Introduction to How To Obtain a Banking License in Malta
Malta is one of the most optimal jurisdictions for registering financial enterprises and formalizing their activities.
The Maltese islands provide an excellent ground for those seeking to enter the European marketplace for banking services.
Banks in Malta are mainly regulated by the Banking Act, Banking Directives and the Banking Rules issued by the Malta Financial Services Authority (MFSA).
This article will broadly cover everything related to ‘How To Obtain a Banking License in Malta’ and will include the following topics:
- Banking in Malta - A definition;
- Getting a Maltese Banking License;
- Setting up a Bank in Malta;
- Fees to Open a Bank in Malta;
- Depositor Compensation Scheme;
- Other Obligations to abide by;
- Client Acceptance and KYC;
- Ongoing Monitoring Process;
- Appointment of a Money Laundering Reporting Officer (MLRO);
- Corporate Requirements for Banking Licence in Malta;
- Client Engagement Process and How We Can Help.
Banking in Malta - A definition
The Banking Act (Chapter 371 of the laws of Malta) defines the “business of banking” as the business of a person,
Who accepts deposits of money from the public withdraw-able or repayable on demand or could be after a fixed period; OR
Borrowing or raising money from the public to employ all or part of such money by lending to others or investing such money at its own risk.
Such activity is a licensable activity which requires a license duly issued by the Malta Financial Services Authority (MFSA).
Getting a Maltese Banking License
Malta provides an attractive platform for those attempting to enter the European marketplace for banking services.
MFSA has formed a favourable environment of efficiency and reduced bureaucracy for the benefit of financial institutions and international credit.
Criteria for a successful application include, generically:
The applicant must have a minimum initial share capital of €5,000,000;
Knowledgeable, competent and integral personnel;
Good governance and prudential performance of the business of banking;
The applicant must be set up in a manner which promotes the free flow of information between itself and the MFSA whilst taking into consideration depositor protection.
Setting Up a Bank in Malta
The process of setting up a Bank in Malta could be said to be divided into three Stages:
The Preparatory Stage
The applicant and their representatives, along with their advisors, shall meet up with representatives from the MFSA to discuss the venture at hand and to obtain any clarifications as may be necessary.
The MFSA will, in turn, consider the nature of the proposed application and decide which terms and conditions would be applicable should the venture come to fruition.
At such a stage, a preliminary indication is given as to whether the venture is possible or otherwise.
The Pre-Licensing Stage
Draft application documents are submitted with the MFSA, with the latter carrying out, the necessary reviews and checks as may be applicable.
It is at this stage that all applications must be finalised and the respective entity in question is registered with the Registrar as a company.
The Post-Licensing Stage
At this stage, the applicant must adhere to all licensing matters before the formal commencement of business. In addition to this, the entity in question must abide by all regulations, laws and requirements issued by any competent authority or respective jurisdiction.
The license, if issued, can be issued unconditionally or subject to conditions as the MFSA may deem fit.
Find the list of all the documents below which need to be submitted with the application.
Overview of the documents which need to be submitted
All relevant application forms and questionnaires;
A copy of the Memorandum and Articles of Association of the institution;
Audited financial statements for the last three years (if applicable);
A business plan including the structure, organisation and management systems of the prospective bank;
The identity of all directors, controllers and managers of the institution;
The identity of all shareholders with a qualifying shareholding; and
The identity of the individuals who will be effectively directing the business of the prospective bank.
Fees for Setting Up a Bank in Malta
The application and processing fee for setting up a bank in Malta is €12,500. A licensing fee of €18,000 must also be paid.
The annual supervisory fee is equivalent to 0.000175 of the bank’s deposit liabilities as reported at the end of the year immediately before the year in which the fee is payable. The annual supervisory fee shall, in no case, be less than €21,250 and shall, in no case, be more than €500,000.
Continue reading to learn more about what can/has to be done.
Depositor Compensation Scheme
The Depositor Compensation Scheme is a rescue fund for depositors of failed banks which are licensed by the MFSA.
It is a scheme which must be entered by any bank duly formed and licensed with the MFSA. The scheme is managed by a Management Committee which is appointed by the MFSA.
A bank must pay an annual contribution depending on the deposits affected by the bank. The contribution of each bank is dependent and runs parallel to the number of deposits held by it.
The maximum amount per depositor is an entitlement of €100,000. It covers deposits in euro, sterling and any other currency of European Economic Area.
