On the 28 July 2022 the Malta Financial Services Authority (the “MFSA”) issued a new Banking Rule, namely BR/25 on Financial Holding Companies and Mixed Financial Holding Companies (“BR/25”). 

BR/25 provides further detail to the banking industry in relation to the requirement in Article 21a of Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU (“CRDV”) relating to the approval or exemption of financial holding companies and mixed financial holding companies (the “(M)FHCs”) which are, inter alia, part of a banking group. Article 21a of CRDV had been transposed in the Banking Act (Chapter 371 of the Laws of Malta) (the “Banking Act”) through Article 11B and Article 29AA [1].

BR/25 contains two annexes to be submitted to the MFSA, that is, Annex I which provides for the Application Form/s and Annex II which provides for the Annual Declaration Form (see further information below).  It is to be noted that BR/25 and the Annexes came into force on the 28 July 2022.

The following (M)FHCs (as each is defined in the Banking Act) fall within scope of BR/25:

1. Parent financial holding companies;
2. Parent mixed financial holding companies;
3. EU parent financial holding companies;
4. EU parent mixed financial holding companies; an
5. Other financial holding companies and mixed financial holding companies, which do not fall within (a) to (d) above and which are required to comply with the CRD and Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (the “CRR”) on a sub-consolidated basis.

In the event of reasonable doubt as to whether a (M)FHC falls within the scope of BR/25, the matter shall be conclusively determined by the MFSA and clarification in writing from the MFSA is to be sought.

Paragraphs 8 to 16 of BR/25 deal with the approval or exemption process, in particular identifying to whom the application for approval or exemption from approval is to be submitted depending primarily on who acts as the consolidating supervisor.  This approval or exemption is to be sought by the relative (M) FHC before it comes into existence in the applicable banking holding chain, or, if already in existence, immediately in terms of Article 11B of the Banking Act.

BR/23 deals also with the interplay of Article 11B and Articles 13 and 13A of the Banking Act relating to qualifying shareholdings in banks. Indeed, where a (M)FHC is to become a qualifying shareholder of a credit institution, a qualifying holding approval is to be requested in addition to the approval or exemption required in terms of BR/23 and Article 11B of the Banking Act.

Paragraphs 19 to 25 address the submission of the relative information and documentation accompanying a request for approval or exemption from approval.  Where the (M)FHC is already in existence within the banking group, the submitted information and, or documentation shall confirm the current compliance with the applicable criteria in Article 11B of the Banking Act or Article 21a of CRDV. Where the (M)FHC in question will be newly approved within the banking group or the (M)FHC is introduced within the banking group alongside a new shareholder of the group or as a new shareholder, the information and, or documentation submitted by the (M)FHC shall also include how the criteria listed in Article 11B of the Banking Act or Article 21a of CRDV will be met due to the introduction of the (M)FHC into the said banking group. The (M)FHC may request the guidance of the Authority for such parallel procedures.

Paragraphs 26 to 33 deal with the conditions which in terms of Article 11B of the Banking Act need to be satisfied to be approved as a (M)FHC and, on the other hand for an exemption from the need for such approval to be obtained. The MFSA may direct the “exempted” (M)FHC to apply for an approval in terms of Article 11B of the Banking Act or Article 21a of CRDV, as applicable, where the MFSA determines that the (M)FHC does not satisfy the applicable conditions for exemption.

BR/25 also includes ongoing compliance obligations. The (M)FHC shall continuously comply with the approval or the exemption conditions on an on-going basis and where the MFSA is the consolidating supervisor, the MFSA shall monitor as necessary the compliance with the approval or exemption conditions. Amongst others, the (M)FHC shall submit to the MFSA the Annual Compliance Declaration Form in Annex II by the end of every calendar year commencing from the subsequent year in which the (M)FHC in question has been approved or exempted, as applicable.

Authors: Catherine Formosa, Caroline Gauci

August 1, 2022

[1] https://ganado.com/news/practice-news/approval-or-exemption-from-approval-of-mixed-financial-holding-companies/