Banking and Financial Institutions

The continued soundness of banking and financial institutions is at the heart of every thriving economy's success. novolegal strives to provide emerging and established institutions with the necessary guidebook to be part of such success.

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Credit Institutions

The business of banking

The business of banking could be said to distinguish itself from other services provided by financial institutions such as PSPs and EMIs since it incorporates the concept of receiving deposits from the public. In addition to such, the activities as noted below may also be undertaken by credit institutions, or, as more commonly known, banks. Entities wishing to conduct the business of banking must be in possession of a relevant banking licence. Through the operation of European Union legislation, entities which acquire a banking licence in Malta may passport their licence to other member states of the European Union and European Economic Area.

Additional Activities which may be undertaken by banks

In addition to the business of banking, banks may be authorised to undertake the following activities and provide the following services:

  1. Financial Leasing;
  2. Payment Services;
  3. Issuing and administering other means of payment (travellers’ cheques, bankers’ drafts and similar instruments) insofar as this activity is not covered by activity 2 above;
  4. Guarantees and commitments;
  5. Trading for own account or for account of customers in:
    1. Money market instruments (cheques, bills, certificates of deposit, and similar instruments);
    2. Foreign exchange;
    3. Financial futures and options;
    4. Exchange and interest-rate instruments;
    5. Transferable securities;
  6. Participation in securities issues and the provision of services related to such issues;
  7. Advice to undertakings on capital structure, industrial strategy and related questions and advice as well as services relating to mergers and the purchase of undertakings;
  8. Money broking;
  9. Portfolio management and advice;
  10. Safekeeping and administration of securities;
  11. Credit reference services;
  12. Safe custody services;
  13. Issuing electronic money.
Prohibited transactions

To be licensed and maintain the license, the entity in question is prohibited from carrying out certain transactions as prescribed by the Banking Act. Such prohibited transactions relate to, inter alia, lending against the security of its own securities, unsecured lending limits to staff and lending on more favourable terms to directors (including limits on unsecured lending).

Statutory criteria for authorisation

Criteria for a successful application include, generically:

  1. The applicant must be composed in the manner as prescribed by law
  2. The entity in question must be directed by at least two individuals
  3. Assurance that any links to any other person/institution would not interfere with the good governance and prudential performance of the business of banking as defined above
  4. No interdicted, incapacitated or bankrupt person, whether adjudged so locally or otherwise, is involved in the management and control of the applying entity or is not a qualifying shareholder of such entity
  5. The applicant must be set up in a manner which promotes the free flow of information between itself and the MFSA whilst taking into consideration depositor protection.
Corporate requirements

The minimum initial capital requirement for a company applying for a licence to perform the business of banking must be equivalent to at least €5,000,000. There must also be a minimum of two directors, a company secretary and the appointment of an auditor. The bank could be set up as a private or public company, with the latter option being the means through which the bank could obtain a listing, if so desired.  Once the company is formed, it must adhere to all requirements which are pertinent to companies in Malta such as, holding board meetings, shareholders’ meetings, an annual general meeting, an extraordinary general meeting when necessary, draft any necessary resolutions, submit annual returns with the Registry and submit financial accounts.

Moreover, being a credit institution, the entity in question assumes a crucial position within the financial and economic landscape of a country, and hence, other requirements such as the submission of resolution and recovery plans would also be necessary as may be prescribed by law from time to time. Moreover, different boards would need to be appointed to cater for the review and serve as a supervisor under different legislative acts and regulations.


How can novolegal assist?

Lawyers who form part of the Banking and Finance team at novolegal, together with lawyers and other professionals from other inter-related practice areas, have been subject to advising clients within the banking industry on numerous issues, ranging from the set-up of banks to the ongoing obligations such licensees and its officers are subject to. The accumulated knowledge of the team, along with the firm’s and other partner entities’ efforts, to get to grips with and understand technology’s role in traditional financial systems, has placed novolegal in a position to efficiently and successfully advise all players within the banking industry.

