Insights

The MFSA also made consequential amendments to the different Rules that regulate various sectors of the financial services industry in Malta, namely:

1. the Banking Rules and Financial Institutions Rules;
2. the Insurance Rules and Insurance Intermediaries Rules;
3. the Pension Rules;
4. the Investment Services Rules;

This new form and the amended Rules are available for download from the MFSA website.

The PQ is used by the MFSA as an important tool in approving various officers and other persons involved in regulated entities and in assessing whether they are ‘fit and proper’ persons as required by applicable legislation. The ‘fit and proper’ test will generally include the following criteria:

(i) integrity;
(ii) competence;
(iii) experience;
(iv) qualifications;
(v) financial soundness.

Specifically in the case of trustees, the Code of Conduct for Trustees¹ (which is shortly expected to be repealed by the MFSA and substituted with more detailed rules for trustees and other fiduciaries) requires that every director and officer of a trustee company (and every individual acting as a trustee) must be a fit and proper person, and that in determining whether a person is fit and proper to hold any particular position, the applicant’s competence and soundness of judgement for fulfilling the responsibilities of that position will be assessed. The MFSA does this by considering:

(a) whether the person has had experience of similar responsibilities previously;
(b) the record in fulfilling them; and
(c) where appropriate, whether the person has appropriate qualifications and training.²

As to soundness of judgment the MFSA looks to:³

(a) the person’s previous conduct and decision taking;
(b) the diligence with which he is fulfilling (or is likely to fulfil) those responsibilities; and
(c) whether the clients’ interests are in any way threatened by his holding that position.

The MFSA requires relevant persons to be of high integrity which, in contrast to the fitness element of this criterion (which reflects an individual judgment relating to the particular position that the person holds or is to hold), requires a judgment reflecting a more common standard, applicable irrespective of the particular position held.⁴ Here the MFSA takes into account the person’s reputation and character and considers, inter alia, whether the person:⁵

(a) has a criminal record;

(b) has contravened any provision of trust, banking, insurance, investment or other legislation designed to protect members of the   public against financial loss, due to dishonesty, incompetence or malpractice;

(c) has been involved in any business practices appearing to be deceitful or oppressive or improper or which otherwise reflect discredit on his or her method of conducting business;

(d) has been censured or disqualified by professional or regulatory bodies

(recognising, however, that lapse of time, and a person’s subsequent conduct, are factors which may be relevant in assessing whether the person is now fit and proper for a particular position).⁶

The relevant sectors to which the PQ applies are those governed by:

1. the Trusts and Trustees Act (Chapter 331), which regulates both trustees and administrators of foundations;
2. the Company Service Providers Act (Chapter 529);
3. the Banking Act (Chapter 371);
4. the Financial Institutions Act (Chapter 376);
5. the Investment Services Act (Chapter 370);
6. the Insurance Business Act (Chapter 403);
7. the Insurance Intermediaries Act (Chapter 487);
8. the Special Funds (Regulations) Act (Chapter 450).

Typically the PQ will be relevant to the assessment by the MFSA of:

(i) individual qualifying shareholders (being direct and indirect holdings that represent 10% or more of the share capital or voting rights or a holding that otherwise makes it possible to exercise a significant influence over the management of the entity);

(ii) directors and other members of the management bodies of potential applicants including senior managers;⁷

(iii) key function holders of potential applicants (such as the compliance officer and the Money Laundering Reporting Officer – MLRO);

(iv) other potential applicants such as notaries offering services as Qualified Persons in terms of the recent L.N. 14 of 2015 (Regulations permitting Notaries to act as Qualified Persons)

In summary the following changes were made to the former PQ:

(a) A new section 2 with preliminary questions has been inserted, regarding whether the applicant has ever been approved by the MFSA or any other regulatory authority;

(b) Questions tackling other relevant experience suitable to the post and professional references have been added, coupled with a new section 9 requesting ‘general information’ aimed at assisting the MFSA in assessing the honesty, integrity, ethical standards and financial soundness of the person compiling the PQ;

(c) The Declaration in section 11 now clearly obliges persons compiling the PQ to certify that they have provided the MFSA with “all the information relevant to my fitness and properness assessment.”  Any material changes to the contents of the PQ must now “promptly” be advised to the MFSA;

(d) Information on Company Secretary positions held and main beneficial ownership of any bodies corporate is requested in addition to that on directorships, and the MFSA recommends providing certified true copies of any relevant documentation such as exit letters;

