Malta: Fintech In Malta – Q&As

Last Updated: 25 September 2018
Article by Andrew J. Zammit, Kurt Hyzler and Josef Cardona

Most Popular Article in Malta, September 2018

PAYMENTS

What are the sources of payments law in your jurisdiction?

In terms of Maltese law, payment services may be provided in and from Malta by:

  • Credit institutions which are licensed by the Malta Financial Services Authority ("MFSA") in terms of the Banking Act, Chapter 371 of the Laws of Malta; and/or
  • Financial institutions which are licensed by the MFSA in terms of the Financial Institutions Act, Chapter 376 of the Laws of Malta.

In addition to these principal laws, there are several regulations and directives issued by the MFSA which regulate the provision of payment services in and from Malta. It is also relevant to note that in terms of article 34A(1) of the Central Bank of Malta Act (Chapter 204 of the Laws of Malta), the Central Bank of Malta is empowered to make directives in respect of, inter alia, the provision and use of payments services and of payment systems. In virtue of these powers the Central Bank of Malta has issued the following directives of specific relevance to payment services: Directive No. 1 which relates to the provision and use of payment services and Directive No. 13 which regulates the approval of payment systems

Can payment services be provided by non-banks, and if so on what conditions?

Yes- the Financial Institutions Act effectively implements the Payment Services Directive (as updated by PDS2) and the E-Money Directive, so any entities obtaining licensing under the provisions of this law may effectively provide payment services.

The main difference between a credit institution (bank) and a financial institution is essentially that whilst a bank may take deposits and apply those deposits by granting loans, a financial institution cannot apply any client funds (say on an e-wallet) towards its commercial activities.

What are the most popular payment methods and payment instruments in your jurisdiction?

While the MFSA has licensed entities providing a plethora of diverse payment models and payment instruments, the most popular payment methods and payment instruments in Malta are traditional payment methods in the form of cash and cheques, with bank transfers and credit/ debit cards gaining a larger share of transaction volumes each year. At the time of writing (August 2018) the Central Bank of Malta has begun an exercise to facilitate credit and debit card payments and to reduce the volume of cash transactions.

DATA / OPEN BANKING

What is the status of open banking in your jurisdiction (i.e. access to banks' transaction data and push-payment functionality by third party service providers)? Is it mandated by law, if so to which entities, and what is state of implementation in practice?

The Central Bank of Malta's Directive No. 1 which relates to the provision and use of payment services served to transpose the main provisions of PSD2 into Maltese law and pave the way for open banking. One of the main objectives of PSD2 is to regulate Third Party Providers (TPPs), new market players (mostly technology service providers) which have been classified as Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs). AISPs provide a consenting client with an aggregated view of all the client's payment accounts held with different banks., whilst PISPs are able to initiate a payment on behalf of a consenting client from the client's payment account held with a particular bank. Additional provisions of the PSD2 will be implemented through various amendments to the Financial Institutions Act which are expected to be implemented by the end of Q3 2018.

Although the regulatory framework exists, we are not aware of any up-take of open banking services in Malta by any TPPs. At the time of writing (August 2018) we understand that several Maltese banks are in the process of finalising their API technologies that will support the open banking infrastructure, however we do not have any reliable indication as to when such technologies will be rolled out by the respective local banks.

How does the regulation of data in your jurisdiction impact on the provision of financial services to consumers and businesses?

With the coming into force of the General Data Protection Regulation (GDPR) (EU) 2016/679 on the 25th May 2018, those entities which provide financial services and process personal data relating to EU residents are subject to stricter rules when processing such data and face stiffer penalties in case of any breach of such rules or failure to correctly handle a data breach. As with any other EU jurisdiction, Malta-based financial services providers and TPPs carry significant responsibilities in respect of their data processing activities.

MARKET CONDITIONS

What are regulators in your jurisdiction doing to encourage innovation in the financial sector? Are there any initiatives such as sandboxes, or special regulatory conditions for fintechs?

