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    MFSA Sets Out Strategic Priorities, Issues Updates on Prudential Rules

    February 01, 2023

    The Malta Financial Services Authority (MFSA) published a strategic statement that outlines objectives and priorities for the next three years and issued circulars on amendments to banking rules related to the authorization of licenses for banking activities, large exposures, recovery planning, non-performing exposures and forborne exposures, reporting and disclosure of COVID-19 measures, as well as sales and transfers of non-performing loans. Additionally, MFSA announced that, together with the national competent authorities of Croatia, Poland, and Romania, it is participating in a multi-country project to provide technical support on supervisory capacity enhancement in sustainable finance.

    Below are the key highlights of these regulatory developments:

    • The strategic statement sets out the long-term objectives of MFSA and more immediate strategic priorities in the context of the current economic environment. The statement takes into account the unprecedented challenges and uncertain global outlook impacting the financial sector and points out the opportunities that can be leveraged by resilient, effectively regulated jurisdictions. The statement sets out 27 strategic priorities which are grouped under five pillars: delivering agile and proactive regulation, sustaining a resilient, internationally networked financial sector, promoting good governance and compliance, embracing innovation, and engagement with the public. Moreover, MFSA plan to focus on these strategic priorities over the next three years. The strategic statement also recognizes the importance of continued investment in the Authority’s people and in the digitalization of internal processes.
    • With respect to the Banking Rules, MFSA has published a circular that addresses amendments to the banking rules BR/01, BR/02, and BR/20, which will come into force with immediate effect. The banking rule BR/01 on application procedures and requirements for authorization of licenses for banking activities under the Banking Act 1994 has been amended to include the information required in line with the European Banking Authority (EBA) Guidelines (EBA/GL/2021/12) on a common assessment methodology for granting authorization as a credit institution under Article 8(5) of the Capital Requirements Directive, or CRD (2013/36/EU). The banking rule BR/02 on large exposures has been redrafted to implement the provisions of the EBA Guidelines specifying the conditions for the application of the alternative treatment of institutions’ exposures related to ‘tri-party repurchase agreements’ set out in Article 403(3) of Capital Requirements Regulation, or CRR (575/2013) and the criteria to assess the exceptional cases when institutions exceed the large exposure limits of Article 395(1) of the CRR Regulation and the time and measures to return to compliance pursuant to Article 396(3) of the CRR Regulation. The banking rule BR/20 on recovery planning has been amended to implement the EBA Guidelines (EBA/GL/2021/11) in relation to the Bank Recovery and Resolution Directive, or BRRD (2014/59/EU) and the application of Article 9(1) of the BRRD Directive, specifying the minimum list of quantitative and qualitative indicators for the purposes of recovery planning including calibration of recovery plan indicators, actions and notifications upon a recovery plan indicator breach, and monitoring of recovery plan indicators.
    • Additionally, the circular on banking rule BR/09 on measures addressing non-performing exposures and forborne exposures has been amended to implement the EBA Guidelines (EBA/GL/2016/07) on the application of the definition of default under Article 178 of the CRR Regulation, the EBA Guidelines (EBA/GL/2017/06) on credit institutions’ credit risk management practices and accounting for expected credit losses, the EBA Guidelines (EBA/GL/2018/06) on management of non-performing and forborne exposures, and the EBA Guidelines (EBA/GL/2018/10) on disclosure of non-performing and forborne exposures. Amendments are also being carried out to implement changes to the quantitative requirements for non-performing exposures. The new rule shall come into force with immediate effect.
    • Another circular on banking rule BR/23, which involves the reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis, has been repealed with effect from January 01, 2023. The banking rule BR/23 has been repealed following the EBA publication of its closure report on COVID-19 measures on December 16, 2022. Therefore, credit institutions are expected to report and disclose the required information, using the templates provided within the annexes to the rule and within the timeframes stipulated in the rule, for the last time, for reference date December 31, 2022.
    • Finally, the circular on non-performing stipulates the draft implementing technical standards on information requirements on sales and transfers of non-performing loans published by EBA on December 16, 2022. The implementing technical standards introduce common data standards across the European Union leading to increased efficiency of the secondary markets and to reduced information asymmetries between sellers and buyers of non-performing loans. The circular recommends credit institutions to take note of the obligations set out in the EBA draft implementing technical standards, which is expected to be adopted by the European Commission in due course.


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    Keywords: Europe, Malta, Banking, Reporting, Strategic Priorities, Covid-19, Basel, Bank Licenses, Large Exposures, Credit Risk, Non Performing Loans, Resolution Framework, MFSA

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