On 5 August 2022, the Malta Financial Services Authority (the “MFSA”) published the Corporate Governance Code (the “Coded“) which applies to all persons authorized by it. The publication was accompanied by a feedback statement which includes key comments received from industry following a public consultation published on February 22, 2022 and MFSA’s response and position on issues raised by stakeholders.
The Code applies to all persons authorized by the MFSA to provide financial servicesin Malta or from Malta, such as credit institutions, financial institutions, payment institutions, insurance companies and investment firms. The MFSA has, however, clarified that the Code is notapplicable to: (i) authorized listed entities falling within the scope of the MFSA Capital Market Rules, as these already include specific governance arrangements applicable to such entities; and (ii) authorized persons who are natural persons (individuals).
It is important to note that the definition of “financial services” also includes “any other field of activity or service that may be placed under the supervisory and regulatory jurisdiction of the Authority by the Minister or by any other law”. Accordingly, in its Feedback Statement, the MFSA expressly states that since trustees and corporate service providers fall under the MFSA’s supervisory and regulatory jurisdiction, the Code will also apply to such entities (except the exclusion of service providers who are natural persons).
Proportionality is a key element of the Code. In various parts of the feedback statement, the MFSA points out that due to the wide range of entities falling within its scope, “the application of this Code is based on the principle of proportionality. Rather than providing a rigid set of rules, the Code is composed of principles, supplemented by supporting provisions, which authorized entities are expected to adhere to as far as possible.”All entities are therefore expected to strive to adhere to the Code, but in a manner commensurate with the nature, size and complexity of the entity concerned. This is for example evident in the Code with regard to the composition of the Board, the Audit Committees, the compliance function and ESG information. Subjectivity and the need for entities to exercise their own judgment in applying the Code are therefore corollary to the application of proportionality.
The Code is also intended to supplement existing governance frameworks and will not supersede any laws, regulations or rules that already apply specifically to some of the authorized entities in areas of governance. In the event of a conflict with the Code, the
ad hoc regulatory frameworks will prevail (including where they impose more onerous or mandatory rules).
The Feedback Statement also describes the changes made to the Code following the draft version following comments received from shareholders. These can be noted in particular in the provisions relating to the duties and responsibilities of the Board, the role of the Chairman, conflicts of interest and in certain definitions which are similar to definitions already contained in other laws (such as in the Companies Act, Cap. 386 of the Laws of Malta).
In the meantime, the MFSA has indicated that it is considering issuing further practical guidance on how the principles should be applied and that “Going forward, the MFSA will engage more with market participants and stakeholder groups, through various initiatives, to ensure a clear understanding of the Authority’s expectations. Stakeholder groups are also encouraged to write good practice documents on how to join the Code..”
While some Authorized Entities are already familiar with and familiar with most of the governance principles and standards contained in the Code given the existing and often more onerous governance regulatory frameworks applicable to them, other Authorized Entities will need to take stock of their current situation. governance frameworks in light of the provisions of the Code with a view to complying more closely with the Code or incorporating new governance practices applicable to the entity in question.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.