Legislation & Regulation

The setting up of banks or credit institutions in Malta is regulated by the:

• Banking Act (Cap. 371 – Laws of Malta) which came into force on 15th November, 1994 (as amended in 2004).

• Banking Directives - an exhaustive list of which can be found in the forthcoming slides.

The Banking Act 1994, which replaced the Banking Act, 1970, was then further amended to adopt European Union Directives as the main reference for the regulatory concepts and supervisory practices which it introduced. The new Banking Act also introduced the concept of electronic money institutions. Electronic money institutions now have regulatory parameters and a licensing framework.

Banking Directives / Rules

In terms of Section 3(1) of the Banking Act 1994 the Minister of Finance has appointed the MFSA to be the competent authority for the purpose of the Banking Act 1994 (the Act) as from 1 January 2002. The MFSA carries out its functions as the competent authority through its Banking Unit. The Directives are the rules issued by the MFSA covering all stages of the life of a license holder, from inception to maintenance to termination. These are binding on license holders.

The Banking Unit is currently in the process of converting its Banking Directives into Banking Rules. Accordingly, in future, all Banking Directives will be designated as Banking Rules.This revision was felt necessary so as to avoid possible confusion arising from the increased use of the concept of “directives” following EU accession.

These Banking Rules are already being published in order to allow credit institutions to anticipate the coming changes and to start preparing accordingly.

List of Banking Directives

Licence Process

Any company which intends to carry out the business of banking or of issuing electronic money in Malta shall prior to the commencement of any such business, file an application for a licence with the MFSA.

Applicants for a licence may include the following types of establishments:

a) branches of foreign banks;

b) subsidiaries being legally independent institutions, wholly or majority owned by a credit institution which is incorporated either in Malta or in a foreign country;

c) joint ventures.

All applications for a licence must be in such form and accompanied by such information as may be required and shall conform to such requirements as prescribed in Banking Directive 01. The Directive outlines in detail the procedures and requirements applied by the MFSA in processing applications for a licence. The granting of a licence shall be subject to an annual fee.

A credit institution licenced or holding an equivalent authorisation in a Member State or EEA State shall be entitled to exercise its rights under European Community Law.

A company shall be granted a licence only if:

• its own funds whether in Maltese Liri or in another acceptable currency amount to not less than the value of Lm2,146,500 (5,000,000 Euros), or in the case of electronic money institution to not less than the value of Lm429,300 (1,000,000Euros). The MFSA may vary these amounts from time to time by Banking Rule.

• there are at least two individuals who will effectively direct the business of the credit institution in Malta;

• Fit & proper - all qualifying shareholders, controllers and all persons who will effectively direct the business of the credit institution are suitable persons to ensure its prudent management;

• the Authority is satisfied that there are no close links between that company and another person(s) which through any law, regulation, administrative provision or in any manner prevent the company from exercising effective supervision of that company under the provisions of the Banking Act.

Licence Documentation

An application form should be submitted in writing to the Competent Authority and shall be accompanied by the following documents:

• a copy of the Memorandum and Articles of Association of the institution;
  audited financial statements for the last three years (if applicable)

• a business plan including the structure, organisation and management systems of the prospective bank;

• identity of all directors, controllers and managers of the institution;

• identity of all shareholders with qualifying shareholding; and

• identity of the individuals who will be effectively directing the business of the prospective bank.

Notwithstanding the above list, the Authority may require the applicant to submit additional information as it may deem appropriate to determine an application for a licence or to determine whether to restrict or revoke a licence.

Minimum Criteria

For the Authority to grant a licence, it must be satisfied that the applicant fulfills the minimum criteria relating to:

• prudent conduct,

• fit and proper persons,

• integrity and professional staff and

• safety of potential depositors.

The Authority is guaranteed the fulfillment of said criteria only if the applicant institution and other relevant parties provide such information and documents which it requires to be submitted in connection with the application.

In deciding whether to grant a decision or otherwise, the Authority shall also consider the possibilities of its receiving adequate flows of information from the institution and relevant connected parties in order to monitor the fulfillment of prudential criteria and identify and assess any threats to the interests of depositors and potential depositors.

The Authority must also be satisfied that the institution or the group to which it may belong could be subject to consolidated supervision. The Authority will take account of any factor which might inhibit such effective supervision.