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    MFSA Publishes Regulatory Updates and Supervisory Priorities for 2021

    December 24, 2020

    MFSA published its cross-sector supervisory priorities for 2021, along with the principles-based cross-sectoral guidelines on outsourcing and technology arrangements, including addressing the management of Information and Communication Technology (ICT), security, and cloud deployment risks. In another update, MFSA announced that it will adopt the ECB recommendation (ECB/2020/62) on restrictions on dividend distribution during COVID-19 pandemic in its entirety and the recommendation will be applicable to all credit institutions licensed in terms of the Banking Act until September 30, 2021. The ECB recommendation requires credit institutions to consider refraining from, or to limit, distributing any cash dividends or share buy-backs until September 30, 2021. Finally, MFSA published a circular to credit institutions on the exercise of discretion under Article 178(2)(d) of the Capital Requirements Regulation (CRR) with regard to the threshold for assessing the materiality of credit obligations past due.

    In the circular addressing credit obligations past due, MFSA announced that, from December 31, 2020, the ECB guideline (ECB/2020/32; published on June 25, 2020) on materiality threshold for assessing credit obligations past due shall apply to all credit institutions licensed in terms of the Banking Act (Chapter 371 of the Laws of Malta). The ECB guideline sets the materiality threshold that shall be applied for the purposes of point (d) of paragraph 2 of Article 178 of the CRR. The materiality threshold comprises two components: an absolute limit and a relative limit. A default shall be deemed to have occurred when both the following limits are exceeded for more than 90 consecutive days:

    • A limit in terms of the sum of all amounts past due owed by the obligor, which is equal to EUR 100 for retail exposures and EUR 500 for exposures other than retail exposures
    • A limit in terms of the amount of the credit obligation past due in relation to the total amount of all on-balance sheet exposures to that obligor, excluding equity exposures, equal to 1%.

    The guidance on ICT risk and outsourcing arrangements informs authorized firms on the implementation of technology arrangements, ICT and security risk management, and relevant outsourcing arrangements (including cloud computing). The guideline stipulates that the approach to adoption of cloud computing resources and services should be based on sound governance and management and should take into consideration the Guiding Principles for Cloud Computing Adoption and Use, which were issued by the global non-profit IT association ISACA, as outlined in clauses 2.4.2 to 2.4. The Accountability Principle states that the internal and cloud provider responsibilities should be clearly defined such that accountabilities are managed accordingly. The guideline elaborates on different type of cloud service models and shared responsibilities for these cloud service models. MFSA notes that this guidance document should be considered as a live document due to the dynamic nature of regulatory developments, technology evolution, and related opportunities and risks. MFSA plans to conduct thematic reviews on a sectoral basis on key aspects of the guidance document, which will be cross-referenced by the respective prudential rules of the applicable sectors along with ESAs guidelines (where applicable). 

     

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    Keywords: Europe, EU, Banking, Insurance, Securities, ICT Risk, Outsourcing Arrangements, Fintech, CRR, Credit Risk, Materiality Threshold, Credit Obligations, Supervisory Priorities, Dividend Distribution, COVID-19, ECB, MFSA

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