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.
Regulated Activities
-
Reception and Transmission of Orders in relation to one
or more instruments
-
Execution of orders on behalf of other persons
-
Dealing on own account
-
Management of Investments
-
Trustee, Custodian or Nominee Services
-
Investment Advice
-
Underwriting of instruments and, or placing of
instruments on a firm commitment basis
-
Placing of Instruments without a firm commitment basis
-
Operation of a Multilateral Trading Facility
Instruments
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.
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.
-
Units in collective investment schemes
-
Derivative instruments for the transfer of credit
risk
-
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.
-
Certificates or other instruments which confer
property rights in respect of any instrument falling
within this Schedule.
-
Foreign exchange acquired or held for investment
purposes.
-
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
The 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).
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
Library:
Malta Companies
International Tax
Licensing
.
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