Investment Services

Malta as a jurisdiction of choice to operate an investment services business presents promoters with the opportunity to benefit from the EU's harmonised framework within a forward looking jurisdiction. novolegal is here to help.

Share this practice

The success enjoyed by Malta as an international financial services centre is built upon a set of policies that have been strongly influenced by EU membership, the development of a single European market in financial services and the adoption of the Euro. Within this context, Malta’s financial services industry has become a significant pillar of Malta’s economy and is increasingly becoming an important contributor to economic growth.

Investment Services in Malta are regulated under the Investment Services Act, Chapter 370 of the Laws of Malta (the “Act”). The Act offers a very robust regulatory framework since it is largely modelled on EU investment legislation; nevertheless, since the Maltese framework is principle-based rather than rules-based, it offers a very attractive regime not only for licensees but also for investors.

Any person providing or holding himself out as providing an Investment Service in or from within Malta must possess a valid Investment Services licence issued by the Malta Financial Services Authority (the “MFSA”). This would not be required if such person is already authorised to carry on such Investment Service by a national competent authority in another EU Member State and has applied to ‘passport’ their licence in Malta.

An Investment Services licence is issued only if the MFSA is satisfied that the applicant is a ‘fit and proper’ person to provide the Investment Service concerned and that the applicant will comply with and observe any Subsidiary Legislation and Regulations, Investment Services Rules and Conduct of Business Rules made under the Act and applicable to the licence holder.

The concept of ‘fit and proper’ is a fundamental regulatory concept: this is a rigorous test which requires senior staff and potential and existing licensees – both at licensing stage and on an on-going basis thereafter – to demonstrate solvency, competence and integrity in all their dealings.


Licensable Activities

Investment Services are defined as any service and activity falling within the First Schedule of the Act when provided in relation to an instrument. The following constitutes an exhaustive list of licensable services and activities in terms of the Act:

  1. Reception and Transmission of Orders in relation to one or more instruments;
  2. Execution of orders on behalf of clients;
  3. Dealing on own account;
  4. Management of Investments;
  5. Trustee, Custodian or Nominee Services;
  6. Investment Advice;
  7. Underwriting of Instruments and, or placing of Instruments on a firm commitment basis;
  8. Placing of Instruments without a firm commitment basis;
  9. Operation of a Multilateral Trading Facility;
  10. The reception, transmission, and submission of a bid relating to emission allowances; and
  11. Operation of an Organised Trading Facility.


Licensable Instruments

Instruments are defined as any instrument, contract or right falling within the Second Schedule of the Act, whether or not issued in Malta. The following constitutes an exhaustive list of the Instruments listed in the Second Schedule:

  1. Transferable Securities;
  2. Money Market Instruments;
  3. Units in collective investment schemes;
  4. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, emission allowances or other derivative instruments, financial indices or financial measures which may be settled physically or in cash;
  5. Options, futures, swaps, forwards and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event;
  6. Options, futures, swaps, and any other derivative contracts relating to commodities, that can be physically settled provided that they are traded on a regulated market, within the meaning of the Financial Markets Act a Multilateral Trading Facility, or an Organised Trading Facility, except for wholesale energy products traded on an Organised Trading Facility that must be physically settled;
  7. Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled, are not for commercial purposes, are not included in article 6 of this Schedule, and, which have the characteristics of other derivative instruments;
  8. Derivatives for the transfer of credit risk;
  9. 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 the property of any description or in an index or other factor designated for that purpose in the contract;
  10. Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event. These include any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in this Schedule, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia , they are traded on a regulated market, OTF, or an MTF;
  11. Certificates or other instruments which confer property rights in respect of any other instrument falling within the Schedule;
  12. Foreign exchange acquired or held for investment purposes;
  13. Emission allowances consisting of any units recognised for compliance with the requirements of Directive 2003/87/EC (Emissions Trading Scheme).


Licence Categories

Investment Services licences are divided into four main categories, namely:

  • Category 1a - 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 - 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 (this Category does not include managers of Collective Investment Schemes);
  • Category 2 - 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 (this Category applies to managers of Collective Investment Schemes);
  • Category 3 - Authorised to provide any Investment Service and to hold and control clients’ money or customers’ assets;
  • Category 4a - Authorised to act as trustees or custodians of all types of Collective Investment Schemes;
  • Category 4b -
    1. Authorised to act as custodians of AIFs which have no redemption rights exercisable during the five-year period from the date of initial investment and which generally do not invest in assets that must be held in custody in terms of the Investment Services Rules;
    2. Authorised to act as custodians to AIFs marketed in Malta in terms of regulation 7 of the Investment Services Act (Alternative Investment Fund Manager) (Third Country) Regulations.

 

How can novolegal assist?

novolegal has experience in advising clients from the pre-incorporation stage throughout the authorisation process and post-authorisation stage on all legal and regulatory compliance related matters, including company incorporation, drafting of necessary policies and procedures and representations on behalf of clients with the MFSA.

If you're looking for advice on setting up an Investment Services undertaking in Malta, speak to us.

Interested in setting up an investment services business?

Speak to us!

Latest articles

Latest news