Financial Institutions in Malta

Non-banking financial institutions are regulated in terms of the Financial Institutions Act (Chapter 376, Laws of Malta), together with the applicable MFSA Financial Institutions Rules. Maltese financial institutions are to be differentiated from banks (credit institutions), which retain the exclusive activity of accepting of deposits of money from the public.

The said Financial Institutions Act extends to the regulation of payment services providers (PSPs) in terms of the Payment Services Directive (Directive 2007/64/EC) and electronic money institutions (EMIs) that fall within the remit of the Electronic Money Directive (Directive 2009/110/EC). Given that payment services and the issuing of electronic money are the subject of harmonised EU legislation, these specific activities may be passported into other EU member states and EEA jurisdictions in accordance with the prescribed notification procedure. This would effectively enable the Maltese licensee to provide its services within the relevant Member State/s either (i) through the establishment of a branch or (ii) on the basis of the cross-border provision of services.

Payment Service Providers – PSPs

The Second Schedule to the Financial Institutions Act sets out the following permissible activities for Payment Service Providers (PSPs):

1. Services enabling cash to be placed on a payment account as well as all the operations required for operating a payment account;
2. Services enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account;
3. Execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider:
   1. execution of direct debits, including one-off direct debits;
   2. execution of payment transactions through a payment card or a similar device;
   3. execution of credit transfers, including standing orders;
4. Execution of payment transactions where the funds are covered by a credit line for a payment service user:
   1. execution of direct debits, including one-off direct debits;
   2. execution of payment transactions through a payment card or a similar device;
   3. execution of credit transfers, including standing orders;
5. Issuing and/or acquiring of payment instruments;
6. Money remittance;
7. Execution of payment transactions where the consent of the payer to a payment transaction is transmitted by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting solely as an intermediary on behalf of the payment service user and the supplier of the goods and services.

Moreover, PSPs may also carry out the following additional activities:

• Execution of payment transactions, foreign exchange services, safekeeping activities, storage and processing of data;
• The operation of payment systems;
• Certain business activities other than the provision of payment services;
• Hold payment accounts used exclusively for transactions;
• Grant credit in relation to paragraphs (d), (e) or (g), subject to the subsistence of certain conditions.

PSPs licensed to carry out the above-listed Second Schedule activities are subject to the following initial capital requirements:

• where the institution only provides money remittance, its capital shall at no time be less than €20,000;
• where the institution provides the payment service listed in paragraph (g) of the Second Schedule to the Act, its capital shall at no time be less than €50,000; and
• where the institution provides any of the payment services listed in paragraphs (a) – (e) of the Second Schedule, its capital shall at no time be less than €125,000.

For PSPs that are also licensed to carry out other activities (listed under the First Schedule to the Act) applicable to General Financial Institutions, the MFSA may:

• set a level of initial capital as applicable to GFIs; and
• require additional capital depending on the activities undertaken by the respective PSP’s licensable activities.

Electronic Money Institutions – EMIs

The Third Schedule to the aforementioned Financial Institutions Act establishes the definition of electronic money and sets out the activities that Electronic Money Institutions may also undertake in addition to the issuing of electronic money:

• Provision of payment services listed under PSPs activities;
• Granting of credit related to payment services listed under PSPs activities (d), (e) and (g), where certain conditions are met;
• Operational services and closely related ancillary services in respect of the issuing of electronic money or the provision of payment services listed under (a);
• The operation of payment systems;
• Certain business activities other than the issuance of electronic money.

EMIs are required to have an initial capital amounting to not less than €350,000.

The initial capital for Small Electronic Money Issuers (SEMIs) depends on its business activities, and could be as little as €50,000 – €100,000 depending on the average outstanding electronic money generated.

Taxation

The Maltese legislative regime relative to financial institutions is further complemented by various other incentives to set up business in the jurisdiction including a corporate tax system whereby shareholders in Malta-based institution could benefit from a net effective Malta tax rate of 5%, subject to proper tax structuring, and the highly qualified persons scheme whereby senior personnel relocating to Malta and employed by the financial institution may benefit from a favourable personal income tax rate of 15% subject to the satisfaction of certain requirements.

The aforesaid senior positions include, inter alia, Chief Executive Officer; Portfolio Manager; Chief Investment Officer; Senior Trader/Trader; Senior Analyst (including Structuring Professional); Chief Risk Officer (including Fraud and Investigations Officer); Chief Financial Officer; Chief Operations Officer; Head of Research; Head of Investor Relations and others.