Financial Institutions, PSP & EMI – FAQ’s

The advantages of licensing your financial institution, Payment Services Provider (PSP) and/or Electronic Money Institution (EMI) are much the same as those underpinning Malta’s financial services sector in general. These include:

• An accessible and innovative, yet prudent, regulator;
• The jurisdiction’s solid reputation as a stable Eurozone economy;
• A highly competitive, cost-effective and tax-efficient jurisdiction (with access to a wide network of tax treaties);
• The opportunity to target an EU-wide market through ‘passporting’;
• A sound technological infrastructure;
• Presence of international financial services providers and a skilled English-speaking work force with considerable experience and knowledge in the sector;
• Use of the English language in official communications, forms and documentation as well as in drafting financial services legislation, regulations and guidelines.

Malta’s e-money industry has also benefitted from the jurisdiction’s status as a centre of excellence for remote and digital gaming operations and e-commerce in general.

The Malta Financial Services Authority (MFSA) is the single regulator for financial services in Malta. It regulates and supervises credit and financial institutions, investment, trust and insurance business and also houses Malta’s central Companies Registry.

The Financial Institutions Act (Chap 376, Laws of Malta) regulates non-banking financial institutions. The distinguishing feature between banks (credit institutions) and financial institutions lies in the acceptance of deposits of money from the public, which activity is reserved exclusively for banks.

A financial institution wishing to carry on business in or from Malta must be in possession of a licence granted under the Financial Institutions Act by the Authority. The Financial Institutions Act also encompasses the regulation of payment services providers (PSPs) in terms of the Payment Services Directive (Directive 2007/64/EC) and electronic money issuers (EMIs) that fall within the remit of the Electronic Money Directive (Directive 2009/110/EC). Since payment services and electronic money are the subject of harmonized EU legislation, these activities that may be ‘passported’ into other EU member states and EEA jurisdictions.

The Second Schedule to the Financial Institutions Act sets out the 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.

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 certain circumstances, in relation to paragraphs (d), (e) or (g).

The Third Schedule to the Financial Institutions Act sets out the activities that Electronic Money Institutions may also undertake in addition to the issue of electronic money:

1. Provision of payment services listed under PSPs activities;
2. Granting of credit related to payment services listed under PSPs activities (d), (e) and (g), where certain conditions are met¹;
3. Operational services and closely related ancillary services in respect of the issuing of electronic money or the provision of payment services listed under (a);
4. The operation of payment systems;
5. Certain business activities other than the issuance of electronic money.

PSPs are required to hold initial capital as follows:

• 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 to the Act, its capital shall at no time be less than €125,000.

EMIs are required to hold 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.

The application procedure consists of two processes, the analysis of the business plan (including financial projections) and due diligence exercises on directors, senior managers and shareholders.

Applications must be in such form and accompanied by such information as may be required and shall conform to such requirements as prescribed by the Authority.

Obtaining a licence requires the submission to the MFSA of the prescribed application form and supporting documents, which essentially serve the purpose of identifying the activities of the proposed institution, the identity, suitability and competence of each of its directors (where at least two directors will effectively direct the business of the financial institution in Malta) and officers and other information relating to its structuring and operation.

The Authority will typically determine an application for a Financial Institutions licence within 3 – 6 months of the receipt of a complete application. This would also be heavily dependent on the quality of the original submission documents and on response times to requests for any clarification/s and/or additional information.

EMIs and PSPs may avail themselves from the benefit of passporting their licence into any or all of the EU or an EEA Member State countries by following some basic procedures of notification. This would enable the Maltese EMI and/or PSP to provide its services within the relevant Member State/s either

1. through the establishment of a branch or
2. on the basis of the cross-border provision of services.

The standard rate of Maltese corporate taxation is of 35%. However, when properly structured, the net effective Malta corporate tax rate for licensed financial institutions could be of as little as 5% in the hands of shareholders.

Insofar as personal taxation is concerned it is pertinent to note that qualified professional employees undertaking senior positions with licensed financial institutions may benefit from a favourable tax rate of 15% in terms of the Highly Qualified Persons Rules, provided that certain criteria are met.