Circular on the Fitness and Properness Assessment of Committee Members

On the 3 July 2020, the Malta Financial Services Authority (the “MFSA”), published a Circular addressed to MiFID firms, fund managers and self-managed Collective Investment Schemes (the “Licence Holders”) falling within the remit of the securities & markets supervision function of the MFSA. This Circular should be read in conjunction with the other circular published by the MFSA on the same date.

Submission of Personal Questionnaires

The Circular provides that persons employed as members of either of the following committees:

  1. Investment Management Committees;
  2. Investment Advisory Committees;
  3. Risk Management Committees;
  4. Internal Audit Committees; and
  5. Valuation Committees;

will no longer be subject to the requirement of submitting a Personal Questionnaire (the “PQ”) with the MFSA, effective from the publishing of this Circular.

Nevertheless, Licence Holders are to continue treating such members as ‘Key Function Holders’. Therefore, Licence Holders must undertake the required due diligence and ongoing checks of such Committee members while also retaining the records of these functions. Similarly, Valuation Officers and Valuation Committee Members will no longer be required to submit a PQ and will continue to be considered as ‘Key Function Holders’. Also, the most senior individual responsible for the service or activity shall no longer be required to request an approval from the MFSA as the appointment will be now subject to a notification process.

The submission of a PQ will however remain mandatory in the following instances:

a. where the relevant person is the following positions:

  1. Chief Investment Officer/ Lead Portfolio Manager;
  2. Chief/ Head/ Lead Investment Advisor;
  3. Chief Risk Officer/ Risk Manager; and
  4. Internal Audit Manager.

b. where the service or activity is handled solely by an individual, rather than a Committee;

c.  where decisions regarding the relevant activities or services are taken ‘collectively’ by the Committee. In this case, all the members of the Committee are required to submit a PQ.

These changes have been reflected in the specific rules of the Licence Holders and therefore the relevant MFSA rulebooks have been updated. However, the relevant Application Forms are still to be updated as the MFSA is currently in the process of facilitating the application process.

Notification requirement for appointments and resignations of Committee Members

Effective from the publishing of the Circular, any appointment made with regards to Committee members shall be in the form of a declaration which is to be signed by the Licence Holder’s governing body, attesting the individual’s fitness and properness for the role assigned. The declaration shall confirm that the Licence Holder has undertaken the necessary due diligence and deemed the individual to be fit and proper, that the due diligence exercise has been duly documented and that the due diligence exercise will be updated regularly.

Likewise, Licence Holders are to notify the MFSA with regards to any departures made by Committee members. The notification shall include all the relevant information identifying the individual, the reason for the resignation and the date of its effect, whether the resignation will result in any regulatory contraventions and any proposed replacement.

Nevertheless, the individual will not be required to submit a notification of resignation if his appointment did not require the approval from the MFSA. However, where the individual would like to discuss any matters involving his resignation, he/she is encouraged to contact the MFSA on his own volition.

Appointment and resignation notifications with regards to positions not requiring MFSA approval, are to be provided through the Licence Holder portal.

Terms of Reference of Committees

The terms of reference of the relevant Committee will also no longer be subject to the approval of the MFSA. Nonetheless, the document should be submitted at application stage and thereafter in case of changes for notification purposes.

Feel free to contact us should you require any further information in relation to Investment Services or Collective Investment Schemes.