Malta has recently seen an increase in the number of Electronic Money Institutions (EMIs) looking to set up their operations in Malta. This has been largely due to the growth in the e-commerce and the i-gaming industries. Such EMIs are regulated by the Financial Institutions Act and the EU Electronic Money Institutions Directive (‘the Directive’). Malta has transposed this directive into national legislation in 2011.
Definitions of Electronic Money Institutions and Electronic Money
The 3rd schedule to the Financial Institutions Act defines an EMI as a financial institution that has been licensed by the MFSA and which is authorized to issue electronic money or that holds an equivalent authorization in another country in terms of the Directive to issue electronic money.
On the other hand, electronic money means electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions and which is accepted by a natural or legal person other than the financial institutions that issued the electronic money.
Other allowable activities which EMIs can perform
The Directive allows EMIs to perform other activities in addition to issuing electronic money. These include:
- The provision of certain payment services
- The granting of credit related to certain payment services
- The provision of operational services and closely related ancillary services
- The operation of payment systems
- Business activities other than the issuance of electronic money.
Obligations of EMIs
EMIs which are authorised to issue electronic money must do so at par value on receipt of the funds. They must also ensure that that at any moment, upon request by the holder, they are in a position to redeem without delay and at par value, the monetary value of any electronic money which they hold.
The Act also prohibits the granting of interest, or of any other benefit, relating to the length of time during which an EMI holds electronic money. EMIs must also safeguard all funds received in exchange of electronic money that has been issued.
EMIs, with the exception of small EMIs may exercise a European right to issue electronic money in another Member State or EEA state. This can be done either through the establishment of a branch or under the freedom to provide services.
The Act and the rules to the Act allow for the possibility of a small EMI, whose head office is in Malta to be licensed in Malta in cases where the total business activities of the institution generate an average outstanding electronic money that does not exceed €2,000,000. In such cases, the MFSA may waive the application of all or part of the provisions relating to general prudential requirements, initial capital, own funds and safeguarding requirements. Such small EMIs may however not exercise their European right to issue electronic money in any other EU or EEA member state.
Main regulatory requirements
The main regulatory requirements set out by the MFSA for setting up an EMI in Malta are:
- Completion of the application documents and other supporting documentation as stipulated below
- Minimum capital requirements of €50,000 to €100,000 for small EMIs and a minimum of €350,000 for other EMIs
- Own funds calculated in accordance with the Directive
- At least two Directors who are of good repute and have sufficient knowledge and experience
- Adequate local presence in Malta.
In assessing an application for an EMI licence, the MFSA carries out a ‘fit and proper’ test on the shareholders, directors and senior staff members who must demonstrate that they are solvent, competent and that they are able to shown integrity in their duties and dealings.
The following documents must accompany the application form for an EMI licence:
- Copy of the company’s Memorandum and Articles of Association;
- A business plan which should include the structure, the organization and the management systems
- Financial projections
- Identity of all shareholders, directors, controllers and managers of the institution and of those individuals who will be effectively directing the business of the said institution
- Personal Questionnaires
- A description of the internal control mechanisms
- A programme of operations
- Audited financial statements for the last 3 years (if applicable)
- Measures concerning safeguarding of funds
- The identity of the statutory auditors
- The applicant’s legal status and the address of its head office
Fees payable by Electronic Money Institutions
A company applying for an EMI licence to the Malta Financial Services Authority must together with the application, pay a non-refundable fee of €3,500 as an application and processing fee. Annual supervision fees payable to the MFSA amount to 0.0002 of the total assets as reported in the statutory schedules by the EMI in the previous year, subject to a minimum annual amount of €2,500.
Some of the main advantages that Malta has to offer include:
- Advantageous tax treatment for shareholders of EMIs
- Access to a wide tax treaty network
- Malta is an EU member state with access to the various EU Directives
- Malta has the Euro as its currency
- A stable political environment
- A cost effective jurisdiction
- A robust but at the same time flexible legal and regulatory framework
- English as an official language
- Passporting rights
- A well-educated and English speaking workforce
- Efficient and flexible regulator
- A solid Company law legislation
- Sound technological infrastructure
- Specialist professionals such as accountants, auditors, lawyers and tax advisors
- Attractive tax rates for highly qualified employees working with such institutions
Malta has the right ingredients which makes it an efficient jurisdiction, positioning itself as a key jurisdiction from where Electronic Money Institutions can develop their business and operate through Europe.