Following two phases of consultation back in 2015 and 2016 on the Conduct of Business Rulebook (the “Rulebook”), the MFSA issued a feedback statement on the 20 December 2017 providing its position in relation to various comments received from, and meetings held with, members and associations representing industry participants of Malta’s financial services sector. The Rulebook aims to establish the regulatory requirements for specified financial service providers insofar as their conduct vis-a-vis their clients is concerned. This article considers the feedback with focus on its impact on the insurance sector.

The Rulebook became applicable with effect from 3 January 2018 for persons licensed under the Investment Services Act (excluding custodians) and credit institutions under the Banking Act which sell or advise clients in relation to structured deposits. On the other hand, the Rulebook will also be applicable to insurance undertakings and insurance intermediaries from a later date to be specified by the MFSA. Certain rules included in this Rulebook will also be applicable to ancillary insurance intermediaries from a date to be specified.

In addition to the feedback statement, the MFSA issued the revised chapters of the Rulebook, on the topics of:

(1) Client Disclosures and Reporting;

(2) Product Governance;

(3) Conflicts of Interest;

(4) Selling Processes and Practices; and

(5) Execution of Clients’ Orders.

In drafting the Rulebook, the MFSA has mainly transposed the conduct of business requirements of the Markets in Financial Instruments Directive (” MiFID II”) together with the MiFID Implementing Directive and Implementing Regulation, and the Insurance Distribution Directive (“IDD”) together with the IDD Implementing Regulation on Conflicts of Interest and Inducements, Assessment of Suitability and Appropriateness.

The MFSA’s position on some key aspects relevant to insurance licence holders are:

  • The Rulebook will also be applicable to regulated Maltese and EEA entities when carrying out their licensed activities on the basis of freedom of establishment;
  • Information may be disclosed to Maltese residents in any of the official languages of Malta or any other language agreed upon by the parties except for certain notices linked to life insurance business which must continue to be provided in both Maltese and English;
  • The MFSA will not prescribe the approach to be taken but regulated entities must ensure secure transmission of information to clients through encryption or other means;
  • Clients are not to be requested to sign off declarations that they are acting on their own skill and judgement, especially when the service provider is providing a personal recommendation;
  • The MFSA has provided guidance on when gifts to clients are permissible and what type of gifts may be offered;
  • The MFSA has altered its position on telephonic contact with existing clients;
  • All face-to-face conversations with clients are to be recorded in writing by licence holders;
  • The MFSA has provided guidance as to what constitutes ‘advice’;
  • The requirement for a suitability statement when providing advice prior to conclusion of a contract;
  • The distinction between professional and retail clients is still being analysed by the MFSA bearing in mind the IDD requirements;
  • The terms and conditions relating to a product or service must continue to be provided to the client in a durable medium before concluding the contract even for commercial lines of business;
  • The MFSA has provided guidance when insurance intermediaries are considered to be manufacturers;
  • Conflicts of interest rules shall apply to regulated persons involved in the distribution of insurance-based investment products;
  • Cold calling and unsolicited visits are strictly restricted.

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Earlier on the same day, the European Commission (the “Commission”) issued a press release proposing, exceptionally, to push back the application date of the Insurance Distribution Directive by seven months to 1 October 2018. This delay is proposed following the urgent request for postponement by the European Parliament and 16 Member States, in view that some insurance distributors, mainly the smaller ones, are not yet fully ready for the new rules.

In order to align the application dates, the Commission is also proposing to postpone the application of the two IDD Delegated Regulations to 1 October 2018. Despite this, Member States are still required to transpose the IDD into national law by the original date, 23 February 2018. The European Parliament and the Council will now need to agree on the application date in an accelerated legislative procedure.