Getting a Maltese Banking License: Introduction
Banks set up in Malta are regulated by the Banking Act, 1994, (“the Act”). The Act, which replaced the Banking Act of 1970 has adopted European Union Directives as the main reference for the regulatory concepts and supervisory practices which it introduced. Alongside the Act are also the Banking Rules which are binding on licence holders and others as may be specified therein.
Banking in Malta: Definition
The business of banking is defined as the business of a person who accepts deposits of money from the public or who borrows or raises money from the public (including the borrowing or raising of money by the issue of debentures or debenture stock or other instruments creating or acknowledging indebtedness), in either case for the purpose of employing such money in whole or in part by lending to others or otherwise investing for the account and at the risk of the person accepting such money.
A person is deemed to be accepting deposits of money if, whether as principal or as agent, he accepts from the public deposits of money as a regular feature of his business, or if, whether as principal or as agent, he advertises or solicits for such deposits. However, the acceptance of money against any issue of debentures or debenture stock or other instruments creating or acknowledging indebtedness offered to the public in accordance with any law in force in Malta shall not of itself be deemed to constitute acceptance of deposits of money for the purposes of the Act.
The Malta Banking License
Any person carrying on the business of banking (as described above) in or from Malta needs to acquire a license from the MFSA. A company will be granted a licence only if:
• its own funds amount to not less than the value of 5,000,000 Euro;
• there are at least two individuals who will effectively direct the business of the credit institution in Malta;
• all qualifying shareholders, controllers and all persons who will effectively direct the business of the credit institution are fit, proper, and suitable persons to ensure its prudent management;
• the MFSA is satisfied that there are no close links between that company and another person(s) which through any law, regulation, administrative provision or in any manner prevent the MFSA from exercising effective supervision of that company under the provisions of the Banking Act.
Further to the above, an applicant needs to submit various documents to the MFSA such as the memorandum and articles of association of the company, the audited financial statements for the prior three years (if any) and the identity of the directors, controllers, managers and qualifying shareholders. The applicant also needs to submit a comprehensive business plan including the structure, organisation and management systems of the prospective bank. Notwithstanding the above list, the MFSA may require the applicant to submit additional information as it may deem appropriate to determine an application for a licence or to determine whether to restrict or revoke a licence.
Prudence and The Fit and Proper Test
In order that the MFSA grants a licence, it must be satisfied that the applicant fulfils the minimum criteria relating to prudent conduct, fit and proper persons, integrity and professional staff and safety of potential depositors. The MFSA is guaranteed the fulfilment of said criteria only if the applicant institution and other relevant parties provide such information and documents which it requires to be submitted in connection with the application.
Banking Rule BR/01/2008 provides that an authorised institution shall be considered as conducting its business in a prudent manner if:
a) The directors include non-executive directors as the MFSA considers appropriate having regard to the nature and scale of operations of the institution and who shall act in a control capacity in questioning the approach of the executive directors and other management;
b) Every person who is a director, controller or manager of the institution is a fit and proper person to hold that particular position and to carry out business with integrity and skill. In assessing whether a person has the relevant competence, soundness of judgement and diligence, the MFSA will consider the experience of similar responsibilities, qualifications and training. These criteria go beyond questions of the suitability of particular individuals but entail the observance by the institution as a whole of the highest professional, ethical and business standards in conducting its activities in a prudent manner.;
c) The credit institution adapts at all times to the requirements of the relative Rules issued under the Act by the MFSA;
d) The credit institution makes adequate provisions for depreciation or diminution in the value of its assets, for liabilities which will or may fall to be discharged by it and for losses which it will or may incur. In assessing the adequacy of an institution's provisions, the MFSA shall regard that institution's provisioning policies including the methods and systems for monitoring recoverability of loans and policies and practices for the taking and valuation of security;
e) The credit institution maintains adequate accounting and other records and adequate systems of control of its business and records that are commensurate with its needs and particular circumstances in such a way as to enable the business of the institution to be prudently managed and for it to comply with the duties imposed on it by or under the Act. In assessing this adequacy the MFSA will take into consideration the internal audit procedures of the institution.
Bank Branches in Malta
A credit institution licensed in Malta is required to inform the MFSA in writing before opening a new branch, agency or office in Malta.
Maltese banks enjoy pass-port rights to open branches in EEA states. Maltese banks desiring to open up a subsidiary or a branch in a non-EEA state need the consent of the MFSA. The MFSA normally gives its consent if it is satisfied that the host state has a reputable regulator and that it can exchange information on a timely basis. The MFSA will also need to ensure that its own degree of supervision will not be hampered by the host state and that the latter will be able to conduct a degree of consolidated supervision.
Banks licensed in EEA states enjoy pass-port rights to open branches in Malta. A branch is defined by the Act as ‘premises of a credit institution, other than its head office, from which the business of banking is undertaken’. Banks licensed in non-EEA state may only open a subsidiary or a branch in Malta if a license is granted by the MFSA. The MFSA normally gives its consent to the opening of a branch of an overseas credit institution if it is satisfied with the level of supervision carried out by the regulatory authorities of the head office of the bank.
Representative Offices
A representative office consists of premises from where the business of banking is promoted or assisted in any way. The business of a representative office must be confined solely to the conduct of purely liaison activities and must not include the engagement in financial transactions or the execution of any documents relative thereto, except where necessary for and incidental to the maintenance of the office in Malta. These liaison activities can take the form of:
- the provision, upon request, of factual information relating to the products and services of the bank which the representative office represents;
- the conduct of research work into the economy of Malta to inform Head Office accordingly;
- liaison with Maltese customers of the bank which the representative office represents;
- the undertaking of credit assessments on reports on Maltese entities for any business with the bank that the representative office represents.
Foreign banks can open up a representative office in Malta by giving a two months notice to the MFSA, provided that the MFSA does not object to the setting up of such office. The notice must specify the name it is proposing to use in relation to the activities of the representative office and the address of such office. Furthermore, the notice shall be accompanied by a certified copy of the authorisation of the company to conduct the business of banking in a country other than Malta. The MFSA may also require the presentation of such additional information or documents it may reasonably require.
Other activities which may be carried out by Maltese banks
Banks in Malta may carry out the following activities in addition to their banking activity provided that they obtain the consent of the MFSA:
· Financial leasing;
· Payment services;
· Issuing and administering means of payment (credit cards, travellers’ cheques and bankers’ drafts and similar instruments);
· Guarantees and commitments;
· Trading for own account or for account of customers in:
o money market instruments (cheques, bills, certificates of deposit, and similar instruments);
o foreign exchange;
o financial futures and options;
o exchange and interest-rate instruments;
o transferable securities.
· Participation in securities issues and the provision of services related to such issues;
· 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;
· Money broking;
· Portfolio management and advice;
· Safekeeping and administration of securities;
· Credit reference services;
· Safe custody services;
· Issuing electronic money.
The above activities may be carried out only in conjunction with the business of banking. If a person desires to carry out these activities as its main line of business, the Act will not apply, and other laws will regulate the licensing process.
Setting Up a Bank in Malta: Regulatory Fees
Whenever an application for the grant of a banking license is submitted, a non-refundable application and processing fee of €12,500 needs to be paid. On issue of the license, a fee of €18,000 is to be paid, as well as an annual supervision fee calculated in the following manner: 000175 X Deposit Liabilities, but not less than €21,250 and not more than €500,000.
On the other hand, representative offices are required to pay an annual fee of €3,600.
These fees may be amended from time to time by the MFSA.
