Recovery and Resolution (Amendment) Regulations, 2022

Suppliment tal-Gazzetta tal-Gvern ta’ Malta Nru. 20,783, 11 ta’ Frar, 2022 B 387

L.N. 74 of 2022

MALTA FINANCIAL SERVICES AUTHORITY ACT

(CAP. 330)

Recovery and Resolution (Amendment) Regulations, 2022

IN EXERCISE of the powers conferred by article 20A and 20D

of the Malta Financial Services Authority Act, the Minister

responsible for the regulation of financial services, acting on the

advice of the Malta Financial Services Authority and of the Resolution

Authority, has made the following regulations

(1) The title of these regulations is the Recovery and Citation, scope

Resolution (Amendment) Regulations, 2022, and they shall be read and

commencement.

and construed as one with the Recovery and Resolution Regulations, S.L. 330.09.

hereinafter referred to as the "the principal regulations.";

(2) The scope of these regulations is to transpose Article 63 of

Directive (EU) 2019/2034 of the European Parliament and of the

Council of 27 November 2019 on the prudential supervision of

investment firms and amending Directives 2002/87/EC, 2009/65/EC,

2011/61/EC, 2013/36/EU, 2014/59/EU and 2014/65/EU and to

partially transpose Article 1 of Directive (EU) 2017/2399 of the

European Parliament and of the Council of 12 December 2017

amending Directive 2014/59/EU as regards the ranking of unsecured

debt instruments in insolvency hierarchy and to partially transpose

Articles 4 and 20 and to transpose Article 5 of Directive (EU) 2019/

2162 of the European Parliament and of the Council of 27 November

2019 on the issue of covered bonds and covered bond public

supervision and amending Directives 2009/65/EC and 2014/59/EU.

(3) Regulation 14 shall come into force on such date as the

Minister may establish by notice in the Gazette.

Sub-regulation (1) of regulation 2 of the principal Amends

regulation 2 of

regulations shall be amended as follows

the principal

regulations.

(a) immediately after the definition "business day" there

shall be added the following definition

" "the CBD" means Directive (EU) 2019/2162 of the

European Parliament and of the Council of 27 November

2019 on the issue of covered bonds and covered bond

public supervision and amending Directives 2009/65/EC

and 2014/59/EU;";

(b) the definition "the CRD" shall be substituted by the

following

" "the 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, 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

Provided that, for the purposes of prudential

supervision and resolution of investment firms

(i) references to the CRD throughout these

regulations shall be construed as referring to the IFD;

and

(ii) references to specific provisions of the

CRD throughout these regulations shall be construed

as referring to the corresponding provisions of the

IFD;";

(c) the definition "the CRR" shall be substituted by the

following

""the 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

amending Regulation (EU) No 648/2012, as amended from

time to time, and includes any implementing measures that

have been or may be issued thereunder;";

(d) immediately after the definition "hybrid capital" there

shall be added the following new definitions

" "the IFD" means Directive (EU) 2019/2034 of the

European Parliament and of the Council of 27 November

2019 on the prudential supervision of investment firms and

amending Directives 2002/87/EC, 2009/65/EC, 2011/61/

EU, 2013/36/EU, 2014/59/EU and 2014/65/EU, as

amended from time to time, and includes any implementing

measures that have been or may be issued thereunder;

"the IFR" means Regulation (EU) 2019/2033 of the

European Parliament and of the Council of 27 November

2019 on the prudential requirements of investment firms

and amending Regulations (EU) No 1093/2010, (EU) No

575/2013, (EU) No 600/2014 and (EU) No 806/2014, as

amended from time to time, and includes any implementing

measures that have been or may be issued thereunder;"; and

(e) the definition "investment firm" shall be substituted

by the following

" "investment firm" means an investment firm as

defined in point (22) of article 4(1) of the IFR, which is

subject to the initial capital requirement of €750,000, and

excluding firms which are not authorised to provide any of

the investment services or to perform any of the investment

activities listed in points (3) and (6) of Section A of Annex

I to Directive 2014/65/EU;".

In paragraph (h) of sub-regulation (2) of regulation 44 of Amends

the principal regulations, the words, "under article 29A of the Banking regulation

the principal

Act", shall be substituted by the words "under regulation 108:" and the regulations.

words "Cap 371" in the marginal note thereof shall be deleted.

In sub-regulation (1) of regulation 44A of the principal Amends

regulation 44A

regulations, there shall be added the following new proviso

of the principal

regulations.

"Provided that and notwithstanding the provision of

any other law, the application of the suitability test in accordance

with Article 25(2) of Directive 2014/65/EU shall extend to such

instances where the sale of eligible liabilities to a retail client as

defined in point (11) of Article 4(1) of Directive 2014/65/EU

refers to the sale of Additional Tier 1 instruments and Tier 2

instruments.".

