The MFSA considers corporate governance to be one of its key priorities, from both a strategic and supervisory perspective. Ensuring good corporate governance complements, supports and is conducive to the Authority’s objectives of preserving financial stability, safeguarding the integrity of the markets, and protecting consumers of financial services.
In 2020, the Authority initiated a review of the Corporate Governance Framework through the launch of a consultation exercise with stakeholders. Its primary objective was the implementation of a new Corporate Governance Code, seeking to raise the bar for corporate governance standards and to encourage a prudent and consumer-focused corporate culture. Following careful consideration of the feedback received from the various stakeholders, the Authority published a Feedback Statement setting out its responses and positions.
In line with the positions set out in the Feedback Statement, the MFSA prepared a draft Corporate Governance Code, which was issued for public consultation last February. Through this second consultation exercise, stakeholders were given a further opportunity to consider the Code’s contents and provide views, comments and suggestions, prior to the publication of the final Code.
Since the Corporate Governance Code is designed to enhance corporate governance practices within the Maltese financial services sector, it also seeks to reinforce governance structures which will, in turn, enhance stakeholder trust. The Code will also assist entities’ boards and senior management in taking optimal decisions in the best interest of stakeholders and the entity itself. It will promote best practice among authorised entities, going beyond de minimis compliance with the applicable governance rules, and will also seek to guide entities in the integration of environmental, social and governance elements into their respective strategies with the aim of creating long-term value for all stakeholders.
The Corporate Governance Code will be applicable to all persons authorised by the MFSA; however, it will not apply to listed entities falling within the scope of the Capital Markets rules. Neither will it apply to Authorised Entities which are also Listed Entities falling within the scope of the Capital Market Rules.
One of the most notable features of the Corporate Governance Code is that it will be applied on a “best-effort” basis – emphasising that the Code’s application will be based on the principle of proportionality. This is a crucial aspect, especially given the vast range of entities that will fall within the scope of the code.
The Code outlines a number of core principles which are complemented by supporting provisions. These are organised into four sections: the effective Board; internal controls; stakeholder engagement; and corporate culture, corporate social responsibility (CSR), and environmental, social and governance (ESG).
The section regarding ‘The effective Board’ aims to set out principles to ensure and maximise the effectiveness of an entity’s Board, whereas the section on ‘internal controls’ taps into the adequate systems for control and oversight which should be in place and incorporated within the company’s governance structures. This section also delves into the five critical pillars of a robust internal controls system, namely:
- Risk Management
- Internal Audit
- ICT and Security Risk Management
- Business Continuity and Disaster Recovery
As the name implies, the section on stakeholder engagement identifies principles which are aimed at enhancing the relationship between the authorised entity and its respective stakeholders, including shareholders, employees, consumers and public authorities.
The final section within the Code – ‘Corporate culture, CSR and ESG’ – focuses on encouraging Boards to establish the right tone at the top and monitor adherence to an ethical company culture which fosters trust, integrity and sustainability. It also promotes the integration of ESG and CSR criteria into entities’ respective strategies and business models, seeking to support sustainable growth, economic efficiency and financial stability.
Pursuant to the public consultation, the MFSA received several responses from various stakeholders. The MFSA’s commitment to strengthen the Corporate Governance Framework for authorised entities through a ‘principles-based’ corporate governance code was positively received by respondents. The majority of respondents highlighted the importance of being given a platform to voice their views, complementing the input that they had provided in the 2020 consultation exercise.
Respondents also put forward suggestions aimed at enhancing the Code’s overall effectiveness. The Authority has carefully considered all feedback received and made amendments to the Code where necessary.