Malta Payment Services: Setting up a Payment Services Company in Malta

Malta Payment Services: Setting up a Payment Services Company in Malta

Following the implementation into Maltese law of the Payment Services Directive by way of the Financial Institutions Act, 1994, Malta has started to steadily establish itself as a hub for payment services business. This article explores the commercial reasons underpinning this growth, and explains the process which an applicant needs to pursue in order to be authorised as a Malta Payment Services provider.

Malta Payment Services: Why Malta for Payment Services Providers?

Malta’s growth as a payment services hub has been driven by a number of factors:

• An approachable regulator that has rapidly built a sound understanding of the industry
• Low operational costs and a competitive fiscal environment
• Availability of skilled, English speaking professionals
• Sound ICT infrastructure
• The ability to offer payment services cross border throughout the EU on the basis of a Malta payment services license without the need for further licenses or authorisations

The Regulator

Malta Payment Services are regulated by the Malta Financial Services Authority (“MFSA”), the Maltese single regulator for financial services. The MFSA is a strict regulator that requires adherence to high European standards. At the same time, the MFSA retains an open mind to new ideas and prides itself in being approachable.

Permissible Activities of Malta Payment Services Providers

Malta payment services providers are permitted to engage in the following core activities:

• Services enabling cash to be placed on a payment account as well as all the operations required for operating a payment account;
• Services enabling cash withdrawals 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 direct debits, including one-off direct debits;
  • execution of payment transactions through a payment card or a similar device;
  • execution of credit transfers, including standing orders;
• Execution of payment transactions where the funds are covered by a credit line for a payment service user:
  • execution of direct debits, including one-off direct debits;
  • execution of payment transactions through a payment card or a similar device;
  • execution of credit transfers, including standing orders;
• Issuing and/or acquiring of payment instruments;
• Money remittance;
• Execution of payment transactions where the consent of the payer to a payment transaction is transmitted by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting solely as an intermediary on behalf of the payment service user and the supplier of the goods and services.

Malta Payment Services providers may also engage in the following ancillary activities:

• The provision of operational and closely related ancillary services such as ensuring execution of payment transactions, foreign exchange services strictly in relation to payment services, safekeeping activities, and storage and processing of data;
• The operation of payment systems;
• When payment institutions engage in the provision of payment services, they may only hold payment accounts used exclusively for transactions;
• Payment institutions may grant credit related to payment services only if the following requirements are met:
  • the credit is ancillary and granted exclusively in connection with the execution of a transaction; and
  • notwithstanding national rules on providing credit by credit cards, the credit granted in connection with a payment and executed with the act shall be repaid within a short period which shall in no case exceed twelve months; and
  • such credit is not granted from the funds received or held for the purpose of executing a payment transaction; and
• the own funds of the payment institution are at all times, to the satisfaction of the supervisory authority, appropriate in view of the overall amount of credit granted.

Malta Payment Services: The Licensing Process

Applicants looking to be authorised as Malta Payment Services Providers are subject to a thorough review process by the MFSA. The process entails the following steps:

First, the project is presented to the MFSA. This usually takes place through an informal face to face meeting where the applicant can explain its intended business model, systems, compliance procedures and operational set-up to the regulator. Any potential difficulties can be flagged and discussed at this stage.

Secondly, an application pack must be prepared. The applicant is required to present detailed documentation, including business plans, financial projections, personal due diligence and other material that can serve to demonstrate its ability to operate in a viable and complaint manner.

The regulator will then review the material submitted and revert with any enquiries. Once all enquiries have been satisfactorily addressed, the MFSA will issue its ‘in principle approval’. This is a ‘letter of intent’ indicating that the MFSA is satisfied with the application and will issue the license upon satisfaction of certain criteria stated in the document itself. Typically these are simple formalities.

Note that the applicant is not required to constitute a corporate entity, commit share capital, or undertake any recruitment before in principle approval is issued.

Criteria for Licensing

The MFSA will carry out a ‘fitness and properness’ test on the applicant, in order to determine the requisite levels of competence, integrity and solvency are in place. Detailed background checks are undertaken to this end, in order to ensure that only individuals who are highly professional are authorised. In addition MFSA undertakes a thorough review of the application documents to ensure that these are complaint with local and EU requirements. Another important requirement is that the business should have an operational presence in Malta which is proportionate with the volume and type of business which it intends to carry out; MFSA does not approve brass plate entities.

Malta Payment Services Law Firm: How we can help you

The MFSA is an open minded regulator and all applicants are granted a fair chance to demonstrate their fitness and properness. That said, the MFSA expects high standards of professionalism and requires application documents to be completed to a high standard. Our firm has a dedicated financial services regulatory team that has assisted a number of Malta payment services operators with their local set up procedures. We provide assistance with the preparation of all application documents, manage correspondence with the local regulator, advise on regulatory, tax and corporate matters, and also provide useful ‘on the ground’ knowledge of the jurisdiction and introductions.