The new MFSA corporate governance code – Shareholders

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Good corporate governance is one of the many topics that the MFSA has consistently emphasized over the years. Following a consultation period earlier this year, on 5 August 2022, the MFSA published the Corporate Governance Code (the “Code”). The Code applies to all entities authorized by the Authority with the exception of (i) listed entities falling within the scope of the Capital Market Rules and (ii) natural persons. Although the Code itself is considered “soft law”, certain mandatory provisions have been incorporated into the respective regulatory frameworks.

The Code provides a set of fundamental principles which aim to strengthen the legal, institutional and regulatory framework for good governance in the Maltese financial services sector. Each core principle is complemented by supporting provisions for additional guidance on how the core principles can be achieved. These principles are organized into 4 main sections, as follows:

a. effective advice

The MFSA emphasizes the importance of board responsibilities such as accountability, proper oversight and monitoring, risk management, transparency, legal and regulatory compliance, strategy formulation and policy development. The supporting provisions provide a list of duties that the board should perform on an ongoing basis. This pillar also defines the standards that board members must meet in order to remain fit for their role, such as, among other things, devoting sufficient time, having a good understanding of the business and the sector and acting with integrity.

The MFSA sets out principles relating to the structure and composition of the board of directors, such as the composition of executive, non-executive and independent directors, knowledge and skills, and the distribution of responsibilities and responsibilities. Specifically, the Code emphasizes that the structure of the board must ensure that no member or member of a group can dominate decision-making or exert disproportionate influence on the board in order to ensure healthy debates and decision-making. .

An interesting aspect is the emphasis on evaluating the performance of the Board, which should be done either through self-assessment or through the engagement of third parties.

Other issues addressed under this fundamental principle include:

  • Appointment and succession of directors

  • The Roles of Chairman of the Board and Chief Executive Officer

  • Remuneration of the Board and General Management

  • Board meetings

b. Internal controls

Various internal control functions are addressed under this fundamental principle, including risk management, compliance, internal audit, ICT and security risk management, and business continuity. It is the Board’s responsibility to ensure that appropriate internal control mechanisms are put in place to enable the identification and management of risks. The internal control framework should be properly overseen by the board of directors on an ongoing basis.

vs. Stakeholder Engagement

This fundamental principle deals with the relationship between the board of directors and the company’s stakeholders, in particular shareholders, employees, suppliers, customers, public authorities and other relevant stakeholders, and the role of the board to ensure that the interests of all stakeholders are considered and protected, while ensuring compliance with applicable laws and regulations.

D. Corporate culture, CSR and ESG

Finally, the new Code addresses the theme of ESG, corporate culture and corporate social responsibility. Boards are encouraged to focus more on long-term value creation strategies by engaging in activities that reduce environmental pressures and consider social and governance aspects.

The MFSA expects covered entities to adhere to these principles to the extent possible, given the nature, scale and complexity of the business. In this regard, the MFSA provides guidance on the criteria to be considered in assessing the nature, size and complexity of the entity in question.

Originally published August 29, 2022

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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