S.L. 370.23 Art. 6Duties of the competent authority when Malta is the home Member State of the AIFM managing leveraged AIFs.

(1) When Malta is the home Member State of the AIFM, the competent authority shall use the information provided to it by the AIFM in terms of Article 24 of the AIFM Directive for the purposes of identifying the extent to which the use of leverage contributes to the build-up of systemic risk in the financial system, risks of disorderly markets or risks to the long-term growth of the economy.

(2) Where Malta is the home Member State of the AIFM, the competent authority shall ensure that all information gathered under Article 24 of the AIFM Directive, as transposed in the Investment Services Rules, in respect of all AIFMs that it supervises and the information gathered under Article 7 of the AIFM Directive, as transposed in the Investment Services Rules, is made available to the relevant European regulatory authorities, the ESAs and the ESRB, whenever necessary for the purposes of carrying out their duties, in accordance with the procedures established in article 17 to article 17B of the Act and regulations 26 and 27 of the Investment Services Act (Alternative Investment Fund Manager) (Third Country) Regulations:

Provided that the competent authority shall ensure that all the information gathered under Article 24 of the AIFM Directive, as transposed in the Investment Services Rules, in respect of all AIFMs that it supervises shall be made available, for statistical purposes only, to the ESCB, in accordance with the procedures established in article 17 to article 17B of the Act and regulations 26

and 27 of the Investment Services Act (Alternative Investment Fund Manager) (Third Country) Regulations:

Provided further that the competent authority shall, without delay, provide information in accordance with the procedures established in article 17 to article 17B of the Act and regulations 26 and 27 of the Investment Services Act (Alternative Investment Fund Manager) (Third Country) Regulations, and bilaterally to the European regulatory authorities directly concerned, if an AIFM under its responsibility, or an AIF managed by that AIFM, could potentially constitute an important source of counterparty risk to a credit institution or other systemically relevant institutions in any Member States other than Malta, or to the financial system in any such Member State.

(3) The AIFM shall demonstrate that the leverage limits set by it for each AIF it manages are reasonable and that it complies with those limits at all times.

(4) The competent authority shall assess the risk that the use of leverage by an AIFM with respect to the AIFs it manages could entail. Where deemed necessary in order to ensure the stability and integrity of the financial system, the competent authority, after having notified ESMA, the ESRB and the European regulatory authority of the relevant AIF, shall impose -

(a) limits to the level of leverage that an AIFM is entitled to employ; or

(b) other restrictions on the management of the AIF with respect to the AIFs under its management, to limit the extent to which the use of leverage contributes to the build-up of systemic risk in the financial system or risks of disorderly markets.

(5) Through the procedures set out in Article 50 of the AIFM Directive, the competent authority shall duly inform ESMA, the ESRB and the European regulatory authority of the AIF, of actions taken in terms of sub-regulation (4).

(6) The competent authority shall make the necessary notifications to ESMA, the ESRB and the European regulatory authority in terms of sub-regulations (4) and (5) by not less than ten working days before the proposed measure is intended to take effect or to be renewed. The notification shall include details of the proposed measure, the reasons for the measure, and when the measure is intended to take effect. In exceptional circumstances, the competent authority may decide that the proposed measure takes effect within the ten working days referred to in this sub-regulation.

(7) After having sent the notifications in terms of sub-regulations (6) and (7), the competent authority shall receive advice from ESMA about the measure that is proposed or taken. The advice may, in particular, address whether the conditions for taking action appear to be met, whether the measures are appropriate and the duration of the measures.

(8) On the basis of the information received in accordance with sub-regulation (2), and after taking into account any advice of the ESRB, ESMA may determine that the leverage employed by an AIFM, or by a group of AIFMs, poses a substantial risk to the stability and integrity of the financial system and may issue advice to the competent authority specifying the remedial measures to be taken, including limits to the level of leverage, which that AIFM, or that group of AIFMs, are entitled to employ. ESMA shall immediately inform the competent authority, the ESRB and the Commission of any such determination.

(9) If the competent authority proposes to take action contrary to ESMA’s advice referred to in sub-regulations (7) or (8), it shall inform ESMA, stating its reasons. ESMA may publish the fact that the competent authority does not comply or intend to comply with its advice. ESMA may also decide, on a case-by-case basis, to publish the reasons provided by the competent authority for not complying with its advice. The competent authority shall receive advance notice about such a publication.