Financial institutions in Malta are subject to strict regulation and supervision. Financial institutions are regulated by the Financial Institutions Act and the Financial Institution Rules. Their activities include factoring, money transmission services, issuing and administering means of payments, guarantees and commitments, as well as, foreign exchange. Although, many of these activities are also carried out by credit institutions, financial institutions are not allowed to take deposits or other repayable funds from the public to fund their business.

Introduction 

Financial institutions in Malta are subject to strict regulation and supervision. Financial institutions are regulated by the Financial Institutions Act and the Financial Institution Rules. Their activities include factoring, money transmission services, issuing and administering means of payments, guarantees and commitments, as well as foreign exchange. Although, many of these activities are also carried out by credit institutions, financial institutions are not allowed to take deposits or other repayable funds from the public to fund their business.

MFSA

Since 2002, the Malta Financial Services Authority (MFSA) has been responsible for issuing licences to credit and financial institutions and for the supervision of these institutions. Before any formal application for a licence is made, the MFSA urges the promoters to meet with the MFSA to discuss the proposed set-up and the regulatory requirements to ensure the smooth running of the licensing process. The final application must be accompanied by the required supporting documentation such as a business plan, identifying the type and volume of business to be undertaken and the structure, organization and management system of the institution.

Permitted Activities

Financial institutions are precluded from taking deposits or other repayable funds from the public to fund their activities. Their activities can include the following:

• Lending (including personal credits, mortgage credits, factoring with or without recourse, financing of commercial transactions including forfeiting);
• Financial leasing;
• Venture or risk capital;
• Payment services;
• Issuing and administering means of payment (e.g. credit cards, travellers’ checks and bankers’ drafts);
• Guarantees and commitments;
• Trading for own account or for account of customers in:

          – money market instruments (checks, bills, certificates of deposits etc.);

          – foreign exchange;

          – financial futures and options;

          – exchange and interest rate instruments;

          – transferable instruments;

• Underwriting share issues and the participation in such issues;
• Money broking.

Licencing Requirements

• Own funds requirements are dependent on the activities which the financial institution proposes to provide, but shall be not less than €125,000;
• There have to be at least two individuals who will effectively direct the business of the financial institution in Malta;
• The following requirements have to be satisfied: prudent conduct; fit and proper persons; integrity and professionalism; adequate flows of information; and the possibility of consolidated supervision.

Application for Licence

Applications must be submitted to the MFSA on the appropriate forms. The application procedure consists of two processes – the analysis of the business plan (including financial projections) and the due diligence exercises on directors, senior managers and shareholders. Institutions need to submit the following documents:

• Programme of the operation;
• Policies and Procedures;
• Memorandum and Articles of Association;
• Proposed level of initial capital;
• Description of internal control mechanisms, which the applicant must establish in order to comply with obligations in relation to money laundering and terrorist financing under the Money Laundering  and Terrorist Financing under the Prevention of Money Laundering Act and Prevention of Money Laundering and Funding of Terrorism Regulations;
• Description of the structural organization;
• Business plan including the structure, organization and management systems of the institution (plan needs to include financial information which enables the MFSA to set the own funds requirement);
• Audited financial statements for the last three years (if applicable);
• Identity of all directors, controllers and managers of the institution;
• Identity of all shareholders with qualifying shareholding or partners;
• Identity of the individuals who will be effectively directing the business of the prospective institution;
• Applicant’s legal status and the address of his head office.

The MFSA may require the applicant to submit additional information as it may deem appropriate to determine an application for a licence.

Timeframe

The MFSA shall determine an application for a licence within three months of the receipt of the application. Should there be any additional documentation requested by the MFSA, the application will be determined within three months of compliance therewith.

Regulatory Fees

Application and processing one-time fee payable upon submission of an application by a financial institution applying for a licence:      €3,500

Annual supervision fee: Equivalent to 0.000175 of the total of the items in the balance sheet, but in any case not less than €2,500 and not more than €50,000 (equivalent to a percentage of its deposit liabilities).

Supervision fees are payable on the date of the granting of a licence pro-rata to 31st December, and thereinafter annually in two instalments of equal amount on the 1st January and 1st July of each year. Fees are not refundable.

