Supervisory of Securities and Financial Markets

Transcription

1 Supervisory of Securities and Financial Markets Dr Christopher P. Buttigieg Securities and Markets Supervision Unit Malta Financial Services Authority 16 December 2015

2 Disclaimer The views expressed in this presentation are my own, and do not necessarily reflect the views of the Malta Financial Services Authority.

3 Agenda 1. Objectives of Securities Regulation and Supervision 2. SMSU within MFSA s Institutional Set-Up 3. Industry falling within SMSU s Remit 4. A Supervisor s Nightmare 5. Supervisory Tools 6. Risk Based Supervision 7. Supervisory Work 8. Guidance on Outcome of Supervision 9. Challenges 2016

4 Securities and Markets Supervision Unit High Level Objectives Safeguarding Systemic Stability Investor Protection Ensuring that Financial Markets are Fair, Efficient and Transparency

5 Board of Governors Chairman Resolution Authority Legal & International Affairs Unit Co-Ordination Committee (Chaired by Chairman) Listing Committee Consumer Complaints Financial Arbiter Director General Enforcement Unit Registry of Companies Chief Operations Officer Supervisory Council (chaired by DG) Management & Resources Committee (chaired by COO) Conduct Supervisory Unit Securities & Markets Supervisory Unit Administration Finance & Risk Management Authorisation Unit Banking Supervisory Unit Communications Human Resources & Development Regulatory Development Unit Insurance & Pension Unit Information & Communication Technologies

6 Securities and Markets Sector Profile Interim 2015 Total Investment Firms Of which Fund Managers Of which Custodians RFAs Collective Investment Schemes Total Listed Companies on MSE New Listings EMIR Financial/ Non Financial Counterparties N/A N/A N/A N/A 490 /200 * Two Regulated Markets - the Malta Stock Exchange & the European Wholesale Securities Market.

7 A Supervisor s Nightmare

8 Supervisory Tools Onsite Visits are typically either scheduled/planned or investigative in nature. Offsite Review of Financial Statements and Financial Returns submitted

9 Risk Based Approach Rules-based approach to supervision was followed by the SMSU particularly when number of licence holders supervised was still quite small The SMSU is embarking on a shift towards a comprehensive risk-based approach to supervision A risk-based approach entails the identification, classification and measurement of risks posed A ranking of licence holders in terms of the risks posed by each is obtained Identifies, classifies and measures the risks posed by each licence holder to the objectives of the SMSU Focus on those supervisory issues which pose the highest risks Understand the ranking of licence holders in terms of the risks posed Facilitates the allocation of scarce resources Enables a higher degree of efficiency The Benefits Reduces tendency to rely on a tick-box approach

10 The Risk Monitoring System The risk-based approach to supervision is to be applied through the use of the RMS The RMS gauges the risk posed by each licence holder looked at in isolation 14 variables are considered in the RMS A set of variables were identified for different categories of licence holders MiFID Investment Firms Fund Managers Collective Investment Schemes The system is the same for each category of licence holder, but different variables are used to enable an appropriate identification of risks according to the category of licence holder A risk rating is assigned to each variable for the licence holder being assessed The assessment procedure is mainly a qualitative one and involves a certain degree of subjectivity, although it is based on objective data some of which is quantitative in nature Automation of the risk rating assignment procedure is available for certain variables where this is possible, with a manual input required by the Analyst for a risk rating to be assigned

11 The Risk Monitoring System Variables Size of Business Nature of Business Type of Clients Governance Regulatory History

12 SMSU - Onsite Visits per Year Total Visits of which EMIR

13 Offsite Supervisory Work ISLHs Regulatory Returns 514 Market Monitoring Annual number of Trades (2014) 25,657 Company Announcements 500 CIS Total Reports Received 1,454 Number of OTC Derivative Trading 20,500 per day

14 Guidance on Outcome of Supervision Circulars On-Site Inspections on compliance with the European Markets Infrastructure Regulation ( EMIR ) CISs & Fund Managers - Thematic Review on compliance with the requirements on Governance, Compliance and Risk Management 01/10/ /10/2015 RFAs - Thematic Review on compliance with the requirements on Governance and Compliance ISLHs - Thematic Review on compliance with the requirements on Governance, Compliance and Risk Management 16/10/ /09/2014

15 Supervisory Issues Examples Inadequate coverage of issues by Board of Directors meetings/investment Committee meetings Compliance Officer not having sufficient knowledge of regulatory developments Inadequate compliance monitoring programme Failure to have a suitable conflicts of interest policy and breaches policy Not all firms believe they derive ancillary benefits as a result of regulatory compliance Insufficient due diligence and monitoring on CIS/Fund Manager service providers and delegated functions Inadequate Procedures and Documentation to Comply with EMIR

16 SMSU - EU Related challenges European Single Rulebook Implementation Pressure to meet new regulatory and legislation implementation deadlines 2. Attempts for more Supervisory Convergence 3. More Centralization of Supervisory Reporting and Information 4. Proposals for a Capital Markets Union

17 SMSU - Challenges Reviewing our processes to improve efficiency and work smarter 2. Segregation - Prudential and Conduct Supervision 3. Enhancing the Risk Based Approach to Prudential Supervision 4. Increasing the number of Onsite Inspections (Focus on Prudential Supervision including Risk Management and Cyber Risks) 5. Procedures for the Application of Product Intervention Powers 6. Improving the Technical Skills Set and Knowledge of Staff 7. Better use of IT Tools for Supervision LH Portal and System for Monitoring Derivative Transactions

18 2016 Efficiency and Effectiveness Education Leadership Intelligence Technology Expertise Objective: Building a Supervisory Culture which Promotes Excellence Implementation: Specialised Training Enhancing Existing/Developing New Supervisory Mechanisms Better application of IT Infrastructure

19 Thank you! Dr Christopher P. Buttigieg Director Securities and Markets Supervision Unit Malta Financial Services Authority Tel: