Payment Service Provider And Electronic Money Institution License In Malta

The Financial Institutions Act, Chapter 376 of the Laws of Malta (the “Act”) which was enacted on the 15 November 1994 stipulates that no business of a financial institution shall be transacted in or from Malta except by a company which is in possession of a licence granted under the Financial institutions Act by the Malta Financial Services Authority (the “MFSA”).

The Financial Institutions Act regulates the business of financial institutions which includes the licensing of a payment service provider and an electronic money institution (the “Payment Service Provider and Electronic Money Institution”) in Malta. A Payment Service Provider and Electronic Money Institution allows the company to open payment accounts for customers and merchants, and issue cards linked to payment accounts, including credit cards under the applicable rules and regulations namely, the Act.

The Financial Institutions Act

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The Act regulates the business of financial institutions. A financial institution in Malta is structured as a Limited Liability Company (Ltd.) and is regulated by the MFSA.

A financial institution in Malta can be licensed to provide the below activities, mainly:

• Payment services in terms of the Second Schedule to the Act; and
• Issuing of electronic money in terms of the Third Schedule to the Act.
  

Activities undertaken by Payment Services Providers licensed in Malta

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As a payment service provider, the company may provide the following payment services:

• 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 among which:
  
• 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 among which:
  
• 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
• Payment institutions may grant credit related to payment services referred to in paragraphs (d), (e) or (g) above only if the following requirements are met:
• the credit is ancillary and granted exclusively in connection with the execution of a transaction
• 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
• such credit is not granted from the funds received or held for the purpose of executing a payment transaction
• 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
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Activities undertaken by Electronic Money Institutions licensed in Malta

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In addition to issuing electronic money, electronic money institutions may also engage in any of the following activities:

(i) The provision of payment services listed in paragraph 2 of the Second Schedule of the Act;
(ii) The granting of credit related to payment services referred to in paragraph 2(d), ( e) and (g) of the Second Schedule, where the conditions laid down in paragraph 3 ( e) of the Second Schedule are met;
(iii) The provision of operational services and closely related ancillary services in respect of the issuing of electronic money or to the provision of payment services referred to (i) above;
(iv) The operation of payment systems as defined in the Second Schedule of the Act; and
(v) Business activities other than the issuance of electronic money, having regard to the applicable law regulating such activities.

Regulatory Requirements

A Payment Service Provider and Electronic Money Institution is to abide by the regulatory requirements stipulated under the Act and appoint a number of service providers as follows:

• Directors(s): At least three (3) directors with at least one (1) Maltese resident director.
• Company Secretary: Mandatory appointment and ideally based in Malta in order to ensure knowledge of the company law requirements which arise under Maltese law.
• Compliance Officer: Mandatory appointment and shall be employed with the company.
• Money Laundering Reporting Officer: Mandatory appointment and shall be employed with the company.
• Risk Officer: Mandatory appointment and shall be employed with the company.
• Shareholders: At least two (2) shareholders. In the case of a limited liability company one (1) shareholder shall hold at least one (1) share. A company may be registered with one shareholder i.e. a Single Member Company, with only one (1) main object.
• Management: The MFSA allows for flexibility of the management structure and the company may elect to appoint persons to the management as they wish such as a chairperson, general manager, managing director and finance director. However, the MFSA put great importance on the company’s structure and dual control in place for the day-to-day running of the company’s business.
• Internal Audit: An internal audit / audit committee shall be appointed in order to undertake the internal audit function of the company and which shall be independent for the management of the company. The MFSA are willing to accept the outsourcing of such function depending on the size, internal organisation, and the nature, scope and complexity of the company’s activities.
• Employees: The company shall have at least two (2) employees being full time, resident in Malta. The number of employees shall be dependent on the nature, scale and complexity of the company’s anticipated business. The MFSA place great importance on substance.
  

