Any person (whether physical or legal) who desires to provide, or hold himself out as providing, an investment service in or from within Malta has to obtain a license. Moreover, anybody corporate, unincorporated body or association formed in accordance with or existing under the laws of Malta, needs to obtain a license in order to be able to provide an investment service in or from within a country, territory or other place outside Malta.
Investment services consist in the following activities when performed in relation to an instrument:
· 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 consist of the following:
· Transferable Securities.
· Money Market Instruments.
· Units in collective investment schemes.
· Options, futures, swaps, forward rate agreements and any other derivative contracts 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.
· Options, futures, swaps, forward rate agreements 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 (otherwise than by reason of a default or other termination event).
· 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 and, or a Multilateral Trading Facility.
· Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled, are not for commercial purposes, not mentioned above, and, which have the characteristics of other derivative instruments, having regard to whether, inter alia, they are cleared and settled throughout recognized clearing houses or are subject to regular margin calls.
· 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.
· Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates, emission allowances 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 (otherwise than by reason of a default or other termination event), as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned above, which have the characteristics of other derivative instruments, having regard to whether, inter alia, they are traded on a regulated market within the meaning of the Financial Markets Act or a Multilateral Trading Facility within the meaning of the First Schedule, are cleared and settled through recognized clearing houses or are subject to regular margin calls.
· 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.
Categories of licenses
Maltese law provides for four categories of Investment Services Licenses as follows:
Category 1a:
License 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:
License 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:
License 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:
License Holders authorised to provide any investment service and to hold and control clients’ money or customers’ assets.
Category 4:
License Holders authorised to act as trustees or custodians of collective investment schemes.
Capital requirements will differ depending on the category of the license involved.
The business of the investment firm needs to be effectively directed or managed by at least two individuals in satisfaction of the “dual control” principle. Such persons shall be of sufficiently good repute and sufficiently experienced so as to ensure the sound and prudent management of the business. The MFSA will only grant a license if it is satisfied that the applicant, (or in the case of a company, each of its directors and officers) and other related parties are ‘fit and proper’ to provide the investment services concerned and that they will comply with the applicable rules and regulations. In general there are three criteria which have to be met by those who must satisfy the ‘fit and proper’ test - integrity, competence and solvency.
Ongoing obligations
The MiFID Directive imposes several requirements on investment firms in order to ensure that client welfare is guaranteed. Investment firms are thus obliged to conduct client profiling and client classification; depending on the category under which a client falls, the investment firm will need to mete out particular treatment. Currently there exist three different categories of client:
· Retail clients
· Professional clients
· Eligible counterparties
Depending on the nature of the activity in which they are engaged, investment firms will also need to abide by the ‘best execution requirements’. Investment firms are obliged by law to make arrangements for records to be kept of all services and transactions undertaken to a degree sufficient to enable MFSA to monitor compliance with the law. In relation to conflicts of interest, investment firms need to maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps designed to prevent conflicts of interest from adversely affecting the interests of its clients. There is also the obligation to maintain effective and transparent procedures for the reasonable and prompt handling of complaints received from clients, and to keep a record of each complaint and the measures taken for its resolution.
Moreover, every investment firm needs to appoint a Compliance Officer who shall be responsible for overseeing compliance with the law and the license conditions, and a Money Laundering Reporting Officer to conduct the investment firm’s obligations under anti-money laundering regulations. There exists the possibility that these two functions can be fulfilled concurrently by the same person.
