of the CRR, or present a plan for

the timely restoration of compliance with the requirements and set a

deadline for its implementation. The competent authority shall

require improvements to that plan if it is unlikely to result in full

compliance or if the deadline is inappropriate. If the investment firm

is unlikely to be able to restore compliance within an appropriate

deadline and, where applicable, has not satisfactorily demonstrated

that the effect of non-compliance is immaterial, the permission to use

the approach shall be revoked or limited to compliant areas or those

where compliance can be achieved within an appropriate deadline.

(5) The competent authority shall take into account the

analysis carried out by the EBA in terms of Article 101(5) of the CRD

and the guidelines containing benchmarks on the basis of that

analysis issued by the EBA, for the review of the permissions it grants

to investment firms to use internal approaches for the calculations of

own funds requirements.

(1)

The competent authority shall require an

investment firm to take the necessary measures at an early stage to

address relevant problems in circumstances where

(a)

the investment firm does not meet the requirements

of the Act, regulations or Investment Services Rules issued

thereunder, transposing the requirements of the CRD or of the

CRR;

(b)

the competent authority has evidence that the

investment firm is likely to breach the Act, regulations or

Investment Services Rules issued thereunder, or the provisions

of the CRR, within the following twelve months.

(2) For the purposes of sub-regulation (1), the powers of the

competent authority shall include those contained in Schedule III.

(1)

Where the competent authority determines that Application of

investment firms with similar risk profiles such as similar business supervisory

measures to

models or geographical location of exposures, are or might be institutions

similar risk

exposed to similar risks or pose similar risks to the financial system profiles.

or cause or contribute to systemic risk, it may apply the supervisory

review and evaluation process referred to in regulation 11, to those

investment firms in a similar or identical manner and the competent

authority shall notify the EBA accordingly.

(2) For this purpose, the competent authority shall have the

necessary legal power to impose the requirements under the CRD and

under the CRR on the investment firms referred to in sub-article (1) in

a similar or identical manner, including in particular the exercise of

supervisory powers contained in Schedule III, regulation 18 and

Investment Services Rules transposing the requirements of Article

106 of the CRD.

(3) The type of investment firms referred to in sub-regulation

(1) may be determined in accordance with the criteria referred to in

paragraph (1)(j) of Schedule I.

(1)

For the purposes of determining the appropriate Specific

level of liquidity requirements on the basis of the review and liquidity

requirements.

evaluation carried out in accordance with these regulations, the

competent authority shall assess whether any imposition of a specific

liquidity requirement is necessary to capture liquidity risks to which

an investment firm is or might be exposed, taking into account the

following

(a)

the particular business model of the investment

firm;

(b)

the investment firm’s arrangements, processes and

mechanisms in relation to liquidity risk as referred to in the

Investment services Rules and these regulations;

(c)

the outcome of the review and evaluation carried

out in accordance with regulation 11;

(d)

systemic liquidity risk that threatens the integrity

of the financial markets in Malta.

(2) In particular, without prejudice to the provisions of the

Act, the regulations and the Investment Services Rules transposing

the requirements of Article 67 of the CRD, the competent authority

will consider the need to apply administrative penalties or other

administrative measures, including prudential charges, proportionate

to the disparity between the actual liquidity position of an investment

firm and any liquidity and stable funding requirements established by

the competent authority or at European Union level.

(3) The competent authority shall monitor developments in

relation to liquidity risk profiles, for example, product design and

volumes, risk management, funding policies and funding

concentrations.

(4) The competent authority shall take effective action where

developments referred to in sub-regulation (2) may lead to systemic

instability or instability of the investment firm itself.

(5) The competent authority shall inform the EBA about any

actions carried out pursuant to sub-regulation (3).

The competent authority shall inform the EBA of

(a)

the functioning of its review and evaluation process

referred to in regulation 11;

(b)

the methodology used to reach decisions in relation

to the technical criteria for supervisory review contained in

Schedule I, the supervisory stress testing in regulation 14, the

review of internal approaches in regulation 15, the supervisory

measures in regulation 16, the supervisory powers contained in

Schedule III and the specific liquidity requirements in

regulation 18, when engaging in this process.

(1)

The competent authority shall apply the review and

evaluation process and the supervisory measures referred to in these

regulations in accordance with the level of application of the

requirements of Part One, Title II of the CRR.