The MFSA will undertake a full due diligence and fit and proper test for Directors, Company Secretary, Compliance Officer, Money Laundering Reporting Officer, Shareholders, Management, Risk Officer(s), and Employees undertaking the day-to-day decisions within the company.

Minimum Capital

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The minimum initial capital requirement for the setting up of a Payment Service Provider and Electronic Money Institution is of three hundred and fifty thousand euro (EUR 350,000).

During the application stage of the payment service license with the MFSA, the appointed auditor will calculate the required share capital depending on the company’s business model and intended services. The own funds requirement will be calculated by the MFSA.

Outsourcing

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When outsourcing any of its functions, the company will seek to ensure that the service providers’ organisational structure and ownership structure are appropriately monitored and assessed by the company’s management so that any necessary corrective measure will be taken promptly.
The company is to ensure, when relying on a service provider for the performance of operational functions, which are critical for the provision of continuous and satisfactory performance of the company’s activities, that it takes reasonable steps to avoid undue additional operational risk. Outsourcing of important operational functions may not be undertaken in such a way as to impair materially the quality of its internal control and the ability of the MFSA to monitor the company’s compliance with all obligations.

Some of the functions which can be outsourced are the following:

• IT set-up
• Risk management (for the first three (3) to four (4) months from the date of licensing)
• internal audit (depending on the nature scale and complexity of the business) etc

Process for Licensing with the MFSA

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The application process to obtain a financial institution licence with the MFSA will in summary, involve the following steps:

• setting up of a meeting with the MFSA to discuss any specific questions about any aspect of the application process and completing the necessary documentation
• submission of the completed application form together with the supporting documents to the MFSA
• the MFSA will acknowledge receipt of the application within three (3) working days
• the MFSA will check the application material to proceed with the assessment phase
• within ten (10) days of receipt of the application, the MFSA will either inform the client that it has sufficient material to proceed to the assessment phase or advice that the application does not contain sufficient material to proceed to the assessment phase
• if the MFSA declares that it will move forward with the assessment phase, then it will review the application documents and provides its comments

Restrictions or revocations of a licence

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The MFSA will withdraw a licence issued to a financial institution where the licence holder:

• expressly renounces the licence
• does not commence business pursuant to the licence within twelve (12) months of its issue, or has ceased to engage in business for more than six (6) months or within such other period of time as may be specified in the licence
• if any document or information accompanying an application for a licence or any information given in connection therewith is false in any material particular or if the holder of a licence conceals from, or fails to notify to the competent authority any document or information or change therein which it was its duty to reveal or notify under the Act
• no longer fulfils the conditions required for the granting of the licence
• is declared bankrupt or goes into liquidation or makes a composition with its creditors or is otherwise dissolved
• has ceased to operate as a result of a merger with another financial institution
• is a branch of an institution incorporated outside Malta and the overseas regulatory authority in the country of incorporation withdrew the authorisation of the institution, or
• would constitute a threat to the stability of the payment system by continuing its payment services within the meaning of the Second and Third Schedules
  

Where the MFSA withdraws a licence, it shall inform the financial institution of the reasons for the withdrawal of a licence and notice of such withdrawal will be made public.

The MFSA may impose restrictions or revoke a licence in any of the following circumstances:

• if the holder no longer possesses sufficient own funds
• if the holder is likely to become unable to meet its obligations
• if the holder has insufficient assets to cover its liabilities, or
• if the MFSA considers that, by reason of the manner in which the financial institution is conducting or proposes to conduct its affairs, or for any other reason, these would constitute a threat to the stability of the financial system.
  

The MFSA shall have the power to vary or remove any restrictions imposed under the Act.

Conclusion

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A Payment Service Provider and Electronic Money Institution is regulated by the Act and will allow the company to open payment accounts for customers and merchant, and issue cards, linked to the payment accounts, including credit cards.

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Footnotes

All references are made to sections and paragraphs within The Financial Institutions Act, Chapter 376 of the Laws of Malta (the “Act”).