The MFSA is currently seeking feedback from the financial services industry with regards to proposed amendments to the Companies Act (Investment Companies with Variable Share Capital) Regulations. The amendments are aimed at lightening reporting obligations on investors in SICAVs.
The proposal is to remove the obligation to notify the Registrar of Companies about the pledge of securities issued by a SICAV and about the termination of the pledge currently imposed by the Companies Act. These requirements are seen as inconsistent with the fact that the Registrar does not hold information on the holders of shares in a SICAV; it is also seen to be a cumbersome procedure, giving rise to unnecessary difficulties, particularly when the pledging of shares is made among institutional investors.
In lieu of the notification to the Registrar, a provision will be introduced whereby any third party who may have an interest in a particular security may request the SICAV in writing to provide him with information as to whether a pledge of securities has been recorded in the register of the holders of the respective securities.
The draft amendments also propose that Article 122 of the Companies Act will no longer apply to securities issued by SICAVs and that provisions relating to the pledging of securities issued by a SICAV will be included in the Companies Act (Investment Companies with Variable Share Capital) Regulations.
It is also being proposed that SICAVs will no longer be required to notify the Registrar about the transfer and transmission of shares in the SICAV, again due to the fact that the Registrar does not retain information on the holders of shares in a SICAV and that this information does not need to be given to the Registrar in the annual return made by the SICAV.
The requirement to submit a note of the transfer/transmission to the Registrar is rendered superfluous by the fact that the Registrar is at no point aware of who the shareholders of the SICAV are. A notification of such transfer or transmission therefore does not provide any added value to the information held in the Company Registry.
Comments on the proposed amendments are to be submitted to the MFSA in writing by not later than Wednesday April 9.
More derivatives in EU funds
European harmonised funds (UCITS) are increasingly investing in derivatives but this has so far not generated a higher level of risk in comparison with other funds, according to a survey published by the European Commission.
The study, carried out by PriceWaterhouseCoopers, shows that the portfolios of UCITS funds (Undertakings for Collective Investment in Transferable Securities) are increasingly made up of products such as futures, options, swaps and other derivatives.
In 2006, futures were present in 31 per cent of the collective investment funds surveyed, compared to 18 per cent registered in 2002. Options, which remain the main derivatives in terms of weight in net assets (40 per cent of the total), increased their presence from 14 per cent of UCITS in 2002 to 20 per cent in 2006. In the same period, swaps passed from 1 per cent to 12 per cent.
The changes in the presence of derivatives were registered both before and after the entry into force in 2004 of the UCITS III Directive which further regulates the market for harmonised collective funds in Europe, allowing their managers to invest in a wider range of assets.
"The study confirms the increasing use of wider investment powers by UCITS III managers. It shows that the UCITS framework provides a very flexible environment and allows managers to implement innovative strategies," Mr McCreevy underlined.
This does not appear to have led to an increased risk exposure, although the sub-prime crisis highlighted the liquidity issues facing UCITS funds, which according to EU rules are obliged to take into account their own liquidity requirements in order to be able to meet redemption requests from shareholders at any time.
However, acknowledging the additional risks linked to leverage and valuation, the study concludes that "such potential risks did not impact the performance/risk profile for investors".
It emerged that UCITS fund managers were decisive in keeping risk at low levels.
"Asset managers are usually prudent before investing in new and complex instruments", underlines the report, adding that they "prefer to delay the launch of new products instead of having a fund without proper risk management and valuation procedures".
The report also focused on non-harmonised funds such as hedge funds. Financial services industry representatives, in a press release, repeated their commitment "to work closely together and with other interested stakeholders to make timely improvements" in transparency and disclosure in the European securitisation market.
Malta features at Luxembourg Rendezvous
The 11th Luxembourg Rendezvous was held last month at the Chambre de Commerce in Luxembourg. The conference is held every two years to discuss developments in captives, insurance, risk management and alternative risk and is addressed by top calibre speakers from Europe's most prominent businesses, the captive and ART industry and regulatory bodies.
MFSA director of insurance business Marisa Attard took part in the regulators' panel, which also featured regulators from Luxembourg, Guernsey and Sweden as well as Karel Van Hulle, head of the insurance and pensions unit at the European Commission.
FinanceMalta and the Malta Insurance Management Association set up a joint exhibition stand during the event.
Watchdogs assess risks of Solvency II
Supervisors have raised concerns about the potentially higher financial risks derived from the reform of the insurance sector proposed by the Commission with its Solvency II package. In July 2007, Internal Market Commissioner Charlie McCreevy launched a fundamental overhaul of the EU insurance and reinsurance sectors. The proposed Solvency II directive aims to modify the delicate rules that prevent insurers from going bankrupt.