The Maltese government and also the MFSA have regularly expressed their intention to be at the forefront of financial innovation. As part of this vision, in July 2018 the Maltese Parliament approved three separate laws intended to form the backbone of a regulatory framework for Distributed Ledger Technologies (DLT) and virtual financial assets.

The Malta Digital Innovation Authority Act provides for the establishment of an Authority which will have the role of granting formal recognition to innovative technology services providers or arrangements, such as smart contracts, by certifying them. This will give users, as well as service providers, the necessary legal certainty regarding their use of a DLT platform.

The Virtual Financial Assets Act (VFAA) aims to regulate the field of Initial Virtual Financial Asset Offerings and Virtual Financial Assets. Essentially, this Act provides the regulatory framework for cryptocurrencies and initial coin offerings (ICOs) and it also caters for the service providers which will be involved in activities related to ICOs. The VFAA will also outline the regulatory regime which will be applicable to cryptocurrency exchanges.

The third piece of legislation, entitled the Innovative Technology Arrangements and Services Act, was promulgated with the intention of providing regulation for the designated innovative technology arrangements referred to in the Act, as well as of designated innovative technology services referred to in the Act, and for the exercise by or on behalf of the Malta Digital Innovation Authority of regulatory functions with regard thereto. The Act introduces the registration of technology service providers and the certification of technology arrangements, such as software and architectures used in designing and delivering DLT, smart contracts as well as concerning system administrators and auditors.

Insofar as fintech and innovative distribution channels for traditional financial services are concerned, the MFSA has also taken a very pro-active approach to accommodate such models, and is in the process of developing a sandbox environment for the testing of such models to foster more innovation.

Do you foresee any imminent risks to the growth of the fintech market in your jurisdiction?

From a macroeconomic perspective, risks could be competition risks from other jurisdictions, who like Malta are willing to invest in the industry. From a microeconomic perspective, the sourcing of talent and banking services for cryptocurrency related services could be major challenges, particularly in an economy which has experienced significant growth over the past eight years and has close to zero unemployment.

What tax incentives exist in your jurisdiction to encourage fintech investment?

Malta does not provide direct tax incentives specifically to fintech operations setting up in Malta. However certain tax incentives exist for expatriate talent relocating to Malta to work in the financial services industry and holding a key executive function within such operation. Persons qualifying for this programme (Highly Qualified Person programme) effectively benefit from a 15% personal income tax rate on their employment income.

Malta also offers corporate tax rebates to non-Malta residents receiving dividends from a Malta company, subject to the satisfaction of various qualifications.

Which areas of fintech are attracting investment in your jurisdiction, and at what level (Series A, Series B etc)?

The fintech industry is still in its infancy and hence most of the investment is sourced from founders and "friends and family" investors, eventually leading to Series A investment. It is rarer that firms establishing in Malta are already at the Series B or C investment stage.

If a fintech entrepreneur was looking for a jurisdiction in which to begin operations, why would it choose yours?

Malta's track record as a financial centre has developed over the past 25 years and has proven to be a valuable base for start-ups and value-driven business, providing world-class professional services on very competitive terms when compared to other EU financial centres such as Dublin or Luxembourg. Besides, the thrust that has bene made by the Government fo Malta to invest further into more technology and human resources to ensure that regulation is both effective and efficient bodes well for additional growth in this space. It is also relevant to mention other "soft" factors that have driven further investment into Malta such as the Mediterranean climate, a cosmopolitan population, solid IT infrastructure, and excellent education and healthcare facilities.

ACCESS TO TALENT / IMMIGRATION

Access to talent is often cited as a key issue for fintechs – are there any immigration rules in your jurisdiction which would help or hinder that access, whether in force now or imminently? For instance, are quotas systems/immigration caps in place in your jurisdiction and how are they determined?

