Insights

The recent developments in Ukraine have led to a number of restrictive measures being imposed by various bodies, including the Council of the European Union. This briefing, which is principally applicable to investment service providers and collective investment schemes in Malta (“ISP&Fs”) sets out the main obligations of ISP&Fs and the implications of the recent measures imposed by the Council of the European Union on ISP&Fs.

Obligations in terms of the National Interest (Enabling Powers) Act (the “Act”)

Internal Procedures: ISP&Fs are required to have in place, and effectively implement, internal controls and procedures to ensure compliance with the obligations arising from the Act and any relevant United Nations resolutions or European Union regulations. This means that ISP&Fs should closely follow developments in order to ensure that if there are any financial restrictions (as also described in this briefing) which may impinge on the activities of the ISP&Fs, the necessary measures are taken in a timely manner in line with the relevant resolutions or regulations and in accordance with the provisions of the Act.

Sanction Screening: ISP&Fs are also required to regularly check the list of designations by the United Nations, the European Union, and the Sanctions Monitoring Board (“Sanctions Lists”) and screen their client databases against such lists. Screening should be undertaken every time there are changes to the designations on the Sanctions Lists. It is important to ensure that a fuzzy logic is utilized to ensure proper implementation of sanction screening process.

SMB Notification: In the event that targeted property is identified, the ISP&F should immediately notify the Sanctions Monitoring Board of such occurrence and of the actions taken in relation to such property in compliance with the requirements under this. The ISP&Fs should co-operate and provide any information which the SMB may request following such notifications.

Freezing Measures: Any freezing measure imposed on a person or entity designated in terms of the United Nations Security Council Resolutions, the European Council Regulations and the Act tantamount to a freezing order in Malta. This means that the ISP&F shall:

1. attach, without delay or prior notice, all property due or pertaining or belonging to the designated person or entity, or that is wholly or jointly owned or controlled, directly or indirectly, by the designated person or entity;
2. attach, without delay or prior notice, all property that is derived or generated from property that is owned or controlled, directly or indirectly, by the designated persons or entities;
3. attach without delay or prior notice all property of persons and entities acting on behalf of or at the direction of the designated person or entity;
4. prohibit the transfer, conversion, movement, pledging, hypothecating or otherwise disposing of any property under paragraphs (i) to (iii);
5. prohibit making property, or financial services or other related services available, directly or indirectly, wholly or jointly, to or for the benefit of a designated person or entity; or an entity owned or controlled, directly or indirectly, by a designated person or entity; or to any person or entity acting on behalf of, or at the direction of, a designated person or entity (certain exceptions may be applicable).

Where any money is or becomes due to a designated person or entity from any person while a freezing order is in force, such money shall, unless otherwise directed in that order, be deposited in a bank to the credit of the designated person or entity.

Prohibition from informing designated person: The ISP&F shall be prohibited from informing the customer or any third party in advance that a freezing measure is to be applied. Naturally, such prohibition would not remain applicable after the freezing measure has been imposed given that the designated person would be aware of such freezing measure.

Other Sanction Lists

Screening against sanctions imposed by the US Office of Foreign Assets (“OFAC”) and the UK are not mandatory in terms of the Act. Notwithstanding, it is important to ensure that in case where USD (US Dollars) is being used, the ISP&F complies with any sanctions issued by OFAC. Similarly, in case where GBP (Sterling) is being used, the sanctions imposed by the UK should be duly followed.

ISP&F should ensure that their contractual arrangements allow for the freezing of assets of their customers (and related parties) where a freezing measure has been imposed by OFAC or the UK on their client or related parties.

Similarly, where the ISP&F is dealing in other currencies, it may also be appropriate to assess whether the above contractual arrangement should also be extended to sanctions imposed by the jurisdiction which has issued such legal tender (currency).

Restrictive measures of particular relevance to ISP&Fs

Over the past weeks, the European Council has issued a series of regulations through which various restrictive measures were imposed. The below is a list of measures which are of particular relevance to ISP&Fs. It is important to note that the below is not an exhaustive list of all the restrictive measures which may impact ISP&Fs. Furthermore, the applicability of the below measures to a particular ISP&F will depend on (i) the activities undertaken and the strategies adopted by the ISP&F and the relevant customer acceptance policies of the ISP&Fs. In addition, there may be other restrictive measures which may be applicable depending on the relevant services offered or the strategies adopted.

The main restrictive measures relevant to ISP&Fs are the following:

• Asset freeze in relation to a number of individuals and entities;
• Prohibition to directly or indirectly purchase, sell, provide investment services for or assistance in the issuance of, or otherwise deal with transferable securities and money-market instruments issued after 9 March 2022 by (i) Russia and its government or (ii) the Central Bank of Russia or (iii) a legal person, entity or body acting on behalf or at the direction of the Central Bank of Russia.
• Prohibition on the following activities in the Donetsk and Luhansk regions: (i) the acquisition of real estate, (ii) provision of financing (through equity or loans) to entities in those regions, (iii) creation of a joint venture, and (iv) provision of investment services in respect of the same.
• Prohibition on transactions related to the management of reserves as well as of assets of the Central Bank of Russia, including transactions with any legal person, entity or body acting on behalf of, or at the direction of, the Central Bank of Russia.
• Prohibition on investment, participation or other contribution to projects co-financed by the Russian Direct Investment Fund.
• Prohibition on the provision of services for transferable securities issued after 12 April 2022 to Russian nationals/residents or entities established in Russia.
• Prohibition on the sale of sell euro denominated transferable securities issued after 12 April 2022 or units in collective investment undertakings providing exposure to such securities, to Russian or Belarusian nationals/residents or entities established in Russia or Belarus (subject to certain exceptions).
• Prohibition on all dealings with transferable securities and money-market instruments (i) with a maturity exceeding 90 days, issued after 1 August 2014 to 12 September 2014; (ii) with a maturity exceeding 30 days, issued after 12 September 2014 to 12 April 2022; or (iii) issued after 12 April 2022, by certain Russian banks, or any person/entity owned (more than 50%) by, or acting at the direction of them.
• Prohibition for central securities depositories to provide any services as defined in the Annex to Regulation (EU) No 909/2014 for transferable securities issued after 12 April 2022 to any Belarusian national or natural person residing in Belarus or any legal person, entity or body established in Belarus.
• Prohibition to list and provide services as of 12 April 2022 on trading venues registered or recognised in the Union for the transferable securities of any legal person, entity or body established in Belarus and with over 50 % public ownership (subject to certain exceptions).

ISP&Fs are required to establish and implement procedures and processes in order to ensure that they are compliant with restrictive measures being imposed from time to time.

Guidance notes of relevance

Below is the set of guidance issued by the FIAU, the SMB and the MFSA in relation to the Ukrainian crises:

• Guidance Note on the Sanctions adopted in response to the current situation in Ukraine issued by the FIAU on 3 March 2022 ()
• Guidance note on the imposition of EU sanctions concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine published by the Sanctions Monitoring Board (March 2022)
• Public Notice Concerning the Current Situation in Ukraine issued by the MFSA on 22 February 2022

It is important that ISP&F remain abreast of any new developments and monitor the sanctions being issued in order to ensure full compliance with same.