OVER-RELIANCE ON CREDIT RATING REGULATIONS

OVER-RELIANCE ON CREDIT RATING

SUBSIDIARY LEGISLATION 370.29

OVER-RELIANCE ON CREDIT RATING

REGULATIONS

1st January, 2015 *

LEGAL NOTICE 13 of 2015.

(1) The title of these regulations is the Over-Reliance on

Credit Rating Regulations.

(2) The purpose of these regulations is to implement Articles 1,

2(2) and 3(2) of Directive 2013/14/EU of the European Parliament

and of the Council of 21 May 2013 amending Directive 2003/41/

EC on the activities and supervision of institutions for occupational

retirement provision, Directive 2009/65/EC on the coordination of

laws, regulatio ns and adm inistrative p rovi sio ns relati ng to

undertakings for collective investment in transferable securities

(UCITS) and Directive 2011/61/EU on Alternative Investment

Funds Managers in respect of over-reliance on credit ratings.

In these regulations, unless the context otherwise requires -

''Alternative Investment Fund'' or ''AIF'' means a collective

investment scheme, including subfunds thereof, which raises

capital from a number of investors, with a view to investing it in

accordance with a defined investment policy for the benefit of

those investors, and which does not qualify as a UCITS Scheme in

terms of the UCITS Directive;

"Alternative Investment Fund Manager" or "AIFM" means a

legal person whose regular business is managing one or more AIFs;

"competent authority" means the Malta Financial Services

Authority established by the Malta Financial Services Authority

Act;

"credit rating" shall have the same meaning as that assigned to it

in paragraph (a) of Article 3(1) of the EU Regulation;

"credit rating agencies" shall have the same meaning as that

assigned to it in paragraph (b) of Article 3(1) of the EU Regulation;

"EU Regulation" means Regulation (EC) No 1060/2009 of the

European Parliament and of the Council of 16 September 2009 on

credit rating agencies;

"Maltese management company" means a management company

licensed by the competent authority with its head office and

registered office situated in Malta and the regular business of

which is the management of UCITS;

"Maltese UCITS" means -

*see regulation 1(3) of these Regulations, as originally promulgated.

OVER-RELIANCE ON CREDIT RATING

(a) an investment company, a partnership en commandite

or a limited partnership with its registered office and

head office situated in Malta and licensed in terms of

the Investment Services Act;

(b) where the UCITS is constituted as a common fund, a

UCITS domiciled in Malta in terms of the Investment

Services Act (Contractual Funds) Regulations, and

licensed in terms of the Investment Services Act;

(c) where the UCITS is established as a unit trust, a unit

trust whose proper law is the law of Malta;

"occupational retirement scheme" means an occupational scheme

as defined in article 2 of the Retirement Pensions Act and licensed

by the competent authority in terms of the said Act;

"sole and mechanistic reliance on credit ratings" occurs when an

action or omission is the consequence of any type of rule based on

credit ratings without any discretion;

"UCITS " means undertakings for collective investment in

transferable securities in terms of regulation 3(2) and (3) of the

Investment Services Act (Marketing of UCITS) Regulations. For

the purposes of these regulations, a UCITS shall also include

subfunds thereof.

Taking into account the nature, scale and complexity of the

activities of UCITS, AIFs and occupational retirement schemes, the

competent authority shall

(a) monitor the adequacy of the credit assessment

processes of the Maltese management company or the

Maltese UCITS, AIFMs and occupational retirement

schemes;

(b) assess the use of references to credit ratings issued by

credit rating agencies in the investment policies of

UCITS, AIFs and occupational retirement schemes;

and

(c) where appropriate, encourage mitigation of the impact

of such references to credit ratings, with a view to

reducing sole and mechanistic reliance on credit

ratings.