MFSA issues Draft Corporate Governance Code for Malta Companies

High Quality Governance for Malta Companies

On 22 February 2022, the Malta Financial Services Authority (“MFSA” or “Authority”) launched a month-long consultation on a new proposed Corporate Governance Code. This Code is being regarded as vital in fostering and enhancing governance, culture and conduct of Maltese entities.

Good quality governance is essential for investor protection, market integrity and financial soundness. Good corporate governance ensures that institutions operate transparently. It also reduces the risk of failure; safeguards stakeholders’ rights and prevents excessive risk taking in business decision making.

Once it enters into force, the final Code will be applicable to all non-listed Malta entities but would not apply to listed companies falling within the reach of the MFSA Capital Market Rules, given that these latter entities already include distinct governance provisions applicable specifically to them.

As outlined in the MFSA Strategic Plan 2019-2021, the subsequent Strategic Update published in 2021 and the Supervisory Priorities for 2022, Corporate Governance is one of its main strategic significant objectives of the Authority. The supervisory focus on the internal governance of financial services firms is therefore intended to be maintained.

Aims of the New Malta Corporate Governance Code

The Code is meant to:

• Outline corporate governance best practices for Malta’s financial services sector.
• Encourage the adoption of such best practices by all authorised entities.
• Ameliorate relations between authorised entities and their stakeholders.
• Safeguard effective functioning of authorised entities’ Boards so that the best decisions are taken.

The Code mainly relates to: 

1. boards and their respective responsibilities, including the exercise of adequate oversight of executive management.
2. boards to have adequate understanding of risk (risk management, compliance, internal audit, ICT and Security Risk Management and Business Continuity)
3. firms maintaining high standards of corporate and compliance culture; and having adequate internal controls

The Code is intended to support authorised entities to implement improved governance standards and achieve enhanced resilience and sustainable operations as well as encourage authorised entities to integrate sustainable, environmental, and social aspects in their business strategy.

The Code’s influence will mostly be felt in those regulated sectors were governance standards or principles are still unwritten, yet such levels are often assumed, promoted, and expected. In this regard, the Code will also provide more confidence to companies that are reorganising their governance framework. The Authority clarifies that the Code includes several principles which should be applied on a ‘best effort basis’, accompanied by supporting terms to steer entities towards attaining the objectives set out in the principles.