 

Electronic Money Institutions

The evolution of technology has triggered the emergence of phenomena which have simplified daily life. Electronic money, which is also more colloquially known as ‘e-money’, can be said to be at the forefront of such phenomena, providing consumers with an electronic payment device which enhances convenience and efficiency. Issuers of e-money, ergo, Electronic Money Institutions (EMIs), are regulated by the Financial Institutions Act (Chapter 376 of the Laws of Malta).

What is e-money?

E-money is defined as “electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions and which is accepted by a natural or legal person other than the financial institutions that issued the electronic money”

What is an EMI?

An EMI is an ‘institution that has been licensed in accordance with the Financial Institutions Act and is authorised to issue electronic money or that holds an equivalent authorisation in another country in terms of the Electronic Money Directive to issue electronic money.’

Activities which may be undertaken by EMIs

EMIs may, inter alia, undertake and engage in the following activities:

  • Issuance of e-money
  • Provision of payment services and operation of payment systems
  • Granting of credit in prescribed circumstances
  • Activities deemed to be ancillary to the issuance of e-money or provision of payment services
Licensing and Passporting

To undertake the above-mentioned activities, an entity must apply for and be successfully granted a licence by the Malta Financial Services Authority. To obtain such a licence, an applicant must, inter alia, have a minimum initial capital of €350,000. By virtue of the EMD2, entities in possession of a license which allows them to operate as an EMI can passport their licence to other member state of the European Union and the European Economic Area.


How can novolegal assist?

novolegal has been exposed to EMIs and e-money from both a set up and ongoing compliance point of view. Through on the ground experience and encounters from related practice areas, the firm has established a comprehensive understanding of e-money, it’s use-cases, legal standing and characteristics, placing itself in a position to advise and assist promoters of upcoming and established EMIs prior to and following the licencing process.

 

Payment Service Providers

The emergence of payment institutions, or, as more commonly known, Payments Service Providers (PSPs) can be said to be the result of business’ and indeed, an entire economy’s, need for expedient and seamless channels through which payments are executed, transferred and completed from the point of origin to the end-destination. PSPs, through the provision of payment services, are the entities which make this happen.

To a large extent, PSPs have prudently alleviated the burden of payment services of banks, providing consumers with an alternative avenue through which their business’ needs may be satisfied. Entities which offer payment services, ergo, PSPs, are regulated by the Financial Institutions Act (Chapter 376 Laws of Malta).

Primary Services which may be provided by PSPs

These include, by way of general overview:

  • Services enabling cash to be placed and/or withdrawn on/from a payment account as well as all the operations required for operating a payment account
  • Execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider
  • Execution of payment transactions a credit line covers the funds for a payment service provider
  • Issuing and/or acquiring of payment instruments
  • Money remittance
Additional activities which may be carried out by PSPs

PSPs may, in addition to the primary services as noted above, partake in, inter alia, the following actions:

  • Operation of a payment system.
  • With some exceptions, business activities other than the provision of payment services.
  • Within limitations stipulated in applicable law as may be amended from time to time, granting of credit related to payment services.
Licencing and Passporting

To undertake the above-mentioned activities, an entity must apply for and be successfully granted a licence by the Malta Financial Services Authority. To obtain such a licence, an applicant must, inter alia, adhere to the relevant minimum capital requirement:

  1. When the PSP only provides money remittance, its capital shall at no time be less than €20,000
  2. When the PSP provides services related to the consensual execution of payment transactions when technological channel is acting solely as an intermediary on behalf of the user and the supplier of the goods and services, the capital shall at no time be less than €50,000
  3. When the PSP provides any other service, its capital shall at no time be less than €125,000

By virtue of the Payment Services Directive, entities in possession of a license which allows them to operate as a PSP can passport their licence to another member state of the European Union and the European Economic Area.

How can novolegal assist?

The Banking and Finance team at novolegal can assist promoters which are seeking to set up shop in Malta by providing assistance and legal advice which is relevant to all aspects pre and post licencing of the entity in question. In parallel fashion, we can assist already established institutions by providing clarity and legal insight into the obligations, expectations and conduct of such institutions and officers forming part of such.

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