COVID-19: MFSA updates to the Maltese Capital Markets

Following the outbreak of the COVID-19 pandemic which has wreaked havoc across the global economy, including Malta, the Malta Financial Services Authority (MFSA) has been continuously engaging with the Malta Stock Exchange as the operator of the only licensed Regulated Market in Malta (MSE) to monitor the impact of COVID-19 on our Regulated Market.

In a recent communication to the market, the MFSA noted that although the prices of securities trading on the MSE have fallen, the MSE has, by and large, continued to operate in an orderly fashion. In fact, the MFSA pointed out that the drop in the prices of listed securities in Malta has been less than the drop registered in foreign markets.

In light of these challenges, the MFSA has (1) published a number of circulars; and (2) been engaging with a number of stakeholders, to ensure that information continues to flow to investors without adding extra pressure on issuers during these difficult times.

1. Publication of Circulars

To date, the MFSA has published a number of circulars directed at issuers and their guarantors. These circular mainly cover the extension of publication deadlines under the Transparency Directive; and in a circular to listed entities, the MFSA highlighted the importance of complying with the Market Abuse Regulation by, inter alia, publishing inside information as soon as possible, delaying the publication as necessary (but by following the appropriate rules) and the prohibition from unlawfully disclosing inside information and from engaging in insider dealing. More information on a number of circulars can be found here.

The MFSA also published a circular on the accounting implications of COVID-19, namely on the calculation of expected credit losses in accordance with IFRS 9.

2. Engaging with different stakeholders

As part of its efforts, the MFSA informed the industry that it is in regular contact with the stakeholders (including the Malta Stock Exchange, stockbrokers, issuers and auditors) to ensure that information is flowing between different stakeholders who are fundamental to the smooth operations of the Maltese Capital Markets.

MFSA’s recognitions, suggestions and recommendations

In its communication, the MFSA informed issuers (and the industry at large) that it is cognisant of the fact that the COVID-19 pandemic has created new challenges for issuers who, together with their advisors, are preparing and auditing financial information. For example, issuers operating in the hospitality, tourism-related and retail industries, are finding it difficult to predict their financial performance given the unknown extent of the duration of the present situation. In this regard, the MFSA encouraged all issuers to “maintain an open line of communication with their investors” and, echoing its circular addressed to listed entities, the MFSA has once again urged issuers to assess their financial position and publish company announcements in a timely manner, thereby keeping the market updated with any developments. In this regard, we note that the MFSA seems to be appreciating the fact that since the full implication of the COVID-19 pandemic on issuers’ businesses may not be easy to predict, some company announcements may seem vague.

Furthermore, the MFSA reiterated the point that in uncertain times such as these, proper disclosures by issuers are an important way of providing investors sufficient information to help them make proper, informed decisions.

Addressing auditors in particular, and reasserting the importance of proper information flows, the MFSA noted that it expects auditors to pay more attention to the uncertainty surrounding events or conditions which may cast significant doubt upon a company’s ability to continue as a going concern. The MFSA also pointed out that where auditors fail to complete an audit in full, one may expect modified audit opinions. In this regard, the MFSA noted that the COVID-19 pandemic may also impact publication schedules.

The MFSA informed the industry that it is engaging with auditors and the Malta Institute of Accountants to discuss the difficulties being encountered and to discuss feasible solutions.