The Malta Financial Services Authority (MFSA) is the single regulator for banking, investment and insurance business in Malta and also houses the country’s Companies Registry. The MFSA supervises all licensed financial businesses, issues guidance notes, monitors local and international developments, works with relevant parties on legislative matters, plays a major role in training. It encourages high standards of compliance and runs a consumer affairs unit.
The Investment Services Act 1994 (the Act) was enacted to establish a regulatory regime for Investment Services and Collective Investment Schemes.
The Law, which is in line with the relevant EU directives, provides a great opportunity for Companies that deal in the financial services sector within Europe or wish to expand their operations in Europe. A Licensed Maltese Investment Services Company holds a passport to operate in any country of the European Union. In other words, the Company may set a branch in any European country without having to obtain another license from the country in which the branch will be established.
The Investment Services Act does not include a definition of Investment. Instead it includes a list of Investment Services as well as a list of Instruments. The provision of an Investment Service in relation to an Instrument triggers a requirement for the obtainment of an Investment Services Licence from the MFSA.
Table of Contents
Regulated Activities
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Reception and Transmission of Orders in relation to one or more instruments
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Execution of orders on behalf of other persons
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Dealing on own account
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Management of Investments
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Trustee, Custodian or Nominee Services
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Investment Advice
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Underwriting of instruments and, or placing of instruments on a firm commitment basis
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Placing of Instruments without a firm commitment basis
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Operation of a Multilateral Trading Facility
Investment Services Instruments
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Transferable Securities
Those classes of securities which are negotiable on the capital market and include:
(a) shares in companies and other securities equivalent to shares in companies, partnerships or other entities, and depository receipts in respect of shares;
(b) bonds or other forms of securitised debt, including depository receipts in respect of such securities;
(c) any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities, currencies, interest rates or yields, commodities or other indices or measures.
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Money Market Instruments
Those classes of instruments which are normally dealt in on the money market, such as treasury bills, certificates of deposit and commercial papers and excluding instruments of payment.
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Units in collective investment schemes
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Derivative instruments for the transfer of credit risk
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Rights under a contract for differences or under any other contract the purpose or intended purpose of which is to secure a profit or avoid a loss by reference to fluctuations in the value or price for property of any description or in an index or other factor designated for that purpose in the contract.
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Certificates or other instruments which confer property rights in respect of any instrument falling within this Schedule.
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Foreign exchange acquired or held for investment purposes.
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Various Types of Derivatives
Categories of Licenses
Category 1a
Licence Holders authorised to receive and transmit orders in relation to one or more instruments and, or provide investment advice and, or place instruments without a firm commitment basis but not to hold or control Clients Money or Customers Assets (This Category does not include managers of Collective Investment Schemes)
Category 1b
Licence Holders authorised to receive and transmit orders, and, or provide investment advice in relation to one or more instrument and, or place instruments without a firm commitment basis solely for professional clients and, or eligible counterparties but not to hold or control Clients Money or Customers Assets.
Category 2
Licence Holders authorised to provide any Investment Service and to hold or control Clients Money or Customers assets, but not to operate a multilateral trading facility or deal for their own account or underwrite or place instruments on a firm commitment basis.
Category 3
Licence Holders authorised to provide any investment service and to hold and control Clients Money or Customers Assets.
Category 4
Licence Holders authorised to act as trustees or custodians of Collective Investment Schemes
Application Process
The application process usually commences with a formal meeting with the MFSA in order to discuss the projected application before the formal submission of the application documents. The Application process and the ongoing requirements to which licences issued under the
ISA are subject can be divided into three stages:
The Preparatory Stage – including a meeting with the Authority, submission of a draft Application Form & supporting documentation, review by the MFSA, delineation of the Standard License Conditions to be applied to that particular Applicant by the Authority.
The Pre-Licensing Stage – issuance of an ‘in principle’ approval for the license by the Authority, incorporation of the corporate vehicle, submission of final & signed application form & supporting documentation, other documents arising during the application process.
The Post-Licensing/Pre-Commencement of Business Stage – satisfaction of ad hoc requirements arising post licensing but pre-commencement of business.
Observance of High Level of Competence, Integrity & Fair Dealing
Under Maltese Investment Laws, a License holder is required to:
a. observe high standards of integrity and fair dealing;
b. act with due skill, care and diligence;
c. seek information from customers about their circumstances and investment objectives in order to fulfil its responsibilities to them;
d. take reasonable steps to give its customers, in a comprehensible and timely manner, information needed to enable them to make balanced and informed decisions and be ready to provide them with a full and fair account of its responsibilities;
e. avoid any conflict of interest, or else ensure fair treatment to all its customers by disclosure, internal rules of confidentiality or by declining to act, and by not unfairly placing its interests above those of its customers;
f. (if applicable), arrange proper protection for clients assets which it controls or for which it has accepted responsibility, by way of segregation and identification of those assets, in order to safeguard them;
g. ensure that it maintains adequate financial resources to meet its investment business commitments and to withstand the risks to which its business is subject;
h. organise and control its internal affairs in a responsible manner, keeping proper records, have adequate arrangements to ensure that its staff and representatives are suitable, adequately trained and properly supervised and have well-defined compliance procedures; and
i. deal with the MFSA in an open and co-operative manner and promptly report to it any matters which should be disclosed.
Advantages of a Maltese Investment Services License
Protection of Investors
The Act makes it illegal for any person to provide an investment service in or from Malta unless such person is in possession of a valid investment services licence.
The power of granting investment services licences is the responsibility of the MFSA. The Act provides that in granting a licence, the MFSA, as the competent authority, may subject the Licence Holder to such conditions, as it may deem appropriate. The conditions which MFSA generally imposes upon an investment services Licence Holder centre around the observance of reasonable standards of competence, integrity and fair dealing.
Favourable tax treatment
Maltese Investment Services License Holders, whose activities are limited to services from Malta but not in Malta (i.e. not advising Maltese individuals) could benefit from the use of the Maltese International Company as the corporate vehicle wherein they are subject to a corporate tax of 35% but non-resident shareholders would then benefit from a very attractive tax refund ending up in a final rate of taxation of 4.17%. (See also: International Trading Companies).
b>Excellent legal, accounting and banking services
Malta has established a worldwide reputation for its excellent legal, accounting and banking services. The main advantages that Malta offers in this respect are the considerably lower costs in the provision of these services, reduced unwarranted red-tape, maintenance of high standards and efficiency.
Set up costs and operational costs
The costs of acquiring an investment license in Malta and setting up of the corresponding corporate vehicle as well as the running expenses of the Company are reasonable and relatively lower than the same costs in other financial centres of Europe.
Passporting Rights in Europe
Due to the compliance of the Law with the relevant EU Directive, a Malta Licensed Investment Services Company is able to operate in any other country member of the European Union either directly or through the establishment of a branch. This may be regarded as an advantage of great essence for non-EU companies, which wish to expand their operations in Europe.
See also:
Favourable tax system for Investment Services Expatriates in Malta
