Investment Services are regulated in Malta by the Investment Services Act (Cap. 370 of the Laws of Malta). CSB Group assists clients throughout the entire process of Licensing of Investment Services in Malta.
Regulation of Financial Services in Malta
The Malta Financial Services Authority (“MFSA”) is the single regulator responsible for financial services activities in Malta. It regulates and supervises credit and financial institutions, collective investment schemes, trust and insurance business. The MFSA’s general regulatory approach, based primarily on accessibility to regulators and pragmatism in dealing with regulatory issues, has contributed tangibly to the exponential growth in Malta’s financial services sector.
Any person or entity providing or representing themselves as an investment service in or from Malta must possess a valid investment services licence issued by the MFSA or, alternatively, have a validly endorsed or “passported” licence from another EU member state.
Passporting of Licence under the Investment Services Act
Once the relative Malta licence is obtained, it would then be possible to passport such licence into the EU member state countries by following some basic procedures of notification. This would enable the Maltese licensee company to provide its services within the relevant member state/s either through the establishment of a branch or remotely, under the freedom to provide services.
Licensable Investment Services in Malta
The following services constitute licensable investment services when carried out in connection with the “instruments” listed in the Investment Services Act:
- Reception and transmission of orders;
- Execution of orders on behalf of other persons;
- Dealing on own account;
- Management of third party assets;
- Trustee, custodian or nominee services;
- Investment advice in the form of personal recommendations (excluding recommendations issued exclusively through distribution channels or to the public);
- 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, bringing together multiple third parties buying and selling interests instruments, resulting in a contract.
The Instruments to the Investment Services Act
The “instruments” listed in the Second Schedule to the Investment Services Act are the following:
- Transferable Securities including shares, bonds and other similar securities;
- Money Market Instruments, such as treasury bills, certificates of deposit and commercial papers but excluding instruments of payment;
- Units in collective investment schemes;
- Derivatives relating to securities, currencies, interest rates or yields, or other derivative instruments, financial indices or financial measures which may be settled physically or in cash;
- Derivatives relating to commodities which may be settled in cash;
- Derivatives relating to commodities that can be physically settled and are traded on a regulated market or multilateral trading facility;
- Derivatives relating to commodities that can be physically settled, are not for commercial purposes and are cleared and settled through recognized clearing houses or subject to regular margin calls;
- Derivatives for the transfer of credit risk;
- Rights under a contract for differences;
- Derivatives relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics, settled in cash;
- Certificates or other instruments which confer property rights in respect of any other instrument;
- Foreign exchange acquired or held for investment purposes.
Investment Services Licences – The 4 Categories
Investment services licences are divided into four broad categories which break down as follows:
- Entities licenced 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.)
- Entities licenced 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.
Entities licenced to provide any Investment Service, and 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. Both UCITS Fund Managers and AIFMs would be licenced under this category.
Entities licenced to provide any Investment Service, hold and control clients’ money or customers’ assets.
- Entities licenced to as trustees or custodians of Collective Investment Schemes. The licence is only available to the following entities:
- A credit institution, constituted and licensed under the Laws of Malta;
- A branch established in Malta, of a credit institution authorised in an EU/EEA Member State;
- A branch established in Malta of an overseas credit institution which is subject to prudential requirements at least equivalent to the requirements applicable to Maltese credit institutions;
- A company incorporated in Malta which is wholly owned by a credit institution, provided that the liabilities of the said company are guaranteed by a credit institution and the credit institution is either a Maltese credit institution or is an overseas credit institution which is subject to prudential requirements at least equivalent to the requirements applicable to Maltese credit institutions;
- A company incorporated in Malta which is wholly owned by a Maltese or foreign institution or company which is deemed by the MFSA to be an institution or company which provides unit-holders with protection equivalent to that provided by a licence holder fulfilling the requirements of (a), (b), (c) or (d) above and provided the liabilities of the company acting as Custodian are guaranteed by the institution or company and the institution or company has paid-up share capital of €5 million or its equivalent in foreign currency;
- An investment firm in Malta or a branch of an investment firm established in another member state or EEA state which provides the ancillary service of safe-keeping and administration of financial instruments for the account of clients and has own funds requirements amounting to not less than €730,000.
- Entities eligible to act as a custodian to:
- AIFs which have no redemption rights exercisable during the period of 5 years from the date of the initial investments and which, in accordance with their core investment policy, generally do not invest in assets that must be held in custody or which generally invest in issuers or non-listed companies in order to acquire control of such companies; and
- Third country AIFs, which are marketed in the EU/EEA in terms of the AIFMD.
This licence is only available to the following entities:
- a Category 2 Licence Holder (excluding fund managers); or
- a Recognised Fund Administrator