Insights

In this issue:

• MFSA safeguards consumers by ensuring proper design and distribution of financial products
• MFSA improves its authorisation process and commits to established timeframes
• MFSA publishes feedback statement on the stakeholder consultation on revisiting the Corporate Governance Framework
• EBA publishes final Guidelines for the use of data inputs in the expected shortfall risk measure under the Internal Model Approach
• EBA publishes its final revised Guidelines on sound remuneration policies
• EBA and ESMA publish final guidance on fit and proper requirements
• ECB decides not to extend dividend recommendation beyond September 2021

MFSA safeguards consumers by ensuring proper design and distribution of financial products

The MFSA has published the fifth volume of the publication ‘The Nature and Art of Financial Supervision’ which is focused on product oversight and governance (“POG”) Requirements. POG ensures that authorised entities, including credit institutions, have detailed policies and procedures specifying the steps taken during the manufacturing and/or distribution process to ascertain that their products are useful and provide value for money.

This publication is the result of a “cross-sectoral thematic review” carried out by the MFSA in order to assess whether entities in the financial services sectors, including banks, adhere to the POG Requirements applicable to them. In its writing, the MFSA specified good practices, and practices that ought to be worked upon with the aim of ensuring compliance with the Conduct of Business Rulebook and European Guidelines on POG and all regulated entities are expected to follow the MFSA’s recommendations.

Link to MFSA’s article

MFSA improves its authorisation process and commits to established timeframes

The MFSA has published its Authorisation Process – Service Charter, which is aimed at improving and facilitating the authorisation process in guiding applications to prepare and submit their applications for authorisation from the MFSA in a more user-friendly manner. In addition, the MFSA has also launched a newly dedicated authorisations webpage from which new authorisation forms can be accessed and which can then be submitted through the Licence Holder Portal. This is also supported by further supporting guidelines.

Link to the Authorisation Process – Service Charter

Link for more details and application

MFSA publishes feedback statement on the stakeholder consultation on revisiting the Corporate Governance Framework

The MFSA has published a feedback statement after receiving multiple responses from industry participants on revisiting the Corporate Governance Framework for entities authorised by the MFSA and Listed entities. Through this statement, the MFSA aims for an overall raise of corporate governance standards for authorised entities, ensuring that corporate governance is given the priority it requires by the governing body and senior management of the entities concerned and that such practices are embedded in such entities’ own culture.

To this end, the MFSA will be issuing a list of principles of Good Corporate Governance on a ‘best efforts basis’ which shall be applicable to all authorised entities and also supported by further consultation with industry participants themselves and further specific policy work on the topic.

Link to feedback statement

EBA publishes final Guidelines for the use of data inputs in the expected shortfall risk measure under the Internal Model Approach

The EBA has published the final report containing guidelines clarifying the conditions required for the data inputs used in order to determine the expected shortfall risk measure applicable to modellable risk factors, i.e., risk factors for which enough verifiable prices are available. Particularly, these guidelines provide several criteria regarding a number of factors, namely the accuracy, appropriateness, frequency for updating and complement of data inputs used by institutions for their modellable risk factors. Such criteria are aimed at ensuring that such data inputs are in line with previous data indicative of prices observed in the market, that deal with both general and specific risks, that they are updated frequently and whenever the market requires, and that any missing values in the data inputs are replaced accordingly.

Such guidelines have been published as part of the so-called roadmap for the new market and counterparty credit risk approaches and shall be applicable as of January 2022.

Link to final report

EBA publishes its final revised Guidelines on sound remuneration policies

The EBA has published its final revised guidelines on institutions’ sound remuneration policies in consideration of the amendments introduced by the fifth Capital Requirements Directive (Directive 2013/36/EU or CRD V). Such guidelines relate to the requirement that remuneration policies should be gender-neutral while also taking into consideration supervisory practices and clarifying some aspects of retention bonuses and severance pays. The revised Guidelines will apply from 31 December 2021.

Link to guidelines

EBA and ESMA publish final guidance on fit and proper requirements

The EBA and the ESMA have published their revised joint Guidelines on the assessment of the suitability of members of the management body as a reflection of the amendments introduced by inter alia CRD V with respect to the assessment of eligibility of key function holders, particularly members of the management body.

These joint guidelines namely relate to money laundering and financing terrorism risks with the aim of maintaining the stability and integrity of the financial system; and gender diversity with the aim of ensuring that the management body is set up in a gender balanced manner. In addition, the joint guidelines also provide further guidance on the recovery and resolution framework introduced by the Bank Recovery and Resolution Directive (Directive 2014/59/EU or BRRD). These guidelines will apply as of 31st December 2021.

ECB decides not to extend dividend recommendation beyond September 2021

In March 2020, the ECB requested banks not to pay dividends in order to improve their ability to absorb losses and to support lending to households, SMEs and other companies during the COVID-19 pandemic. Similarly, in December 2020 the ECB advised banks to limit their dividend payments and share buy-backs. ECB has decided that the previous recommendations concerning supervisory practice shall no longer apply after 30 September 2021. The ECB further holds that banks should not underestimate the risk that additional losses may later impact their capital trajectory once the support measures lapse. In addition, the ECB is asking banks to decide on remuneration policies in a prudent and forward-looking manner, while as part of its supervisory review process, it shall continue to assess banks’ remuneration policies and their impact on the bank’s ability to maintain its capital trajectory.

In line with the above, the MFSA maintained that national competent authorities shall follow the same approach with regards to banks they supervise directly.

Link to press release