MFSA Urges Investment Firms to Provide Upfront Information to Clients Regarding Costs and Charges

​The Malta Financial Services Authority (MFSA) has sent a "Dear CEO" letter to the Chief Executive Officers and Compliance Officers of investment firms, urging them to improve transparency regarding the fees and expenses associated with their services and products. This letter stems from the results of an undercover investigation the MFSA conducted to evaluate the adherence to regulations and the quality of services provided by investment firms in the industry.

According to the MFSA, 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.

The MFSA's Head of Conduct Supervision, Dr 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. We also found out what works well and what needs to be fixed in the industry."

The letter includes several other recommendations. The Authority encouraged 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.

The 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 ESMA's Common Supervisory Action coordinated at the EU level. It involved face-to-face and online interactions with eight selected firms, using simulated profiles of retail prospect clients.