Introduction

The MFSA carries out its Supervisory Review Processes taking a risk-based, proactive and proportionate approach to the supervision of licence holders across all sectors.

The Securities and Markets Supervision Unit ("SMSU") within the MFSA responsible for the regulation and supervision of investment services companies, collective investment schemes, fund management and related fund services operations, admissibility to listing on recognised investment exchanges, and oversight of financial markets. As part of its supervision duties, SMSU carries out onsite inspections at licence holders falling under its remit. Broadly speaking, onsite visits take the form of thematic reviews, focused visits or broad scope visits. These visits may be planned/ scheduled beforehand or they may be conducted on a surprise basis. Surprise visits are typically triggered by particular events or serious supervisory issues surrounding the licence holder in question.

This article is mainly intended to help licence holders prepare for a planned/ scheduled compliance visit and to ensure that such visits are conducted seamlessly, while adding value to the organisation being visited.

Before the Visit – Upon Notification

Licence holders identified for planned/ scheduled compliance visit will be typically notified that the MFSA will conduct an onsite inspection at the licence holder's office a month in advance. This is done through an official letter sent via email and by post.

Upon receiving the MFSA's notification, it is recommended that licence holders take, inter alia, the following actions:

  • Block diary and ensure full availability of key personnel during the visit. The MFSA generally indicates the persons who would need to be available during the duration of the inspection. These are normally the Managing Director and the Compliance Officer of the licence holder.
  • Onsite visits are usually held at the business office of the licence holder.
  • Should the date of the visit selected by the MFSA occur during a busy period, such as Net Asset Value strike date or month end, the licence holder may request the MFSA to find alternative date. The MFSA may consider selecting an alternative date so that the proposed time of visit does not hinder the licence holder's operations.
  • Make appropriate logistic arrangements for when the onsite regulation team visits the offices. Normally, the onsite team would need an office or a room where to hold meetings and conduct the documentation review. Ensure that there are adequate electricity sockets in the room for the onsite team's IT requirements.
  • In case the licence holder under review outsources critical functions, ensure that the delegates are aware of the compliance visit and available via conference call in case of need.
  • Prepare in advance of the meeting the documentation listed in the pre-visit notification letter in terms of the powers granted to the MFSA by virtue of article 13 of the Investments Services Act (Cap. 370).
  • It is advisable to conduct a gap analysis between the findings identified by MFSA in previous visits and the current licence holder's processes and procedures. This will ensure that the current position of the licence holder is at least close to what is expected from the onsite regulatory team.
  • Ensure that certain key documents, such as Procedures Manual, Breaches Log, Complaints Register, Compliance Manual etc. are duly completed and updated.

During the Visit

  • Be honest, transparent and open with the MFSA onsite team. It is better to admit shortcomings rather than state something which is not true and then evidence collected by the onsite team proves otherwise.
  • Respond to the onsite team's request expeditiously.
  • An exit meeting is usually held prior to the end of the compliance visit. This may be held at the licence holder's premises on the last day or convened at the MFSA premises closer to the date of issuance of the exit letter. The purpose of exit meetings is to communicate to the licence holder any material findings identified as well as a chance for the licence holder to clarify any misunderstanding or misinterpretation of any particular issue/ finding identified during the compliance visit.
  • State what is truthful and correct any misunderstandings during the exit meeting to ensure that the preliminary findings identified and communicated by the onsite team are factual.

Post Visit – Prior to the issuance of the Exit Letter

  • Send any further requested documents to the MFSA officials.
  • Start working without delay on issues identified by the MFSA onsite team (and communicated during the exit meeting) with a view to addressing as many recommendations as possible prior to the exit letter received from the MFSA.

Exit Letter

  • The wording of the exit letter will convey whether the findings identified are a breach to any particular regulation or legislation, or whether these findings are deficiencies compared to the MFSA's expectations and/or industry's best practice.
  • The licence holder is required to address all breaches of regulation or legislation identified and confirm to the MFSA that corrective action has been implemented.
  • Where the MFSA recommends the licence holder to take any particular action which is based on best practice, it is in the best interests of the licence holder and its stakeholders to take on board such recommendation. Where the licence holder considers inappropriate to implement such suggestions, it should justify its decision to the MFSA with reasonable and well-grounded considerations.
  • Any findings identified which are the result of a breach to any regulation or legislation need to be logged in the breaches log.
  • The MFSA may, in future compliance visits, check that outstanding recommendations have been fully implemented and addressed. Marking recommendations as implemented when this is not the case is certainly not recommended.

By Joseph J Agius – Deputy Director, Securities and Markets Supervision Unit & Jeanelle Newell – Analyst, Securities and Markets Supervision Unit

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.