According to the plans, the current flat-rate system is to be replaced by an economic risk-based assessment method. Insurance companies will not be forced to put aside a share of their capital in order to cover clients' requests. The new requirements will allow them to keep the minimum amount considered sufficient to cover the risks undertaken.
Complex calculations will establish companies' exposure to market, credit and operational risks.
The insurance sector in Europe employs over a million people. Solvency II is supposed to replace the current Solvency Directive, which dates from the 1990s. Thousands of insurance companies across Europe will be affected by the reform.
The new risk-based system introduced by Solvency II presents a concrete advantage for companies that can invest higher amounts of money and compete in an increasingly globalised market. One of the predicted consequences of the new rules is a merger and acquisition boom in the sector.
The Commission argues that a more dynamic insurance market will make European companies more robust and more capable of facing difficult periods, bringing clear advantages for customers. However, supervisors fear that increased dynamism could also bring about higher competition and thereby cause more bankruptcies as an unwanted consequence.
"We realise that a risk-free system does not exist," acknowledged
Mick McAteer of CEIOPS, the Committee of European Insurance and Occupational Pensions Supervisors.
"However, in a system based on the principle that one company out of 200 will go bust every year, we have to underline that even only one bankruptcy affects consumers' confidence," he said.
Mr McCreevy reiterated that the proposed directive is based on "the best approach" and that it should remain unchanged. In a recent speech he also underlined the "fundamental differences between banking and insurance", made evident by the recent financial turmoil, which affected banks but not insurers.
CESR publishes retail investor guide on MiFID
The Committee of European Securities Regulators (CESR) has published a guide for retail investors on the new European directive for financial markets, the Markets in Financial Instruments Directive (MiFID). The guide explains, in clear and straightforward language, the new protections for retail consumers who buy financial services, following the introduction of this legislation across Europe. This guide is expected to be translated into many languages by CESR's members, the national securities regulators.
This is the first time CESR has developed a guide destined for consumers and reflects CESR's strong commitment to increase confidence among retail investors.
One of the main purposes of the MiFID Directive is to harmonise investor protection throughout Europe and increase consumers' confidence that the products sold to them are appropriate for their needs.
At the launch of the guide, Jean-Paul Servais, chairman of CESR's MiFID expert group and chairman of the Belgian single regulator, noted: "Ensuring the MiFID Directive is able to fully realise its potential for Europe's retail investors - creating greater choice of products and providers, and increasing investor confidence in the protections they will receive - depends greatly on retail investors across Europe understanding their rights, the protections provided and the responsibilities of both the firm and consumer.
"The key message of the retail investor guide is that the degree of investor protection that you will now receive as a customer in Europe is directly related to the reliance that you place on the firm and on yourself."
The MiFID Directive, which came into effect on November 1, 2007, is a key cornerstone which establishes how investment firms and the services they provide are regulated. One of its core principles is that firms wishing to provide services to retail investors must act professionally, provide fair information on financial products, and take into account the individual circumstances of each consumer.
CESR developed much of the technical detail of how the MiFID Directive should work and be implemented. Looking ahead, CESR is focusing on helping industry adapt to the new legislation and ensuring retail investors are able to get the full benefits from the protections afforded by this legislation.
Warnings to Investors
Over the past month the MFSA has received and circulated a number of warnings to investors issued by overseas regulators. Full releases can be accessed from the Warnings to Investors section in the MFSA website: (www.mfsa.com.mt).
New licences issued
i. Collective Investment Scheme Licences.
Professional Investor Funds
â€¢ Licence issued to Altma Fund SICAV plc in respect of two sub funds. These funds are Professional Investor Funds targeting qualifying investors.
â€¢ Licence issued to NBCG Fund Sicav plc in respect of three sub funds. These funds are Professional Investor Funds targeting qualifying investors.
â€¢ Licence issued to Norvik (Malta) Sicav plc in respect of three sub funds. These funds are Professional Investor Funds targeting qualifying investors.
â€¢ Licence issued to Swiss Investment Funds SICAV plc in respect of two sub funds. These funds are Professional Investor Funds targeting qualifying investors.
â€¢ Licence issued to Bray Insurance Co Ltd to carry on business of insurance restricted to risks situated outside Malta, in nine classes of general business.
iii. Managers List
â€¢ Enrolment in the managers list was granted to Willis Management (Malta) Ltd.
MFSA website: http://www.mfsa.com.mt
Registry website: http://registry.mfsa.com.mt
Consumer website: http://www.mfsa.com.mt/consumer