On the 8th May 2020, the Malta Financial Services Authority (the “MFSA”), issued a Circular addressed to Investment Services Licence Holders which qualify as MiFID Firms (the “Licence Holders”), where the MFSA noted that even though the COVID-19 outbreak had a major impact on the economy, several National Competent Authorities have noticed a significant increase in the number of investment accounts being opened by retail clients and a growth in trade by retail clients.
The risks for retail clients when trading during these extraordinary times where highlighted by the European Securities and Markets Authority (“ESMA”). Moreover, attention is drawn to Licence Holders on these risks, and to act as a reminder to these Firms for their conduct of business obligations under Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments (“MIFID II”).
Conduct of Business Obligations
Licence Holders are reminded that, when providing investment or ancillary services, they should act in an honest, fair and professional manner, and to comply with all relevant MiFID II conduct of business and related organisational requirements, particularly, product governance requirements, information disclosure, suitability and appropriateness requirements.
Furthermore, the target market assessment that should be carried out by Licence Holders should be undertaken in an appropriate and proportionate manner, taking into account the nature of the financial instrument and the investment service provided.
Information should be provided by Licence Holders in good time to clients regarding the Licence Holder, its services and the financial instruments offered. Moreover, an appropriate description of the nature and risk of the financial instruments must be included, in order to enable the client to take investment decisions on an informed basis.
Services offered to clients or potential clients
If investment advice or portfolio management is provided, Licence Holders must make sure to obtain all information in relation to the client’s or potential client’s knowledge and experience, his financial situation, his investment objectives and his risk tolerance. Furthermore, firms should take into account the possible difficulties that might arise due to the COVID-19 oubtreak for the client’s personal situation and the risk profile of his financial instruments, to ensure that these financial instruments are suitable for such client.
Licence Holders must obtain information regarding one’s knowledge and experience when providing services other than investment advice or portfolio management. This assessment is even more important for new clients wishing to invest in complex instruments during these times of increased instability in the market.
The MFSA also noted that, when providing execution or reception and transmission of client orders with respect to non-complex instruments, Licence Holders are allowed to provide these investment services without the need to undertake an appropriateness assessment. In such cases, when providing investment services that fall under this execution-only exemption, firms still need to comply with the other requirements outlined in this Circular, especially those relating to providing governance and information to clients.
Please feel free to contact us should you require further information with regards to the MiFID II requirements.