(e) The accompanying Specimen Authorisation Letter contained in Appendix One to the PQ must now be completed for each banker of the person completing the PQ;

(f) Details about current and previous financial services regulatory approvals of the person completing the PQ have been placed in a new, broader Section 8 that also requests information on current and previous Financial Services Regulatory approvals (without the 10-year restriction as was the case previously), as well as on refusals and withdrawn applications;

(g) Aside from the usual requested documents (Appendixes One, Two and Three, an identification document and police conduct certificate) the MFSA are also specifically requesting a copy of a utility bill (not an original or certified copy), confirming the residential address of the application, as supporting documentation;⁸

(h) The list of documents to accompany the PQ has been converted into a broader Checklist at the end of Section 11 with the aim of ensuring that all supporting documentation is provided and that the information and attachments are checked carefully before submission;

(i) A new requirement has added for persons completing a PQ in connection with a position with a licensed credit institution, requiring them to provide to the MFSA a summary of the credit institution’s suitability assessment results regarding the proposed appointment, either with the PQ itself, or within 6 weeks of submitting the PQ Form;

(j) Persons completing the PQ are now specifically being requested to confirm their awareness of the responsibilities arising from the legislation, regulations, codes of practice, guidance notes, guidelines and other rules or directives that are applicable to the position, emphasising thereby the importance of such persons thoroughly familiarising themselves with such documents;

(k) Reference has also been made to the PQ applying to licence holders or entities applying to the MFSA for registration, possibly being a reference to Private Trust Companies (which are not authorised by the MFSA as professional trustees are, but must merely be registered with the MFSA) in respect of which the MFSA is currently in the process of issuing Rules and whose directors (according to the draft rules published by the MFSA as part of its consultation exercise)⁹ must be approved persons.

Some other important changes that prospective applicants need to look out for are that:

(a) electronic completion of the PQ (followed with a signed and initialled original version) is no longer an option/recommendation, but mandatory;

(b) each page of the PQ now needs to be initialled;¹⁰

(c) the PQ now needs to be submitted 1 month (instead of 21 days) in advance of the proposed appointment;¹¹

(d) the reference to ‘10 years’ in the employment history has been removed indicating that it is now full employment history that needs to be provided;¹²

(e) details of “main” beneficial ownerships (both current and previous) now need to be disclosed;¹³

(f) copies of ID Cards / Passports need to be in colour and certified by a Notary Public, Lawyer, Solicitor or a Commissioner of Oaths accompanied by the following details: date, name, title and signature.¹⁴

Insofar as the above-mentioned Rules are concerned, these have been reviewed with a view to removing the 21-day time limit for approval of directors, senior managers, compliance officers and MLRO’s. The MFSA also announced that the “revised Personal Questionnaire Form will serve the purpose of providing the Authority with information which was not addressed in the original Form and which information is considered to be relevant to the due diligence process. Furthermore, the new Checklist introduced in the revised Form will ensure that applicants provide all the required documentation supplementing the Personal Questionnaire.”¹⁵

Click here to review the changes made to the Personal Questionnaire Form.

¹ https://www.mfsa.com.mt/pages/readfile.aspx?f=/Files/LegislationRegulation/regulation/trustees/Trusteescodeofconduct.pdf

² Code of Conduct for Trustees, section 4, page 4.

³ Code of Conduct for Trustees, section 4, page 4.

⁴ Code of Conduct for Trustees, section 4, page 5.

⁵ Code of Conduct for Trustees, section 4, page 5.

⁶ Code of Conduct for Trustees, section 4, page 5.

⁷ Defined in the PQ as being a person employed with them licence holder who exercises managerial functions or is responsible for maintaining accounts or records of the licence holder , in all cases under the immediate authority of a director or the CEO.

⁸ See new Checklist at the end of section 11.

⁹ https://www.mfsa.com.mt/pages/announcement.aspx?id=6598

¹⁰ see page ii – last line.

¹¹ see page iv – penultimate paragraph.

¹² see Section 5, Q.17.

¹³ see Section 6, Q.18.

¹⁴ see section 11.

¹⁵ http://www.mfsa.com.mt/pages/readfile.aspx?f=/files/Announcements/Circulars/Banking/2015/Note%20for%20Information%20PQ(f)%2020-10-15.pdf