On the 5 August 2022, the Malta Financial Services Authority (the “MFSA”) published the Corporate Governance Code (the “Code”) which is applicable to all persons authorised by it. The publication was accompanied by a Feedback Statement which includes the key feedback received from the industry following a public consultation issued on the 22 February 2022 and MFSA’s response and position on the matters raised by stakeholders.
The Code applies to all persons authorised by the MFSA to provide financial services in or from within Malta such as credit institutions, financial institutions, payment institutions, insurance companies and investment firms. The MFSA has however clarified that the Code is not applicable to: (i) authorised Listed Entities falling within the scope of the MFSA Capital Market Rules, given that these already include specific governance provisions applicable to such entities; and (ii) authorised persons who are natural persons (individuals).
It is important to note that the definition of “financial services” includes also “any other areas of activity or services as may be placed under the supervisory and regulatory competence of the Authority by the Minister or by any other law”. As a result, in its Feedback Statement, the MFSA specifically states that given that Trustee and Corporate Service Providers fall within the supervisory and regulatory remit of the MFSA, the Code will also apply to such entities (to the exclusion of providers which are natural persons).
Proportionality is a key feature of the Code. In various parts of the Feedback Statement, the MFSA emphasises that due to the wide range of entities falling within its scope, “this Code’s application is based on the principle of proportionality. Rather than providing a rigid set of rules, the Code is comprised of principles, complemented by supporting provisions, which Authorised Entities are expected to comply with on a best-effort basis.” All entities are therefore expected to endeavour to adhere to the Code – albeit in a manner that is commensurate with the nature, size and complexity of the entity concerned. This is for instance evident in the Code in relation to Board composition, Board Committees, internal audit, the compliance function and ESG disclosures. Subjectivity and the need for entities to apply their own judgement in applying the Code are therefore corollary to the application of proportionality.
The Code is also meant to complement existing governance frameworks and will not override laws, regulations or rules which already specifically apply to some of the authorised entities in the areas of governance. In case of conflict with the Code the ad hoc regulatory frameworks will prevail (including where these impose more onerous or mandatory rules).
The Feedback Statement also outlines the changes carried out to the Code following the draft version following the feedback received from shareholders. These can be noted particularly in the provisions relating to Board duties and responsibilities, the role of the Chairman, conflicts of interest and in certain definitions which have aligned more closely with definitions already contained in other laws (such as in the Companies Act, Cap. 386 of the laws of Malta).
In the meantime, the MFSA has indicated that it is considering issuing additional practical guidance on how principles are to be applied and that “going forward, the MFSA will further engage with market participants and stakeholder groups, through various initiatives, to ensure a good understanding of the Authority’s expectations. Stakeholder groups are also encouraged to draw up best practice documents on how to adhere to the Code.”
While certain authorised entities are already conversant with, and accustomed to the majority of the governance principles and standards contained in the Code in view of existing and often more onerous governance regulatory frameworks applicable to them, other authorised entities will need to take stock of their current governance frameworks in light of the Code’s provisions with a view to adhering more closely to the Code or incorporating new governance practices as may be applicable to the particular entity.