Which bodies regulate the provision of fintech products and services?
The Malta Financial Services Authority (MFSA) and the Malta Digital Innovation Authority are the main competent authorities regulating the provision of fintech products and services.
Which activities trigger a licensing requirement in your jurisdiction?
The local financial services regulatory framework comprises:
- the Investment Services Act (Chapter 370 of the Laws of Malta) (ISA), which outlines the regulatory requirements of operators wishing to set up investment services undertakings and collective investment schemes. It transposes the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) into Maltese law and regulates services outlined therein when they are carried out in or from Malta and in relation to one or more ‘instruments’, as defined therein;
- the Banking Act, Chapter 371 of the Laws of Malta, which is the law regulating credit institutions that carry out the ‘business of banking’, defined as:
- accepting deposits of money from the public that are withdrawable or repayable on demand, after a fixed period or after notice;
- borrowing or raising money from the public with the purpose of using all or some of such money to lend to others; or
- otherwise investing for the account and at the risk of the person accepting this money; and
- the Financial Institutions Act, Chapter 376 of the Laws of Malta, (FIA), which sets out the licensing and ongoing obligations of non-banking institutions. These can be classified in two categories – namely, institutions that carry out:
- payment services or the issuance of electronic money; and
- activities such as lending, financial leasing, the provision of guarantees and commitments, foreign exchange services and money brokering.
The FIA, the subsidiary legislation and the regulations promulgated under the FIA transpose the Payment Services Directive (2015/2366/EU) (PSD2) and the second EU Electronic Money Directive (2009/110/EC).
Is consumer lending regulated in your jurisdiction?
Lending is a regulated activity under the FIA, irrespective of whether it is provided to consumers. Article 5 of the FIA outlines the requirements for the authorisation of an institution to carry out lending activities, including:
- an initial capital in the amount established by the MFSA;
- at least two individuals effectively directing the business of the institution in Malta;
- all qualifying shareholders, controllers and all persons effectively directing the institution’s business are suitable persons to ensure its prudent management; and
- sound and prudent management and robust governance arrangements.
In addition, the Consumer Credit Regulations (Subsidiary Legislation 378.12) implement into Maltese law the provision of the Consumer Credit Directive (Directive 2008/48/EC), which regulates credit agreements involving a total amount of credit more than €200 or less than €75,000, which are provided to consumers.
Secondary market loan trading
Are there restrictions on trading loans in the secondary market in your jurisdiction?
There are no particular restrictions applicable to trading loans in the secondary market in Malta.
Collective investment schemes
Describe the regulatory regime for collective investment schemes and whether fintech companies providing alternative finance products or services would fall within its scope.
Collective investment schemes (CIS) are regulated under the ISA. CIS which fall within the scope of the local regulations are:
- retail collective investment schemes, primarily undertaking in collective investment transferable securities;
- professional investor funds;
- alternative investment funds (AIFs); and
- notified alternative investment funds.
Investment-based crowdfunding is regulated under a separate regime.
With respect to peer-to-peer (P2P) or marketplace lenders, it is pertinent to refer to the FIA, which regulates ‘money broking’, defined as the activity of introducing counterparties that wish to deal at mutually agreed terms with respect to wholesale and retail financial products. This regulation may have implications for both marketplace lenders and P2P platforms.
Alternative investment funds
Are managers of alternative investment funds regulated?
Managers of alternative investments funds (AIFMs) that operate in or from Malta fall within the scope of the ISA and the Alternative Investment Fund Managers Regulations (Subsidiary Legislation 370.23 of the laws of Malta), which transpose the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) into Maltese law. An AIFM may be subject to a lite regime akin to the regime under the MiFID II if it qualifies as a de minimis AIFM. This will be the case where the assets under management are worth less than:
- €100 million; or
- €500 million and the portfolio consists of AIFs that are unleveraged and have no redemption rights in the first five years following the date of initial investment.
A de minimis AIFM will be exempt from complying with certain provisions of the AIFMD but does not enjoy the use of the EU passporting rights.
Peer-to-peer and marketplace lending
Describe any specific regulation of peer-to-peer or marketplace lending in your jurisdiction.
The FIA stipulates that any person that, as a lender, regularly lends money in or from Malta is carrying out a regulated activity and requires an MFSA licence prior to commencing operations. However, there is no specific regulation on P2P platforms or marketplaces lending under the local financial services framework.
Describe any specific regulation of crowdfunding in your jurisdiction.
While reward-based and donation-based crowdfunding platforms remain unregulated, the MFSA has introduced a framework under the ISA applicable to investment-based crowdfunding services. Measures under this regime include a licensing requirement under the ISA, which, in addition to capital requirements, encompasses mandatory disclosure obligations. In the case of offers of securities that fall within the scope of the EU Regulation 2017/1129 (in which case, the EU regime would apply), the issuer must provide an information document, which will, however, not be approved or verified by the MFSA.
On 15 March 2021, the MFSA issued a Circular regarding investment-based and lending-based crowdfunding, whereby the Authority requested interested parties and stakeholders to submit feedback in relation to the implementation of the following European legislation into national law:
- Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937; and
- Directive (EU) 2020/1504 of the European Parliament and of the Council of 7 October 2020 amending Directive 2014/65/EU on Markets in Financial Instruments.
Furthermore, the Authority has also requested feedback on the European Securities and Markets Authority’s (ESMA’s) consultation paper on the draft technical standards on crowdfunding under Regulation 2020/1503.
Describe any specific regulation of invoice t
rading in your jurisdiction.
Invoice trading falls within the scope of the FIA. Factoring and invoice discounting are listed as two types of lending activity that in turn trigger a licensing obligation under the FIA if and when they are carried out in or from Malta on a regular basis.
Are payment services regulated in your jurisdiction?
The FIA includes a list of the payment services that are regulated in Malta and reflects the services outlined in the PSD2. Institutions engaging in these payment activities must obtain authorisation from the MFSA prior to the provision of these services in or from Malta on a regular basis.
Are there any laws or regulations introduced to promote competition that require financial institutions to make customer or product data available to third parties?
There are no laws or regulations promoting competition among financial institutions through the use of available data. However, the concept of open banking has been locally introduced under the FIA through the regulation of third-party payment service providers, namely, payment initiation service providers and account information service providers.
Do fintech companies that sell or market insurance products in your jurisdiction need to be…
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