Immediately after sub-regulation (2) of regulation 45 of the Amends

principal regulations there shall be added the following new sub- regulation

the principal

regulations

regulations.

"(3) Pursuant to Article 65 of the IFR, references to

Article 92 of the CRR in these regulations relating to the own

funds requirements on an individual basis of investment firms

other than those referred to in Article 1(2) or (5) of the IFR shall

be construed in the following way

(a) references to point (c) of Article 92(1) of the

CRR as regards the total capital ratio requirement in these

regulations shall refer to Article 11(1) of the IFR;

(b)

references to Article 92(3) of the CRR as

regards the total risk exposure amount in these regulations

shall refer to the applicable requirement in Article 11(1) of

the IFR multiplied by 12.5.

(4) In accordance with the proviso to the definition "the CRD"

in regulation 2(1), references in these regulations to Article 104a of the

CRD as regards additional own funds requirements of investment

firms other than those referred to in Article 1(2) or (5) of the IFR shall

be construed as referring to Article 40 of the IFD.

(5) The Authority shall notify the Resolution Committee of

any additional own funds requirement imposed pursuant to point (a) of

Article 39(2) of the IFD on an investment firm that falls under the

scope of these regulations, and of any expectation for adjustments as

referred to in Article 41(2) of the IFD in respect of such investment

firm.".

In paragraph (a) of sub-regulation 5 of regulation 45B of

the principal regulations, the words, "under article 29A of the Banking

Act", shall be substituted by the words "under regulation 108" and the

words "Cap 371" in the marginal note thereof shall be deleted.

Regulation 45I of the principal regulations shall be

amended as follows

(a) in point (ii) of paragraph (c) of sub-regulation (1)

thereof, the words, "in terms of article 29A of the Banking Act;",

shall be substituted by the words "in terms of regulation 108;"

and the words "Cap 371" in the marginal note thereof shall be

deleted;

(b) in paragraph (b) of sub-regulation (3) thereof, the

words, "in terms of article 29A of the Banking Act;", shall be

substituted by the words "in terms of regulation 108;" and the

words "Cap 371" in the marginal note thereof shall be deleted;

In paragraph (ii) of sub-regulation (2)(a) thereof, the words

"and (m) of Article 72b(3)" shall be substituted by the words "and (m)

of Article 72b(2) and Article 72b(3)".

Paragraph (e) of sub-regulation (1) of regulation 48 of the

principal regulations shall be substituted by the following

"if, and only if, the total reduction of shares or other

instruments of ownership, relevant capital instruments and bail-

inable liabilities pursuant to paragraphs (a) to (d) is less than the

sum of the amounts referred to in regulation 47(3)(b) and (c), the

Resolution Committee reduces to the extent required the

principal amount of, or outstanding amount payable in respect

of, the rest of bail-inable liabilities, including debt instruments

referred to in regulation 108(4), in accordance with the hierarchy

of claims in normal insolvency proceedings, including the

ranking of deposits provided for in regulation 108, pursuant to

regulation 44, in conjunction with the write down pursuant to

paragraphs (a) to (d) to produce the sum of the amounts referred

to in regulation 47(3) (b) and (c).".

Regulation 55 of the principal regulations shall be amended Amends

regulation 55

as follows

of the

principal

(a) in paragraph (b) of sub-regulation (1) thereof, the regulations.

words, "in article 29A(3) of the Banking Act;", shall be

substituted by the words, "in regulation 108(3);" and the words

"Cap 371" in the marginal note thereof shall be deleted;

(b) in paragraph (c) of sub-regulation (2) thereof, the

words, "under paragraph (a) of article 29A(5) of the Banking

Act," shall be substituted by the words, "under paragraph (a) of

regulation 108(6),", and the words "Cap 371" in the marginal

note thereof shall be deleted;

(c) in the proviso to paragraph (c) of sub-regulation (2)

thereof, the words, "referred to in article 29A(3A) and (4) of the

Banking Act.", shall be substituted by the words, "referred to in

regulation 108(4) and (5)." and the words "Cap 371" in the

marginal note thereof shall be deleted.

Immediately after sub-regulation (6) of regulation 68 of the Amends

principal regulations there shall be added the following new sub- regulation

of the

regulation

principal

regulations.

"(7) The insolvency or resolution of a credit institution

issuing covered bonds does not give the holder of the covered

bonds the right to automatic acceleration of payment obligations

attached thereto.".

Immediately after sub-regulation (2) of regulation 79 of the Amends

principal regulations, there shall be added the following new sub- regulation

the principal

regulation

regulations.