The sourcing of the right talent is a challenge in Malta, yet the Authorities have introduced specific programmes to attract talent to Malta. In 2011 Malta introduced specific tax rules (Highly Qualified Persons Rules – HQP) intended to attract top expertise and skill in the financial services, remote gaming and aviation sectors, enabling operators in these sectors to attract and recruit the highest qualified, experienced and senior professionals available globally. Whilst Malta is a premium location to live and work in (regularly voted one of the best and safest places in the world), such highly qualified, experienced and senior personnel may also be entitled to benefit from a favourable Malta tax rate of 15% chargeable on employment income derived from his/her Malta employer.

Senior employees engaged by licensed / recognised operators in the financial services, remote gaming and aviation sectors may benefit from a flat rate of 15% on employment income derived in respect of work or duties carried out in Malta (or in respect of any period spent outside Malta in connection with such work or duties).

If there are gaps in access to talent, are regulators looking to fill these and if so how? How much impact does the fintech industry have on influencing immigration policy in your jurisdiction?

The development of Fintech forms part of Malta's diversification strategy and currently, the best IT job opportunities are offered within the iGaming industry. Fintech will bring new opportunities to IT and Finance professionals and the major challenge will be to source candidates that are both IT and Finance savvy. Thus, attracting foreign talent is critical. Over the past four years individuals working in the financial services industry increased by over 20% with a sizeable amount of the increase coming directly from foreigners relocating to Malta.

INTELLECTUAL PROPERTY

What protections can a fintech use in your jurisdiction to protect its intellectual property?

Malta's intellectual property law framework provides all of the protections one would expect in an EU jurisdiction, including copyright protection on software, and EU-wide protection for registered Community Trade Marks. Structured protection mechanisms are also widely used, with IP assets being placed in separate bankruptcy-remote vehicles and also source code escrow arrangement to protect software licensees in cases of insolvency of the software owning company.

CRYPTOCURRENCIES AND BLOCKCHAIN

How are cryptocurrencies treated under the regulatory framework in your jurisdiction?

Cryptocurrencies are regulated under the Virtual Financial Assets Act (VFAA) which will come into force on the 1st October 2018. The VFAA defines a Distributed Ledger Technology (DLT) asset to include virtual tokens, virtual financial assets, electronic money, and financial instruments, that are intrinsically dependent on, or utilise, Distributed Ledger Technology.

Under this law, some key definitions have been provided. A Virtual Token is defined to refer to "a form of digital medium recordation that has no utility, value or application outside of the DLT platform on which it was issued and may only be redeemed for funds on such platform directly by the issuer of such DLT asset". This definition is also made to exclude electronic money. A Virtual Financial Asset, on the other hand, is defined to refer to "any form of digital medium recordation that is used as a digital medium of exchange, unit of account, or store of value and that is not electronic money, a financial instrument, or a virtual token."

The Malta Financial Services Authority is introducing a Financial Instrument Test which will serve as the litmus test to determine whether a DLT asset should be classified as (i) a virtual token, or (ii) a traditional financial instrument regulated by the Markets in Financial Instruments Directive (MiFID and MiFID II). It is being proposed that the Test will consist of two stages. The first stage would effectively determine whether a DLT asset qualifies as a Virtual Token. If a negative determination is reached during this first stage, the second stage will determine whether the DLT asset would qualify as a financial instrument under Section C of Annex 1 to MiFID.

Should a negative determination be reached again during this second stage, then the DLT asset would qualify as a Virtual Financial Asset under the VFAA.

These legislative developments, coupled with some other related legislation intended to lay down the foundations for the better regulation of crypto currencies and other DLT assets, mark Malta's objective of bringing these activities within the regulatory sphere to protect consumers and create a balanced environment for bona fide operators in the space to establish themselves and develop their business models.

How are initial coin offerings treated in your jurisdiction? Do you foresee any change in this over the next 12-24 months?

Certain initial coin offerings (ICOs), and VCs fall within the scope of existing legislation and would therefore be governed by existing EU legislation (such as Markets in Financial Instruments Directive (MiFID and MiFID 2), the Prospectus Directive, the Alternative Investment Fund Managers Directive (AIFMD), and the Financial Instruments Directive and also Maltese national legislation (such as the Investment Services Act and the Financial Institutions Act).