Supervision of licensee

The MFSA supervises financial institutions continuously through off-site and on-site analyses. Amongst others, licence holders are required to submit statistical returns on a monthly and quarterly basis. The quarterly returns are more comprehensive since they include a detailed breakdown of assets and liabilities, off-balance items, profit and loss returns, as well as liquidity, own funds, capital adequacy and large exposures returns where applicable. The MFSA then compiles monthly and quarterly reports on the institution using the CAMEL factors (capital, assets/liabilities, management, earnings and liquidity).

Introduction

Malta was one of the first EU member states to allow standalone e-money institutions. Recent amendments to the law, including the reduction of the initial capital required have even further increased the attractiveness of this business model.

Malta has pursued the set-up of e-money institutions for a number of years now. E-money institutions also fall under the scope of the Financial Institutions Act and in June 2011 the country transposed the EU electronic money institutions Directive regulating e-money institutions into Maltese law. As a result, the required initial capital has been lowered from €1 million to €350,000. This offers a unique opportunity to newcomers and smaller operators to access the market.

MFSA

Since 2002, the Malta Financial Services Authority (MFSA) has been responsible for issuing licences to credit and financial institutions and for the supervision of these institutions. Before any formal application for a licence is made, the MFSA urges the promoters to meet with the MFSA to discuss the proposed set-up and the regulatory requirements to ensure the smooth running of the licencing process. The final application must be accompanied by the required supporting documentation such as a business plan, identifying the type and volume of business to be undertaken and the structure, organization and management system of the institution.

Permitted Activities

In addition to issuing electronic money, e-money institutions are entitled to engage in the following activities:

• The provision of certain payment services;
• The granting of credit related to certain payment services. Provided that, any such credit shall not be granted from the funds received in exchange of electronic money and held in accordance with the prescribed safeguarding requirements;
• The provision of operational services and closely related ancillary services, in respect of the issuing of electronic money or to the provision of payment services referred to above;
• The operation of payment systems;
• Business activities other than the issuance of electronic money, with regards to the applicable law regulating such activities.

Licensing Requirements

Initial capital needs to amount to €350,000;

There have to be at least two individuals who will effectively direct the business of the e-money institution in Malta;

The following requirements have to be satisfied: prudent conduct; fit and proper persons; integrity and professionalism; adequate flows of information; and the possibility of consolidated supervision.

Application for Licence

Applications must be submitted to the MFSA on the appropriate forms. The application procedure consists of two processes – the analysis of the business plan (including financial projections) and the due diligence exercises on directors, senior managers and shareholders. Institutions need to submit the following documents:

• Programme of the operation;
• Policies and Procedures;
• Memorandum and Articles of Association;
• Proposed level of initial capital;
• Description of internal control mechanisms, which the applicant must establish in order to comply with obligations in relation to money laundering and terrorist financing under the Money Laundering  and Terrorist Financing under the Prevention of Money Laundering Act and Prevention of Money Laundering and Funding of Terrorism Regulations;
• Description of the structural organisation;
• Measures concerning safeguarding of funds where applicable;
• Business plan including the structure, organization and management systems of the institution (plan needs to include financial information which enables the MFSA to set the own funds requirement);
• Audited financial statements for the last three years (if applicable);
• Where applicable the identity of the statutory auditors and audit firms;
• Identity of all directors, controllers and managers of the institution;
• Identity of all shareholders with qualifying shareholding or partners;
• Identity of the individuals who will be effectively directing the business of the prospective institution;
• Applicant’s legal status and the address of his head office.

The MFSA may require the applicant to submit additional information as it may deem appropriate to determine an application for a licence.

Timeframe

The MFSA shall determine an application for a licence within three months of the receipt of the application. Should there be any additional documentation requested by the MFSA, the application will be determined within three months of compliance therewith.

Regulatory Fees

Application and processing one-time fee payable upon submission of an application by a financial institution applying for a licence:      €3,500

Annual supervision fee: Equivalent to 0.000175 of the total of the items in the balance sheet, but in any case not less than €2,500 and not more than €50,000 (equivalent to a percentage of its deposit liabilities).

Supervision fees are payable on the date of the granting of a licence pro-rata to 31st December, and thereinafter annually in two instalments of equal amount on the 1st January and 1st July of each year. Fees are not refundable.

Supervision of licensee

The MFSA supervises financial institutions continuously through off-site and on-site analyses. Amongst others, licence holders are required to submit statistical returns on a monthly and quarterly basis. The quarterly returns are more comprehensive since they include a detailed breakdown of assets and liabilities, off-balance items, profit and loss returns as well as liquidity, own funds, capital adequacy and large exposures returns where applicable. The MFSA then compiles monthly and quarterly reports on the institution using the CAMEL factors (capital, assets/liabilities, management, earnings and liquidity).

