Insights

In this issue:

• Ganado Advocates monthly banking and finance law webinars
• ECB recommends that banks limit issuing dividends until September 2021
• MFSA consults on the updated CSP rules and publishes updated CSP book
• MFSA Circular updates the Interim Measures for the Processing of Physical Documentation
• MFSA issues second document on banking supervision
• Guidelines of EBA on legislative and non-legislative moratia are reintroduced
• MFSA publishes Guidance on Technology Arrangements, ICT and Security Risk Management, and Outsourcing Arrangements
• European Commission publishes communication on Non-Performing Loans
• ECB publishes letter on banks’ remuneration policies
• MFSA publishes Supervisory Priorities for 2021
• ECB concludes Digital Euro consultation
• MFSA Circular on EBA’s Guidelines on moratia on loan repayments during COVID-19
• CJEU offers clarification on the inviolability of National Central Banks

Ganado Advocates monthly banking and finance law webinars

On the 23rd February 2021, Ganado Advocates will be holding the second one-hour session of the monthly webinar series on banking and finance law and regulation, starting at 14pm. Mario Zerafa, Senior Associate working within the firm’s investment services and funds team, will give an insight on the rapid evolution of financial crime and how such change is requiring a dynamic response. By adopting a robust compliance culture, implementing an appropriate framework and by engaging people with the right frame of mind, banks and financial institutions will be able to make the grade during compliance visits. This webinar will give insights into the culture and framework which are to be adopted by banks and financial institutions, focusing on how they can make the grade during regulatory compliance visits.

ECB recommends that banks limit issuing dividends until September 2021

Once again, the ECB has issued a recommendation aimed at banks asking them to limit distributing cash dividends or conducting share buy-backs until at least September 2021. The ECB has explained that given the uncertainty surrounding the economic impact surrounding the COVID-19 pandemic, if banks still go ahead and issue dividends, it expects that such dividends and share buy-backs remain below 15% of the cumulated profit for 2019-20 and not higher than 20 basis points of the Common Equity Tier 1 (CET1) ratio, whichever is lower.

This revised recommendation seeks to safeguards banks’ capacity at absorbing losses and help them be in a better position to lend and support the economy.

Link to recommendation

MFSA consults on the updated CSP rules and publishes updated CSP book

The MFSA has published the sector-specific Implementing Procedures II applicable to Company Service Providers (CSPs). With the ever growing number of CSPs operating in Malta and given the fact that the CSP sector was identified as a high risk sector by the ML/FT National Risk Assessment in 2018, these updated Implementing Procedures continue to provide all relevant stakeholders with the tools needed to fight ML/FT.

These Implementing Procedures Part II apply to persons and entities carrying out the services envisaged under the Company Service Providers Act and have been drafted following consultation with the Institute of Financial Practitioners and the MFSA.

MFSA Circular updates the Interim Measures for the Processing of Physical Documentation

Following the MFSA’s contingency planning for COVID-19 where all documentation from persons and entities that are licensed, registered, enrolled, recognised, or authorised in any other form by the MFSA, was being submitted electronically, the situation has now changed and documentation must now be submitted physically.

All documentation submitted to the MFSA electronically pursuant to the Circular issued on 24 March 2020, must now be submitted in physical form. All such documentation is expected to be submitted to the MFSA from 4 January 2021 onwards and should be received by the Authority, at its offices, by no later than 15 February 2021.

Link to publication

MFSA issues second document on banking supervision

Pursuant to the MFSA’s goal of publishing a series of publications focusing on the supervision of the Maltese banking sector, the regulatory authority has issued the second volume, focusing on supervision in the Virtual Financial Assets (‘VFA’) Sector.

The publication covers an array of matters, from an overview of the VFA framework and its implementation, to a look at the European Union’s adoption of the Digital Finance Package, including legislative proposals on the regulation of Markets in Crypto Assets (‘MiCA’).

Link to document

Guidelines of EBA on legislative and non-legislative moratoria are reintroduced

Following the resurgence of the COVID-19 pandemic and the related government restrictions that have been imposed in many EU countries, the EBA has decided to reactivate its Guidelines on legislative and non-legislative moratoria. The new Guidelines include new constraints, limiting the loans which may benefit from the moratoria.

