Regulation & Legislation

Living up to its catch-phrase of ‘innovation through regulation’, Malta’s regulator has created an advantageous environment of efficiency and reduced bureaucracy for the benefit of international credit and financial institutions.

The Regulator

The Malta Financial Services Authority (MFSA) is the single regulator and is responsible for issuing licences and the supervision of credit and financial institutions. However, from November 2014 the European Central Bank (ECB) took over the responsibility for banking supervision at top tier level, and the Maltese banking sector is facing tougher regulatory and capital requirements emanating from the implementation of the new European Union banking Legislation (known as CRDIV/CRR), which came into force at the start of 2014. The MFSA’s approach to regulation and supervision is based on principles rather than onerous rules, and the country’s small size allows direct contact with all licensees, giving the MFSA a solid understanding of the soundness of the licence holders. Banks and other financial institutions are encouraged to meet with the regulator prior to applying for a licence to discuss their application.

Legal Framework

Banking institutions in Malta are regulated by the Banking Act, which is founded on European Union legislation and is compliant with the Basle Core Principles. The non-bank financial institutions are regulated by the Financial Institutions Act. While Malta has the same regulatory standards as other EU member states, the country’s framework allows for the flexibility necessary in a modern and dynamic financial environment, without imposing undue bureaucratic burdens on operators. Malta is ranked first in the timely transposition of EU internal market laws into national law. In 2010, the provisions of the Payment Services Directive, regulating payment institutions were transposed into Maltese law. This was followed by the EU Electronic Money Institutions Directive, regulating Electronic Money Institutions, transposed in 2011.

Central Bank of Malta

Prior to 2002, the Central Bank of Malta was the regulator of banks and financial institutions. Today, the primary aim of the Central Bank is to maintain price stability. Under the Central Bank of Malta Act, the Central Bank may require credit institutions carrying out banking business in Malta to maintain reserve deposits with the Central Bank and to submit information to it which is necessary for the Central Bank to discharge its duties under the Act.

Licensing

Credit and financial institutions in Malta require a licence from the MFSA. Before any formal application for a licence is made, the MFSA urges the promoters to meet with the regulator to discuss set-up and regulatory requirements to ensure a smooth licensing process. The final application must be accompanied by required supporting documentation such as a business plan, the type and volume of business to be undertaken and the structure, organisation and management system of the institution. Organisations from other EU/EEA states do not require a licence in Malta, but can avail themselves of their passporting rights and only need to follow the respective notification procedure.

Single European Passport

Following Malta’s accession to the European Union, credit institutions authorised by an authority in the EU or EEA can use their European passport to establish a Maltese branch or provide cross-border services in Malta, without the requirement to obtain a separate licence from the MFSA. Some conditions need to be satisfied before this right may be availed of, including that the bank must notify its home state regulatory authority of its intentions. In the case of a European bank operating in Malta through a branch or engaging an agent in Malta, the home state authority of the bank has the right, after having informed the MFSA, to conduct on-site verifications in Malta of certain information held by the banks. The foreign authority can also request the MFSA to carry out such verifications.

Secrecy, Data Protection and AML

Customer confidentiality is safeguarded by the provisions of the Banking Act, the Professional Secrecy Act and the Data Protection Act, whilst the 3rd EU Directive on Prevention of Money Laundering and Terrorist Financing has been fully transposed into Maltese legislation to guard against abuse of the financial system for criminal purposes. Every credit institution licensed in Malta, including a branch of a credit institution operating in another country (subject to certain exceptions), has to participate in and contribute to the Depositor Compensation Scheme established by the Depositor Compensation Scheme Regulations. The statutory limit for the deposit guarantee scheme is currently €100,000 or its equivalent in any designated currency per depositor per institution.

Supervision & Compliance

The MFSA supervises credit and financial institutions continuously through off and on-site analyses. 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, liquidity). An important element of banking supervision is the on-going evaluation of the various risks a credit institution is exposed to risk management and mitigation.