Financial regulation

Regulatory bodies

Which bodies regulate the provision of fintech products and services?

The Malta Financial Services Authority (MFSA) and the Malta Digital Innovation Authority are the main competent authorities regulating the provision of fintech products and services.

Regulated activities

Which activities trigger a licensing requirement in your jurisdiction?

The local financial services regulatory framework comprises:

  • the Investment Services Act (Chapter 370 of the Laws of Malta) (ISA), which outlines the regulatory requirements of operators wishing to set up investment services undertakings and collective investment schemes. It transposes the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) into Maltese law and regulates services outlined therein when they are carried out in or from Malta and in relation to one or more ‘instruments’, as defined therein;
  • the Banking Act, Chapter 371 of the Laws of Malta, which is the law regulating credit institutions that carry out the ‘business of banking’, defined as:
    • accepting deposits of money from the public that are withdrawable or repayable on demand, after a fixed period or after notice;
    • borrowing or raising money from the public with the purpose of using all or some of such money to lend to others; or
    • otherwise investing for the account and at the risk of the person accepting this money; and
  • the Financial Institutions Act, Chapter 376 of the Laws of Malta, (FIA), which sets out the licensing and ongoing obligations of non-banking institutions. These can be classified in two categories – namely, institutions that carry out:
    • payment services or the issuance of electronic money; and
    • activities such as lending, financial leasing, the provision of guarantees and commitments, foreign exchange services and money brokering.

 

The FIA, the subsidiary legislation and the regulations promulgated under the FIA transpose the Payment Services Directive (2015/2366/EU) (PSD2) and the second EU Electronic Money Directive (2009/110/EC).

Consumer lending

Is consumer lending regulated in your jurisdiction?

Lending is a regulated activity under the FIA, irrespective of whether it is provided to consumers. Article 5 of the FIA outlines the requirements for the authorisation of an institution to carry out lending activities, including:

  • an initial capital in the amount established by the MFSA;
  • at least two individuals effectively directing the business of the institution in Malta;
  • all qualifying shareholders, controllers and all persons effectively directing the institution’s business are suitable persons to ensure its prudent management; and
  • sound and prudent management and robust governance arrangements.
Secondary market loan trading

Are there restrictions on trading loans in the secondary market in your jurisdiction?

There are no particular restrictions applicable to trading loans in the secondary market in Malta.

Collective investment schemes

Describe the regulatory regime for collective investment schemes and whether fintech companies providing alternative finance products or services would fall within its scope.

Collective investment schemes (CIS) are regulated under the ISA. CIS which fall within the scope of the local regulations are:

  • retail collective investment schemes, primarily undertaking in collective investment transferable securities;
  • professional investor funds;
  • alternative investment funds (AIFs); and
  • notified alternative investment funds.

 

Investment-based crowdfunding is regulated under a separate regime.

With respect to peer-to-peer (P2P) or marketplace lenders, it is pertinent to refer to the FIA, which regulates ‘money broking’, defined as the activity of introducing counterparties that wish to deal at mutually agreed terms with respect to wholesale and retail financial products. This regulation may have implications for both marketplace lenders and P2P platforms.

Alternative investment funds

Are managers of alternative investment funds regulated?

Managers of alternative investments funds (AIFMs) that operate in or from Malta fall within the scope of the ISA and the Alternative Investment Fund Managers Regulations (Subsidiary Legislation 370.23 of the laws of Malta), which transpose the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) into Maltese law. An AIFM may be subject to a lite regime akin to the regime under the MiFID II if it qualifies as a de minimis AIFM. This will be the case where the assets under management are worth less than:

  • €100 million; or
  • €500 million and the portfolio consists of AIFs that are unleveraged and have no redemption rights in the first five years following the date of initial investment.

 

A de minimis AIFM will be exempt from complying with certain provisions of the AIFMD but does not enjoy the use of the EU passporting rights.

Peer-to-peer and marketplace lending

Describe any specific regulation of peer-to-peer or marketplace lending in your jurisdiction.

The FIA stipulates that any person that, as a lender, regularly lends money in or from Malta is carrying out a regulated activity and requires an MFSA licence prior to commencing operations. However, there is no specific regulation on P2P platforms or marketplaces lending under the local financial services framework.

Crowdfunding

Describe any specific regulation of crowdfunding in your jurisdiction.

While reward-based and donation-based crowdfunding platforms remain unregulated, the MFSA has introduced a framework under the ISA applicable to investment-based crowdfunding services. Measures under this regime include a licensing requirement under the ISA, which, in addition to capital requirements, encompasses mandatory disclosure obligations. In the case of offers of securities that fall within the scope of the EU Regulation 2017/1129 (in which case, the EU regime would apply), the issuer must provide an information document, which will, however, not be approved or verified by the MFSA.

Invoice trading

Describe any specific regulation of invoice trading in your jurisdiction.

Invoice trading falls within the scope of the FIA. Factoring and invoice discounting are listed as two types of lending activity that in turn trigger a licensing obligation under the FIA if and when they are carried out in or from Malta on a regular basis.

Payment services

Are payment services regulated in your jurisdiction?

The FIA includes a list of the payment services that are regulated in Malta and reflects the services outlined in the PSD2. Institutions engaging in these payment activities must obtain authorisation from the MFSA prior to the provision of these services in or from Malta on a regular basis.

Open banking

Are there any laws or regulations introduced to promote competition that require financial institutions to make customer or product data available to third parties?

There are no laws or regulations promoting competition among financial institutions through the use of available data. However, the concept of open banking has been locally introduced under the FIA through the regulation of third-party payment service providers, namely, payment initiation service providers and account information service providers.

Insurance products

Do fintech companies that sell or market insurance products in your jurisdiction need to be regulated?

Entities that undertake insurance or reinsurance, (re)insurance distribution activities or market (re)insurance services in or from Malta are regulated by two legislative instruments, namely:

  • the Insurance Business Act, Chapter 403 of the Laws of Malta; and
  • the Insurance Distribution Act, Chapter 487 of the Laws of Malta.

 

These acts impose requirements from or with the MFSA depending on the nature of the insurance business activity being provided in or from Malta. These acts, which implement EU Directive 2009/138/EC and EU Directive 2016/97/EU respectively, are supplemented by regulations promulgated under these two laws and by rules and guidelines issued by the MFSA.

Credit references

Are there any restrictions on providing credit references or credit information services in your jurisdiction?

‘Credit reference agency’ is defined under the Trading Licence Act, Chapter 441 of the laws of Malta, as any undertaking licensed by the Trade Licensing Unit, whose main business is to prepare, assemble and evaluate credit information and related credit and risk management services concerning legal and natural persons for the purpose of issuing credit scores to be furnished to third parties, provided that the agency is not precluded from carrying out other related tasks. The definition of ‘credit reference agencies’ pursuant to the draft law falls outside the scope of EU Regulation 1060/2009 and, therefore, the European Securities and Markets Authority would not have supervisory powers over these entities. Further, credit reference services are listed under the Banking Act as one of the additional activities exercisable by credit institutions.

On 7 November 2018, the European Central Bank received a request from the Central Bank of Malta (CBM) for an opinion on a draft law amending the Central Bank of Malta Act and on Draft Directive 15 on the supervision of credit reference agencies, which:

  • gives the CBM new supervisory powers with respect to credit reference agencies; and
  • designates the CBM as the supervisory authority of credit reference agencies solely for the purpose of overseeing and regulating the issuance of credit scores.

Law stated date

Correct on:

Give the date on which the above content is accurate.

14 July 2020.