In situations where a bank is likely to become unable to meet its obligations, the MFSA may take control of the bank to control, run the business and take actions as deemed necessary.
Other Obligations to abide by
The bank must be fully committed to remaining constantly vigilant to the prevention of money laundering and combating the funding of terrorism for risk management and severe crime prevention. It must not allow it's systems to be abused in furtherance of these offences.
In this regard, the bank must be dedicated to and actively participate in international and local undertakings and initiatives to prevent money laundering and the funding of terrorism.
The bank will always have to endeavour to ensure the protection of its staff and safeguard the organisation and its reputation against the threat of money laundering and/or funding of terrorism and other criminal activities.
Client Acceptance and KYC
The acceptance of a client is to be conditional on the ascertainment of the client’s identity and the continuance of such assurance during the term of the relationship.
Identification comprises in, among other things, requesting the clients who will be unknown to the bank a copy of a photo ID, such as passport, identity card, or driving license, a copy of their credit card or a copy of their bank statement.
It is important to note that the latter examples are not exhaustive in nature and that the bank will always reserve the right to ask for further information and/or documentation to ascertain the identity of the client.
If a client does not cooperate, then the bank, in line with its commitment to abide by all regulations, legislation and standards appertaining to AML and KYC, is not to enter any form of relationship with the client in question.
Ongoing Monitoring Process
The bank is to conduct ongoing monitoring throughout the duration of the business relationship.
Under normal circumstances, it is suggested that ongoing monitoring takes place annually (unless suspicion of money-laundering arises or the client has a high-risk profile).
In the latter case, ongoing monitoring should take place more frequently.
Scrutiny of transactions undertaken throughout the course of the relationship to ensure that the transactions are consistent with the bank’s knowledge of the client and his/her business and risk profile including, where necessary, the source of funds and source of wealth. Information on the source of wealth and source of funds should be determined initially and on an ongoing basis; and
Ensure that the documents, data or information which the bank holds are kept up to date. In the case of companies, the bank would need to check whether there have been changes in the beneficial owners/organisational structure and make sure that the bank has the necessary evidence and documentation.
Appointment of a Money Laundering Reporting Officer (MLRO)
The duties of the MLRO shall include, among other things, the following:
The development, and adherence to, the firm’s money laundering procedures;
Adequate identification of all clients;
The provision of adequate training to relevant personnel;
Ensuring that the firm has a clear policy in place when suspicion arises;
Collating reports received, consider their contents and report those suspicious to the FIAU;
Ensuring that all records are securely maintained; and
Ensuring policies and procedures are maintained and effective.
Corporate Requirements for Banking Licence in Malta
The company applying for the banking license would first need to be registered with the Maltese Registry for companies if it wishes to be registered and duly formed as per the laws of Malta.
As mentioned above, the minimum amount of own funds which the bank must have must be equivalent to at least €5,000,000. There must also be a minimum of two directors, a company secretary and the appointment of an auditor.
The bank could be set up as a private or public company, with the latter option being the means through which the bank could obtain a listing if so desired.
Once the company is formed, it must adhere to all requirements which are pertinent to companies in Malta such as:
Holding board meetings;
An annual general meeting;
An extraordinary general meeting when necessary;
Draft any necessary resolutions;
Submit annual returns with the Registry; and
Submit financial accounts.
Moreover, being a bank and considering its crucial position within the financial and economic industry of a country, other requirements such as
The submission of resolution; and
Recovery plans (as denoted above) would also be necessary as may be prescribed by law from time to time.
Moreover, different boards would need to be appointed (such as the resolution board) to cater for the review and serve as a supervisor under different legislative acts and regulations.
Client Engagement Process and How We Can Help
Upon getting in touch with us, we will get in contact with you and set up a meeting so that we could understand your needs, wishes and goals.
Upon the settlement of any queries from both parties, we will set up a meeting with the respective authority to discuss the venture with them and iron out any esoteric ideas, misconceptions and/or queries which would need clarification.
After the above occurs, we will set out an action plan with an overview of the timeline applicable to the licensing process in question, setting flexible deadlines to ascertain that the flow of work will progress without any undue stalling.
During the entire process, we will act as your representative with regards to liaising with the necessary authorities, advising bodies and all players engaged in the licensing process. We can also assist you with the following:
Liaising with authorities;
Completion and submission of the application;
Financing Structures advice;
Auditing services; and
Ensuring compliance with all necessary laws, regulations and obligations appertaining to the institution in question.