COVID-19: MFSA Circular on Contingency Planning for Licence Holders

On March 13, 2020, the Malta Financial Services Authority (the “MFSA”), issued a circular indicating that it is closely monitoring the impact of COVID-19 on Investors, Investment Firms, Custodians, Fund Managers and Collective Investment Schemes (the “Licence Holders”) and the need for such Licence Holders to take into consideration the impacts of COVID-19 on their business continuity and contingency plans.

Business Continuity Plan

The MFSA highlighted that all Licence Holders should have in place a Business Continuity Plan (the “BCP”) which is to outline the management process to ensure continuity of business and advance planning required in such outbreaks, given that access to company offices may become physically impossible. BCP’s are to ensure minimum losses and guarantee the continuity of fundamental business practices.

The MFSA is encouraging Licence Holders to review, update and test their BCP in light of the current outbreak. The MFSA specifically highlighted that any provisions on customer/investor communication is to be tested, given the current significant market disruptions.

BCP’s are to be communicated to all stakeholders and employees and any disclosure on contingencies should be posted on the Licence Holder’s website or provided at account opening stage. Licence Holders who do not have adequate BCP’s are to notify the MFSA without any delay.

Physical Board Meetings

The MFSA is expecting Licence Holders that are obliged to hold physical board meetings to hold such meetings using teleworking or video-conferencing systems. The frequency of board meetings is to remain the same, whilst the obligation to minute discussions remains with the added obligation to minute the rationale for holding the meetings via conference calls.

Communication with Clients and Investors

With an increased volume of queries being expected due to unprecedented market movements, the MFSA is envisaging temporary operational challenges in keeping up with the volume of queries. Should this occur, Licence Holders are to upload a specific notice on their website providing alternative communication points.

The current situation does not exonerate the Licence Holders from complying with the relevant conduct of business requirements relating to the provision of information and disclosure of all possible risks pertaining to investments and the potential effects of volatility in price and fluctuation of interest rates/exchange rates on the value of investments.

Algorithmic Trading & Cyber Security

Licence Holders using computer-driven algorithmic trading systems are expected to switch off any computerised automatically executed trades based on pre-programmed instructions in order to prevent unnecessary disruptions and maintain market integrity.

ESMA Recommendations

The European Securities and Markets Authority (“ESMA”) also issued a statement with its recommendations to financial market participants on 12 March 2020. It stressed the importance of financial market participants’ readiness to apply contingency plans, including business continuity measures, to ensure operational continuity in line with their regulatory obligations. Participants should also disclose actual and potential impacts of COVID-19 in their 2019 year-end financial report (if not already finalised), alternatively in their interim reports. Where possible, disclosures should be based on both a qualitative and quantitative assessment of the impact on the issuer’s business activities, financial situation and economic performance.

FCA and SEC Regulatory Relief

The Financial Conduct Authority (“FCA”) published a statement on 4 March 2020 on its expectation of firms in relation to COVID-19. It states that it expects all firms to inter alia: (i) have contingency plans in place and adequate testing of these plans; (ii) take all reasonable steps to meet their regulatory obligations even if it means undertaking activities from back-up sites or with staff working from home; and (iii) continue to have an active dialogue with the authority to discuss and resolve any particular issues that may arise during these challenging times.

On 13 March 2020 the United States Securities and Exchange Commission (“SEC”), announced regulatory relief for funds and investment advisers whose operations may be affected by the coronavirus. The relief covers inter alia: (i) in-person board meetings; and (ii) certain filing and delivery requirements. This relief was considered appropriate due to the temporary disruptions which funds and advisers may be facing which are outside of their control.