Those ICO offerings that fall outside the scope of such financial legislation would most likely be regulated under the Virtual Financial Assets Act (VFAA) which enables regulations and directives to be issued to better regulate the minimum requirements for the issuing of ICOs based on each coin's defining features. Coins or tokens can have features of electronic money, payment systems, membership or privilege cards, and/or single- or multiple-use vouchers.

This first step undertaken by the Maltese Government and MFSA paves the way for various new developments in this space over the next 12-24 months.

Are you aware of any live blockchain projects (beyond proof of concept) in your jurisdiction and if so in what areas?

Currently renowned operators, like the crypto-exchanges Binance and Bitbay, are setting up their operations in Malta. At this stage most of the projects being attracted to Malta are targeting the Crypto industry. However, the Innovative Technology Arrangements and Services Act (ITAS Act), has been introduced with the intention of creating a regulatory framework for designated innovative technology arrangements and services, and for the creation of a Malta Digital Innovation Authority to exercise regulatory powers over such arrangements and service operators. In the context of this specific law, it is possible for operators to obtain certification of technology arrangements, such as software and architectures used in designing and delivering DLT and smart contracts.

Whilst we are unable to comment about specific blockchain projects undertaken by operators, there are several initiatives that have been undertaken locally which we expect to be launched in 2018 and 2019.

ARTIFICIAL INTELLIGENCE (AI)

To what extent are you aware of artificial intelligence already being used in the financial sector in your jurisdiction, and do you think regulation will impede or encourage its further use?

At this stage there is no publicly available statistical information with regards to the adoption of AI within the Malta financial sector. We anticipate that with the increased sophistication of AI, there will be some take-up particularly in the areas of regulatory technology (RegTech).

INSURTECH

Insurtech is generally thought to be developing but some way behind other areas of fintech such as payments. Is there much insurtech business in your jurisdiction and if so what form does it generally take?

Whilst there is no publicly available information classifying operators according to their technology distribution channels, we are aware of operators that have launched technology platforms aimed at the insurance market, providing user-customised preferences for insurance needs ranging from health and life to travel, home contents and vehicles.

Are there any areas of fintech that are particularly strong in your jurisdiction?

Payment services providers (PSPs) and electronic money institutions (EMIs) are the most common form of fintech models that we see in Malta, both as a firm and as a jurisdiction. These models initially picked up as an offshoot of the significant iGaming industry that has been developed in Malta over the past 20 years and which now includes around 250 – 300 operators.

INTECH vs INCUMBENT

What is the status of collaboration vs disruption in your jurisdiction as between fintechs and incumbent financial institutions?

There has been little or either collaboration or disruption between fintech companies and incumbent financial institutions in Malta to date. There are however some young and dynamic operators that have already created technology infrastructures and business strategies to capitalise on their fintech offering, particularly in investment services and payments. We expect these pioneer operators to disrupt some parts of the investment services and payments market, particularly for financially sophisticated customers between 30 and 50 years old.

To what extent are the banks and other incumbent financial institutions in your jurisdiction carrying out their own fintech development / innovation programmes?

A couple of the local banks have publicly stated that they have set up for e.g. cryptocurrency and blockchain think tanks within their banks. However it appears that the various legacy systems currently in place within such institutions is a principal cause of delays an effective obstacle to the timely adoption of new and sophisticated technologies.

Are there any strong examples of disruption through fintech in your jurisdiction?

A major disruption could be the establishment of what is being tipped as being the world's first decentralised and community-owned bank. The proposed bank will focus on serving tech and crypto businesses. Users will be able to access their accounts from both mobile phone and desktop web application and use them directly with physical and virtual payment cards issued by the bank. The bank is currently awaiting its Malta banking license and we understand that it is estimated to launch its business activities in the first half of 2019, most likely also issuing its own Equity Token Offering.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions