MFSA updates: Closet Indexing, VFA Act & Insurance Distribution rules

Here you can find a summary of the latest updates from the Malta Financial Services Authority (MFSA).

1. Circular regarding Closet Indexing: ManCos have the requirement to carry out self-assessments with regard to the evaluation of potential closet indexing practices adopted by UCITS and Retails AIFs.

The self-assessment would apply to (i) UCITS licensed entities, (ii) UCITS Management companies, (iii) Self-Managed Retail AIFs, and (iv) Maltese AIFMs managing Retail AIFs (these are collectively referred to as ManCos).  However the self-assessment requirement would not apply if the UCITS entity or the Retail AIFs satisfy one of the following criteria (i) NAV lower than €10million, (ii) IM fees are lower than 0.8% of the NAV, or (iii) have disclosed in their OM/PPM the tracking of a benchmark including but not limited to, volatility returns, or geographical focus.

As part of the MFSAs supervisory work on ManCos, by means of this self-assessment, the MFSA aims to determine the extent of the potential closet indexing in Malta. The MFSA has provided for exceptions whereby ManCos are allowed to make use of such index-tracking, however the ManCo will be required to provide the rationale for tracking said index, following a request being made by the MFSA.  The self-assessment is to be carried out (a) semi-annually where NAV is higher than €100million, and (b) annually when the NAV is between €10M and €100M. Deadline to submit the first self-assessment 28th September 2018.

2. Circular regarding the Virtual Financial Assets Act 

The Virtual Financial Assets Act, 2018 (The VFA Act), sets out to regulate the field of Initial Virtual Financial Asset Offerings and Virtual Financial Assets and to make provision for matters ancillary or incidental thereto or connected therewith. 

The Virtual Financial Assets Act although published is not yet enforceable, and therefore the MFSA will be in a position to start receiving requests for approvals and authorisations under the Act once the Framework is operational.

3. Circular re Insurance Distribution Rules

The Insurance Distribution Rules, in relation to the Insurance Distribution Directive, shall become applicable as from 1st October 2018. The Rules are issued under the Insurance Distribution Act (Chapter 487 of the Laws of Malta)