On August 16, 2010, the Malta Financial Services Authority had published two policies targeting the local retail market whereby the requirement to set up a Sinking Fund (a pool of money set aside by a corporation to help repay a bond issue) and the requirement to report on the financial soundness of an issuer were introduced.
The MFSA is proposing the following two amendments to its policies:
• Bond issues where the minimum subscription amount is at least €50,000 per individual investor and where subsequent trading takes place only in multiples of €50,000 per individual investor are to be exempt from the requirement of having a Sinking Fund and the Financial Soundness Report as these investors would not be considered as retail investors. The minimum amount is to apply to each underlying beneficial owner where a person is subscribing for securities on behalf of third parties. The exemption is to be applicable only if issuers refrain from any form of advertising or promotional activity to invite or induce the public to subscribe for or otherwise acquire these types of debt securities.
• Bond issues which satisfy adjusted criteria, namely the minimum subscription amount is at least €10,000 per individual investor with subsequent trading taking place only in multiples of €10,000 per individual investor, are to be exempt from the applicability of the policy on the preparation of a Financial Soundness Report. Where a person is subscribing for securities on behalf of third parties, the minimum amount is to apply to each underlying beneficial owner.
Bond issues would eventually only be subscribed to through the services of an investment services licence holder duly authorised in terms of the Investment Services Act to provide investment advice, execute orders and/or send and transmit orders in relation to transferable instruments.
The investment services licence holder must be satisfied that the investment in the bond issue is suitable and/or appropriate for his client prior to purchasing the bonds. The investment services licence holder will be required to carry out a suitability or appropriateness test with respect to prospective bondholders. In the case of non-advisory clients, the investment services licence holder may only accept any requests to purchase bonds in the relevant issue if satisfied that the client has passed the appropriateness test.
The reporting on the financial soundness of an issuer had been introduced to minimise the possibility of prospective local retail investors investing in companies which are not financially sound. The Authority seeks to apply the proposed exemptions in relation to investors having the necessary expertise, experience and knowledge to make an informed decision with regards to the bond issue without the need of specific reporting on the financial soundness of the issuer.