"(3) The Authority shall co-operate with the Resolution

Committee in the event of the resolution of a credit institution

issuing covered bonds in order to ensure that the rights and

interests of the covered bond investors are preserved, including

at least by verifying the continuous and sound management of

the covered bond programme during the period of the resolution

process.".

Regulation 84 of the principal regulations shall be amended

as follows

(a) in paragraph (n) of sub-regulation (1) thereof, the

words "after their appointment." shall be substituted by the

words "after their appointment;";

(b) immediately after paragraph (n) of sub-regulation (1)

thereof, there shall be added the following new paragraph

"(o) special administrator appointed in accordance

with Article 20 of the CBD.";

(c) in paragraph (g) of sub-regulation (6) thereof, the

words "investor compensation scheme." shall be substituted by

the words "investor compensation scheme;";

(d) immediately after paragraph (g) of sub-regulation (6)

thereof, there shall be added the following new paragraph;

"(h) the special administrator

appointed

in

accordance with Article 20 of the CBD.".

Regulation 108 of the principal regulations shall be

substituted by the following

"(1) Where an institution or an entity referred to in

paragraphs (b), (c) or (d) of the definition "entity" in regulation

2(1) is insolvent and is being wound up, creditors having their

rights secured by pledges, privileges whether resulting from

registration or granted by law, or hypothecs and covered bond

investors together with counterparties of derivatives contracts

that comply with Article 11 of the CBD, shall rank in accordance

with the applicable laws in force in Malta at the time.

Provided that the claims of covered bond investors

referred to in this sub-regulation shall be limited to the full

payment obligations attached to the covered bonds.

(2) Without prejudice to the provisions of sub-regulation (1),

the following shall rank before the creditors listed under sub-

regulation (3)

(a)

covered deposits;

(b)

the Depositor Compensation Scheme and the Investor

Compensation Scheme

(i) subrogating to the rights and obligations of

covered depositors in insolvency;

(ii) In relation to contribution/s that are due to it by

an institution or an entity referred to in paragraphs (b), (c)

or (d) of the definition "entity" in regulation 2(1) under the

Depositor Compensation Scheme Regulations and the S.L. 371.09.

Investor Compensation Scheme Regulations;

(c) the Resolution Fund in relation to any contribution or

contributions that may be due to it by an institution or an entity

referred to in paragraphs (b), (c) or (d) of the definition "entity"

in regulation 2(1) in accordance with the provisions of these

regulations

Provided that notwithstanding any provision to the

contrary in the applicable Maltese Law, covered deposits

mentioned in paragraph (a), the subrogation into the rights and

obligations of covered depositors mentioned in paragraph (b)(i),

the contributions due to the Depositor Compensation Scheme

and the Investor Compensation Scheme mentioned in paragraph

(b)(ii) and the contributions due to the Resolution Fund

mentioned in paragraph (c) shall rank pari passu.

(3) Without prejudice to the provisions of sub-regulations (1)

and (2), the following shall rank equally between themselves but

before the ranking provided for the claims of ordinary unsecured

creditors

(a) that part of eligible deposits from natural persons and

micro, small and medium-sized enterprises which exceeds the

coverage level provided for in regulation 10 of the Depositor S. L. 371.09.

Compensation Scheme Regulations;

(b) deposits that would be eligible deposits from natural

persons, micro, small and medium-sized enterprises provided

they were not made through branches located outside the

European Union of institutions established within the European

Union.

(4) Without prejudice to the provisions of sub-regulations (1),

(2) and (3), ordinary unsecured claims shall have a higher priority

ranking than that of unsecured claims resulting from debt instruments

that meet the following conditions

(a) the original contractual maturity of the debt

instruments is of at least one year;

(b) the debt instruments contain no embedded derivatives

and are not derivatives themselves

Provided that debt instruments with variable interest

derived from a broadly used reference rate and debt instruments

not denominated in the domestic currency of the issuer, on

condition that principal, repayment and interest are denominated

in the same currency, shall not be considered to be debt

instruments containing embedded derivatives solely because of

those features;

(c) the relevant contractual documentation and, where

applicable, the prospectus related to the issuance explicitly refer

to the lower ranking under this sub-regulation.

(5) The following shall rank below all other unsecured

creditors and shall have the following order of priority

(a) the amount of subordinated debt that is not Additional

Tier 1 or Tier 2 capital;

(b)

Tier 2 instruments;

(c)

Additional Tier 1 instruments;

(d)

Common Equity Tier 1 instruments.

(6)

For the purposes of this regulation

(a) "debt instruments" shall mean bonds and other forms

of transferable debt and instruments creating or acknowledging a

debt;

(b) "derivatives" shall mean those financial instruments

defined in point (44) (c) of Article 4(1) of Directive2014/65/EU;

and referred to in Annex I, Section C (4) to (10) thereto.".

€0.36