Malta's banking sector has taken great strides in the last fifteen years, expanding from four banks to a sophisticated EU-compliant banking sector which comprises a large amount of payment institutions (PIs) that complement this sector. This was greatly aided by the transposition of the European Payment Services Directive (2007/64/EC) by means of the Financial Institutions Act so as to regulate PIs in Malta. There is currently a proposal for a second Payments Directive (2013/0264 (COD)) in the pipeline which may create changes mainly with regard to access to payment systems, restriction on charges, unauthorised payment transactions and refunds for payment transactions. There are currently fifteen payment institutions licensed in Malta with others offering their services in the EU or possessing a branch in Malta.
The salient difference between a PI and any other financial institution is that a payment institution is not able to receive deposits or repayable funds from the public and can only use its funds for the provision of payment services. Article 2 of the Second Schedule of the Financial Institutions Act lists the activities which can be carried out by a licensed PI: (a) services enabling cash to be placed on a payment account as well as all the operations required for operating a payment account, (b) services enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account, (c) 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, (d) execution of payment transactions where the funds are covered by a credit line for a payment service user, issuing and/or acquiring of payment instruments, (e) issuing and acquiring of payment instruments, (f) money remittance and (g) 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.
An applicant must submit a detailed business plan to the MFSA and meet the minimum initial capital required. This must tally with the service being carried out and depends on the type of activity which the financial institution undertakes. If it carries out activities (a) – (e), the minimum capital requirement is that of €125,000. If it carries out activity (f), the minimum capital requirement is that of €20,000 and if it carries out activity (g), the minimum capital requirement is €50,000. The time frame for the application to be processed is usually about 3 months, depending on the completeness of the information given to the authorities and the submission of all the needed documentation. This business plan must also include financial projections and due diligence checks on directors, senior managers, and shareholders.
The PIis also required to have a minimum of two people who will effectively direct the business in Malta. The persons who work in the payment institution are subject to a minimum amount of due diligence which include but are not restricted to prudent conduct, fit and proper persons, integrity and professionalism, adequate flows of information and constant supervision. This two person requirement must also be justified by showing the company procedures in place in the case of conflict of interest or demonstrate the back up arrangements in place when one of the persons is unable to carry out his/her functions during a long absence due to travel or illness. The payment institution would also have to have an office based in Malta in order to qualify for a Maltese license. Upon obtaining such license, it would be possible to passport the license into the EU/EEA Member State countries by following basic procedures of notification and by establishing a branch in such other country.
The facility of such payment institutions to set up in Malta has been aided by various factors. The country, first and foremost possesses a pro-business government and a stable macro-economic environment. Malta is a renowned front-runner in IT and also possesses a flexible regulatory approach to payment services. It is also known that payment institutions benefit from much more flexible regulatory and supervisory requirements when compared to other credit and financial institutions rendering it easier for them to function. Malta's banking infrastructure is robust and built on sound principles and the island offers a very attractive tax regime. A state of the art telecoms infrastructure coupled with low operational costs,salaries and a multilingual and efficient workforce makes Malta the ideal environment in which one can set up a payment institution. Malta is also renowned as an international financial centre rendering it as a stepping-stone to new markets due to its proximity to Europe and North Africa. It is believed that all these factors will eventually lead to the use of E-commerce and E-gaming payment services and payment factory operations for trans-national corporations to increase in the near future. More than 250 E-Gaming companies have already been established and many more E-commerce institutions are to be set up in the future. Without any doubt, all these companies will need the service of payment gateways to provide much needed payment services.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