Building on the country’s reputation as an eGaming and eCommerce location, payment service providers establishing operations in Malta can benefit from a wide customer base. In addition, Malta’s tax regime, in combination with passporting rights to other EU countries, makes Malta an attractive location for payment institutions.

Payment institutions (PIs) licensed in Malta provide global services to companies and merchants. They are regulated under the Financial Institutions Act. In 2010, Malta also implemented the European Payment Services Directive. Like other financial institutions, PIs are not allowed to receive deposits or other repayable funds from the public and must use funds exclusively to provide payment services.

MFSA

Since 2002, the Malta Financial Services Authority (MFSA) has been responsible for issuing licences to payment institutions and for the supervision of these institutions. Before any formal application for a licence is made, the MFSA urges the promoters to meet with the MFSA to discuss the proposed set-up and the regulatory requirements to ensure the smooth running of the licensing process. The final application must be accompanied by the required supporting documentation such as a business plan, identifying the type and volume of business to be undertaken and the structure, organization and management system of the institution.

Permitted Activities

• Services in relation to a payment account which enable cash to be deposited in or withdrawn from a payment account, or the execution of payment transactions by direct debits, through a payment card (or similar device) or a credit transfer;
• Issuing and/or acquiring payment instruments;
• Money remittance;
• Execution of payment transactions where the consent of the payer to execute a payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator. However, the operator must act only as an intermediary for the payment services user.
• A PI is also allowed to provide ancillary services and may operate payment systems and business activities other than the provision of payment services.

The primary difference between a PI and credit institutions or electronic money institutions is that PIs are not allowed to receive deposits or other repayable funds from the public and must use funds solely to provide payment services.

Licencing Requirements

• Own funds requirements are dependent on the activities which the financial institution proposes to provide, but shall be not less than €50,000;
• There have to be at least two individuals who will effectively direct the business of the financial institution in Malta;
• The following requirements have to be satisfied: prudent conduct; fit and proper persons; integrity and professionalism; adequate flows of information; and the possibility of consolidated supervision.

Application for Licence

Applications must be submitted to the MFSA on the appropriate forms. The application procedure consists of two processes – the analysis of the business plan (including financial projections) and the due diligence exercises on directors, senior managers and shareholders. Institutions need to submit the following documents:

• Memorandum and Articles of Association;
• Description of internal control mechanisms, which the applicant must establish in order to comply with obligations in relation to money laundering and terrorist financing under the Money Laundering  and Terrorist Financing under the Prevention of Money Laundering Act and Prevention of Money Laundering and Funding of Terrorism Regulations;
• Description of the structural organization;
• Business plan including the structure, organization and management systems of the institution (plan needs to include financial information which enables the MFSA to set the own funds requirement);
• Audited financial statements for the last three years (if applicable);
• Where applicable the identity of the statutory auditors and audit firms;
• Identity of all directors, controllers and managers of the institution;
• Identity of all shareholders with qualifying shareholding or partners;
• Identity of the individuals who will be effectively directing the business of the prospective institution.

The MFSA may require the applicant to submit additional information as it may deem appropriate to determine an application for a licence.

Timeframe

The MFSA shall determine an application for a licence within three months of the receipt of the application. Should there be any additional documentation requested by the MFSA, the application will be determined within three months of compliance therewith.

Regulatory Fees

Application and processing one-time fee payable upon submission of an application:      €1,200

One-time licensing fee payable once a licence has been granted:                                  €1,800

Annual supervision fee: Equivalent to 0.000175 of the total of the items in the balance sheet, but in any case not less than €2,500 and not more than €50,000 (equivalent to a percentage of its deposit liabilities).

Supervision fees are payable on the date of the granting of a licence pro-rata to 31st December, and thereinafter annually in two instalments of equal amount on the 1st January and 1st July of each year. Fees are not refundable.

Supervision of licensee

The MFSA supervises financial institutions continuously through off-site and on-site analyses. Amongst others, licence holders are required to submit statistical returns on a monthly and quarterly basis. The quarterly returns are more comprehensive since they include a detailed breakdown of assets and liabilities, offbalance items, profit and loss returns, as well as liquidity, own funds, capital adequacy and large exposures returns where applicable. The MFSA then compiles monthly and quarterly reports on the institution using the CAMEL factors (capital, assets/liabilities, management, earnings and liquidity).