(2) Where the competent authority waives the application of

own funds requirements on a consolidated basis as provided for in

Article 15 of the CRR, the requirements of regulation 11 shall apply

to the supervision of investment firms on an individual basis.

(1)

The competent authority shall publish the

following information in accordance with the Commission technical

standards adopted

(a)

the texts of laws, regulations, administrative rules

and general guidance adopted in Malta in the field of prudential

regulation;

(b)

the general criteria and methodologies it uses in the

review and evaluation pursuant to regulation 11;

(c)

the manner of exercise of the options and

discretions available in European Union law;

(d)

without prejudice to the confidentiality provisions

of the Act, aggregate statistical data on key aspects of the

implementation of the prudential framework in Malta, including

the number and nature of supervisory measures taken and of

administrative penalties imposed in terms of the Act.

(2) The information published in accordance with sub-

regulation (1) shall be sufficient to enable a meaningful comparison

of the approaches adopted by the European regulatory authorities.

The disclosures shall be published following a common format and

updated regularly. The disclosures shall be accessible at a single

electronic location.

For the purpose of Part Five of the CRR relating to Publication of

exposures to transferred credit risks, the competent authority shall information

relating to

publish the information set out in Schedule IV.

exposures to

transferred

credit risks.

Miscellaneous

In encouraging certain investment firms to develop Reliance on

internal credit risk assessment capacity and to increase use of internal credit

the purposes of

ratings based approach for calculating own funds requirements, the assessing

creditworthiness

competent authority shall monitor, taking into account the nature, of an entity or

scale and complexity of the investment firms’ activities, that such financial

instrument.

investment firms do not solely or mechanistically rely on external

credit ratings for assessing the creditworthiness of an entity or

financial instrument.

The competent authority shall inform the EBA of any Notification to

authorisations it issues to the members of an investment firm’s the EBA.

management body to hold one additional non-executive directorship

in terms of Article 91 of the CRD.

The competent authority shall collect the information Benchmarking

disclosed in accordance with Article 435(2)(c) of the CRR and shall of

practices by the

use it to benchmark diversity practices. The competent authority shall competent

authority.

provide that information to the EBA.

The competent authority, when processing personal data Data protection.

for the purposes of the CRD, shall do so in accordance with Directive

95/46/EC and, where relevant, with Regulation (EC) No. 45/2001.

Transitory Provisions

The provisions of regulation 6, shall not apply until the Applicability of

date on which the liquidity coverage requirement becomes applicable regulation 6.

in accordance with a delegated act adopted by the European

Commission pursuant to Article 460 of the CRR in accordance with

Article 151 of the CRD

Provided that until the date referred to in this regulation,

the provisions of regulation 6 shall be substituted with the following

"The competent authority shall collaborate closely in order

to supervise the activities of investment firms and operating, in

particular through a branch, in one or more Member States other

than Malta. The competent authority shall supply all

information concerning the management and ownership of such

investment firms to the relevant European Regulatory

authorities in the Member states concerned, that is likely to

facilitate their supervision and the examination of the conditions

for their licensing, and all information likely to facilitate the

monitoring of such investment firms, in particular with regard to

liquidity, solvency, the limiting of large exposures,

administrative and accounting procedures and internal control

mechanisms.".

The provisions of regulation 7 shall not apply until the date

on which the liquidity coverage requirement becomes applicable in

accordance with a delegated act adopted by the European

Commission pursuant to Article 460 of the CRR in accordance with

Article 151 of the CRD

Provided that until the date referred to in this regulation,

the provisions of regulation 7 shall be substituted with the following

"(1)

Where a European investment firm carries out its

activities through a branch in Malta, the competent authority

may permit the European regulatory authority of the home

Member State concerned, after it has notified the competent

authority, to carry out, itself or through an intermediary, on-the-

spot checks of the information referred to in regulation 6 of

these regulations.

(2)

The European regulatory authority of the European

investment firm referred to in sub-regulation (1) may also, for

the purposes of the inspection of branches have recourse to one

of the other procedures set out in regulation 12 of the

Supervisory Consolidation Regulations. 2013.

(3)

The provisions of sub-regulations (1) and (2) shall

not affect the right of the competent authority to carry out in the

discharge of its responsibilities under the CRD, on-the-spot

checks of branches established in Malta.".

Revocation

Revokes the

Investment

Services Act

The Investment Services

Act

(Capital

Adequacy)

(Capital

Adequacy

Regulations, 2008 are hereby revoked.

Regulations)

2008. L.N. 87 of 2008.