The new restrains hold that: only loans that are suspended, postponed or reduced under general payment moratoria not more than 9 months in total, including previously granted payment holidays, can benefit from the application of the Guidelines and, that Credit institutions are requested to document to their supervisor their plans for assessing that the exposures subject to general payment moratoria do not become unlikely to pay.

The new Guidelines will apply until 31 March 2021.

Link to guidelines

MFSA publishes Guidance on Technology Arrangements, ICT and Security Risk Management, and Outsourcing Arrangements

On 11 December 2020, the MFSA published its principle-based cross-sectorial guidelines titled, ‘Guidance on Technology Arrangements, ICT and Security Risk Management, and Outsourcing Arrangements’, together with a consultation Feedback Statement, as reviewed by the Authority.

The MFSA has largely based its Guidance Document heavily on the European Supervisory Authorities’ (ESA) guidelines.

Link to guidelines

Link to feedback statement

ECB publishes letter on banks’ remuneration policies

The ECB has published a letter to banks on remuneration policies in the context of COVID-19. This is the second time that the ECB has addressed banks on this matter, previously addressing a letter to banks in July 2020.

The ECB has reminded banks that their focus at this point in time should be to maintain a suitable amount of capital to absorb potential losses and to support the real economy. Consequently, it had asked banks to adopt extreme moderation with regard to variable remuneration until 30 September 2021. If the bank is unable to limit variable remuneration, it should consider whether a large part of the variable remuneration can be deferred for a longer period of time.

Link to letter

MFSA publishes Supervisory Priorities for 2021

The MFSA has published a document highlighting the authority’s main supervisory priorities for 2021. The document outlines five main priorities, namely Corporate Governance and Culture, Financial Crime Compliance, the impact of COVID-19, ICT Risk and Cybersecurity and Fintech and Innovation.

In the Press Release accompanying this document, the MFSA also held that throughout 2021, it will continue the implementation of the three-year strategic plan for 2019-2021, while planning ahead for the next strategic period (2021-2024) as well as focusing on the sustainable growth of the sector through the Capital Markets Strategy and Asset Management Strategy, amongst others.

Link to document

ECB concludes Digital Euro consultation

Back in 12 October 2020, the ECB launched a consultation process on the digital euro. The consultation period has now been closed, having accumulated over 8000 respondents. A preliminary look at the data gathered has shown that privacy of payments ranked highest among the requested features of a potential digital euro (41% of replies), followed by security (17%) and pan-European reach (10%).

The ECB is planning to publish a comprehensive analysis of the public consultation in the coming months.

Link to press release

MFSA Circular on EBA’s Guidelines on moratoria on loan repayments during COVID-19

Pursuant to the EBA’s Guidelines on legislative and non-legislative moratoria on loan repayments in the light of the COVID-19 crisis (the Guidelines), the MFSA has published a Circular aimed at providing a number of clarifications to credit institutions, licensed in terms of the Banking Act. (Chapter 371 of the Laws of Malta)

Amongst other matters, the Circular clarifies tha any legislative moratoria that have been granted in line with the provisions of Central Bank of Malta Directive No. 18: On Moratoria on Credit Facilities in Exceptional Circumstances and in line with the Guidelines, shall benefit from the preferential treatment provided for in the Guidelines

The Circular goes on to clarify some other matters as well as well as providing insight on supervisory reporting.

Link to circular

CJEU offers clarification on the inviolability of National Central Banks

On 17 December 2020, the Court of Justice of the European Union (CJEU) delivered its ruling in the case of ‘ECB vs. Republic of Slovenia’, regarding the inviolability of the ECB’s archives by the unilateral seizure of documents relating to the tasks of the European System of Central Banks (ESCB) and the Eurosystem, at the premises of Slovenia’s national central bank (Bank of Slovenia). The CJEU ruled that the unilateral seizure by the national authorities of documents belonging to the archives of the Union must be considered to constitute an infringement of the principle of the inviolability of those archives of the European Union.

The judgement is of particular significance due to the fact that the CJEU offered insight into the manner as to how national authorities should act when dealing with investigations of National Central Banks. Furthermore, an interpretation into the nature of inviolability was given.

Link to the case