Dear CEO: MFSA calls on investment firms to inform clients about costs and charges upfront

Malta Financial Services Authority (MFSA) has issued a “Dear CEO” letter to the CEOs and Compliance Officers of investment firms, calling on them to be more transparent about the costs and charges of their services and products.

The letter is based on the findings of a mystery shopping exercise conducted to assess the quality and compliance of investment firms in the market.

MFSA stated that it is very important that licensed entities have the relevant controls, processes and procedures in place to ensure that any important documentation that needs to be provided to the client in respect to the service and product being offered, is received in good time before the transaction is concluded. Information on costs and charges should be provided voluntarily rather than upon the explicit request of the client. Entities with an online presence or offering mobile applications must ensure easy accessibility to such information.

MFSA Head of Conduct Supervision Sarah Pulis commented: “As an authority, we wanted to see what it’s like to be an investor and how well the investment firms are following the rules.”

“We learned a lot from this experience, and it helped us improve how we supervise the market,” she continued.

“We also found out what works well and what needs to be fixed in the industry,” Dr Pulis added.

The letter includes several other recommendations, with the authority encouraging licensed entities to institute a “continuing educational requirement” for advisors to keep their industry knowledge current and maintain a high standard of professionalism. Advisors should also make it clear to the client as to whether they are providing advisory services or otherwise to avoid any misunderstandings.

MFSA conducted the mystery shopping exercise in 2022 to assess the account opening process for retail clients by investment service licence holders. The exercise was part of the European Securities and Markets Authority’s (ESMA) Common Supervisory Action (CSA) coordinated at EU level. It involved face-to-face and online interactions with eight selected firms, using simulated profiles of retail prospect clients.

MFSA also issued a circular on the main findings from the CSA for the year 2022 and the mystery shopping exercise on information on costs and charges emanating from MIFID II Requirements, accessed by clicking here.

The authority added that it encourages investment service firms to conduct a gap analysis based on the observations and findings in the report. It will continue to monitor compliance by investment firms with the relevant rules and regulations, “possibly engaging with particular firms on such matters”.

The full letter can be accessed through the link here.

The “Dear CEO” letters are a direct means by which MFSA communicates with the management of its regulated entities, including the Board of Directors and CEOs. Typically, these letters follow various supervisory interactions, such as thematic reviews and mystery shopping exercises. These letters are published on MFSA’s website.