Due to the queries received by the Malta Financial Services Authority (“MFSA”) regarding whether Malta Government securities are to be classified as Non-Complex or as Complex instruments under MiFID, the MFSA has issued a letter addressed to Compliance Officers on the Authority’s position in respect to the Collective Action Clauses affecting government securities.
Collective Action Clauses allow a supermajority of bondholders to agree to debt restructuring that is legally binding on all holders of the bond, including those who vote against the restructuring. The European Markets and Securities Authority’s (“ESMA”) current guidance and draft guidelines on complex instruments are silent on these clauses. ESMA state and MFSA agree that government bonds which do not embed a derivative are automatically non-complex instruments.
The marketing and sale of complex products, in particular to retail investors, remains a key concern for ESMA. Complex products allow retail investors access to asset classes, market segments and investment strategies that were previously only available to professional clients. From an investor protection perspective, this trend poses certain risks for retail investors: due to their complexity, they may not be able to understand the risks, costs and expected returns of some complex products and/or the drivers of risks and returns.
The MFSA is subject to any further guidance issued by ESMA regarding this matter.