Revision of Conduct of Business Rulebook for Investment Firms

The letter sent by Malta Financial Services Authority (“MFSA”) addresses several pertinent issues. The prohibition on payment for order flow (“PFOF”) bans brokers from receiving payments to direct client orders to specific trading platforms, raising significant investor protection concerns. In turn, this also led to the EU-wide prohibition on PFOF in the MiFIR Review. Reporting obligations under Articles 27(3) and 27(6) have been removed, eliminating the need for detailed execution venue and RTS 28 reports. Despite these deletions, firms must remain compliant with best execution requirements until Member States implement the directive, that is until 28 February 2023. Conduct of business rules have also been revised, including the removal of certain reporting obligations and the introduction of annual Financial Instruments Survey submissions to replace semi-annual reporting. The Malta Financial Services Authority (MFSA) expects firms to adapt their business models, policies, and systems to comply with the PFOF ban, enhance best execution practices, and meet cost transparency standards, with supervisory reviews ensuring adherence to the new framework. Article 27 of MiFID II outlines general best execution provisions, aiming for consistency in applying these requirements. To enhance clarity, especially for professional clients, ESMA will draft Regulatory Technical Standards to define criteria for assessing and improving order execution policies under Article 27(5) and (7), considering the distinct needs of retail and professional clients.

The Authority also issued minor changes to the Conduct of Business Rulebook including indents (iii) and (iv) of Rule R.4.2.7(b) of Chapter 4 of the Conduct Rulebook and the Financial Instrument Survey by Investment Firms will replace the List of Financial Instruments and will now be required to be submitted on an annual basis rather than half yearly.

Through this letter the MFSA expects firms to evaluate how the MiFIR and MiFID II amendments, particularly the ban on Payment for Order Flow (PFOF), affect their operations. Firms impacted by this ban must adapt their business models, policies, and systems to ensure compliance with new requirements on best execution, conflicts of interest, inducements, and cost transparency. The MFSA will oversee compliance and may conduct supervisory reviews to ensure firms meet these obligations.