The Malta Financial Services Authority (the “MFSA”) has undertaken a significant initiative to enhance the governance, conduct and culture in the financial services sector by issuing an updated version of the Corporate Governance Manual specifically targeted for Directors of Collective Investment Schemes (“CISs”). This was released on the 30th of October, 2023. The Investment Services Act, Chapter 370 of the Laws of Malta provides the legal basis for the regulation of CIS’s. The competent Authority is the MFSA.
A CIS can be defined as a form of investment plan in which money from different investors is combined to produce a larger and more varied portfolio. The scheme is split up into sections, referred to as ‘Units’ and by purchasing these units, the investors become unit holders and in turn get a stake in the fund. The value of the investment that the fund has made, determines the price of a unit. Shares, bonds, deposits and other investments are examples of what CISs can invest in.
As part of its strategic priority, the MFSA unveiled a Corporate Governance Code (the “Code”) in August 2022 with the aim of providing a thorough, cross-sectoral, and principal based framework that is relevant to all financial service providers. Despite the fact that the Code provides broad coverage, recognising all MFSA authorised entitles, including CISs, the MFSA deemed it necessary to create a specific Corporate Governance Manual for Directors of CISs. This manual, issued to complement the Code, has been revamped to conform to the Authority’s supervisory requirements, regulatory advancements and strategic direction.
The updated manual includes new guidelines and industry specific practices with the goal of fostering strong governance, encouraging a culture of compliance and guaranteeing the sector’s continued integrity, growth and stability. It outlines a set of standards and guidelines for directors to follow whilst carrying out their duties, such as;
- Role and Function of a Director within a fund
- Board of Directors’ structure and composition
- Board meetings
- Appointment, Succession and Resignation of Directors
- Directors’ Indemnity and Insurance
- Financial Crime
- Business Continuity and Disaster Recovery
Along with the duties mentioned above, the board of directors must establish internal guidelines within their company in order to achieve the following;
- Recognize, understand and where necessary disclose risk
- Ensure compliance with legal and regulatory obligations
- Ensure the implementation of an efficient management process relating to Information and Communication Technology and Security Risks
In Conclusion, whilst the updated manual is not exhaustive, the guidance provided in the manual encourages CISs to modify and implement their own corporate governance procedures to suit their particular situations. As a result of this, the Regulator urges Directors of CISs to evaluate the governance practices of the relevant fund to ascertain the extent to which the Code and the amended Corporate Governance Manual are applicable and to align the fund’s governance with the values outlined in both manuals it also encourages the Board of Directors to take the appropriate action.
This article is not intended to constitute legal advice and neither does it exhaust all relevant aspects of the topic