The term “financial institution” as defined under European legislation means an entity which provides any type of financial services. In Malta, the creation and licensing of a financial institution is a home grown “quasi bank” authorized to carry out a number of defined activities regulated by The Financial Institutions Act (Chapter 376).
This Act, provides the statutory basis for Financial Institutions that are:
a) constituted in or
b) operating in Malta or
c) operating from Malta.
Article 2 defines a “Financial Institution “as any person who regularly or habitually acquires holdings or undertakes the carrying out of any of the following activities for its account”:
1. Lending (including personal credits, mortgage credits, factoring with or without recourse, financing of commercial transactions including forfeiting);
2. Financial leasing;
3. Venture or risk capital;
4. Payment services as defined in the Second Schedule;
5. Issuing and administering other means of payment ( travellers cheques and
bankers’ drafts and similar instruments) in so far as this activity is not covered by
point 4 above;
6. Guarantees and commitments;
7. Trading for own account or for account of customers in:
a. money market instruments (cheques, bills, Certificates of deposits, etc.);
b. foreign exchange;
c. financial futures and options;
d. exchange and interest rate instruments;
e. transferable instruments;
8. Underwriting share issues and the participation in such issues;
9. Money broking.
10. Issuing of electronic money.
The Act specifically provides that in order for a Financial Institution to qualify as such, the activities outlined above should not be funded through the taking of deposits (or other repayable funds) from the public as defined in the Banking Act.
Moreover Article 3 of the Act provides that no business of a Financial Institution shall be transacted in or from Malta except by a company which is in possession of a license granted under this Act by the MFSA.
It further provides that a person shall not be deemed to be a Financial Institution by reason of the fact that the person either:
a. belongs to a group of companies and provides any of the activities listed above to companies which are not banks or financial institutions and which belong to the same group of companies; or
b. draws and issues trade bills in the normal course of business under hire purchase agreements or under sales on credit where trade bills are drawn in respect of the price due.
The Act also contains specific provisions for the regulation of financial institutions providing payment services in terms of the EU Payment Services Directive (Directive2007/64/EC) and financial institutions providing for the issue of electronic money in terms of the Electronic Money Directive (Directive 2009/110/EC).
The Act also sets out and establishes statutory requirements and obligations of financial institutions and of the competent authority itself. However these obligations and statutory requirements are less onerous when compared to those included in the Banking Act. Such criteria, coupled with the powers conferred upon the competent authority to issue Financial Institutions Rules, ensure a regime that can be applied to any type of a financial institution, from a basic outlet engaged in the purchase and sale of foreign currency notes and travelers’ cheques to an institution that operates as a “quasibank”.
For financial institutions undertaking activities 4 and 10 in the first schedule of the act benefit from European pass porting rights that is freedom to offer services or establish operations in other European union member states.
Malta – the leading Financial Centre in the Mediterranean.
Notwithstanding that Malta is the smallest of the European Union’s member states; it is emerging as one of the fastest growing financial services centres in Europe. Malta is an English speaking country, with English being a joint official language with Maltese. It is universally spoken and written and is the language utilized for local education and business.
The geographical location of the island is advantageously positioned, lying at a strategic crossroad between Europe and Africa. Malta has a long-established and strong democratic tradition and its European Union membership is a guarantee that the rule of law is always respected.
Its economic and fiscal performance in the last three years was at the top end of the EU league.
The country has a strong and flexible single regulatory body for financial services, namely the Malta Financial Services Authority (MFSA) which is very accessable and responsive to clients’ specific requirements. The MFSA is responsible for all licensed financial services activity on the Islands.
Companies registered in Malta benefit from a tax efficient environment, a full imputation system and double taxation treaties with over 50 countries.
Malta is a highly developed financial centre where financial services and financial intermediation and related sectors currently account for around 12 per cent of GDP. The national projections see this figure doubling in the next decade.. All domestic and foreign transactions are handled efficiently and reliably by Maltese and foreign banks utilizing the latest technology.
Malta offers excellent possibilities for relocating financial services operations with a cost of living being less than half the EU average, a safe and pleasant working environment and where new business initiatives are welcome and encouraged.
Latest update: 14.05.2012 – George Farrugia