On the 10th December 2020, the Malta Financial Services Authority (“MFSA”) issued a circular as the 1st briefing to the industry on the impending implementation of the Investment Firms Regulation (“IFR”) package. The package consists of the Investment Firms Regulation and the Investment Firms Directive and will be replacing the Capital Requirements Regulation I and the Capital Requirements Directive IV.
Classes of Investment Firms
The MFSA notes that the classes of Investment Firms and their criteria, namely Class 1, Class 1 Minus, Class 2 and Class 3 have remained as per the circular issued on the 6th February 2020. The European Banking Authority is also expected to issue further guidance in relation to the newly issued K-Factors and prudential requirements for investment firms. The K-Factors will determine the amount of own funds investment firms will be required to hold as per the new requirements which will be established through the IFR Package. There are three groups of K-Factors:
- Risk to clients;
- Risk to market; and
- Risk to the firm itself.
Licensed entities which are currently in possession of a Category 3 Local Firms Licence and which had obtained their authorisation by the MFSA prior to the 26th December 2019 will be required to increase their own funds to €250,000 by the 26th June 2021 and will have a maximum period of five years to increase their own funds to a minimum of €750,000, with a minimum of €100,000 increase each year.
On the other hand, Category 3 Local Firms Licence Holders which were authorised after the 26th December 2019 will be required to increase their own funds to a minimum of €750,000 by the 26th June 2021.
Capital Requirements Regulation II and Capital Requirements Directive V
The MFSA is also informing licence holders of the overhaul of the CRR package which will be introduced through the implementation of the Capital Requirements Regulation II and the Capital Requirements Directive V. These will be referred to collectively as the CRR II package and will commence to be applicable as from the end of December 2020.
Nevertheless, Class 2 and Class 3 Investment Firms have alerted the European Commission of the difficulties in applying the CRR II package for a period of six months and consequently, the European Commission has commenced assessing the applicability of the CRR II package to Investment Firms from the 1st January 2021 till the 30th June 2021.
Envisaged Changes to the Law
It has been noted that the implementation of the CRR II package and the IFR package will lead to amendments in national law. The MFSA deems that the following legislation and rules will have to be amended in order to comply with the new packages:
- Investment Services Act;
- Investment Services Act (Supervisory Review) Regulations;
- CRD (Administrative Penalties, Measures and Investigatory Powers) Regulations;
- Supervisory Consolidation Regulations; and
- Part BI: Rules Applicable to Investment Services Licence Holders which Qualify as MIFID Firms.
The MFSA notes that these legislative updates will come into force by 26th June 2020. In the meantime, the MFSA is inviting licence holders to continue familiarising with the CRR and IFR Packages and to start planning on the operational changes which will be required.
Feel free to contact us should you require any further information on the implementation of the CRR II or the IFR packages.