Electronic Money Institutions in Malta are regulated by the Financial Institutions Act, Chapter 376 of the laws of Malta (hereinafter referred to as the ‘Act’) following Directive 2009/110/EC (hereinafter the ‘Directive’) and are defined as those institutions which are licenced by the Malta Financial Services Authority (hereinafter referred to ‘MFSA’ or the ‘competent authority’) authorised to issue electronic money.
Electronic Money is defined by the Third Schedule of the Act and refers to electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on the receipt of funds for the purpose of making payment transactions, including the transferring or withdrawing of funds and which is accepted by a natural or legal person other than the financial institutions that issued the electronic money.
Malta, an EU Member State, in the hub of the Mediterranean has increasingly developed a reputation as a centre of financial excellence in the financial services industry and has seen an influx of e-Commerce companies and e-Gaming companies requiring payment services. Moreover, having an initial capital requirement to set up a financial institution in Malta as low as three hundred and fifty thousand Euro (€350,000) and boasting a strong banking sector and a stable IT infrastructure, Malta is an excellent choice to set up an EMI (hereinafter referred to as an ‘EMI’).
Grant of Licence
In order for a company to be granted a licence to operate an EMI under the Act, such company should inter alia (i) have an initial capital of three hundred and fifty thousand Euro; (ii) have at least two individuals to direct the business of the financial institution in Malta; (iii) ensure that all shareholders and persons vested with the control or directorship of the business are suitable persons to ensure prudent management. Furthermore, MFSA should also be satisfied that the EMI has a sound and prudent management, a clear organisation structure, set procedures and transparency with regards to the responsibility of the persons controlling the business.
A company may be granted a licence unconditionally or subject to conditions, according to the discretion of the competent authority, albeit such licence may also be refused.
EMI’s are licenced to carry out the following activities:
- The provision of specific payment services , including:
- services enabling cash to be placed on a payment account as well as operations required for operating a payment account;
- Services enabling cash withdrawals from a payment account as well as operations required for operating a payment account;
- Execution of payment transactions, including transfer of funds on a payment account and including execution of direct debits, credit transfers and payment transactions through a payment card or similar device;
- Execution of payment transactions where the funds are covered by a credit line for a payment service user, including the execution of direct debits, credit transfer and payment transactions through a payment card or other device;
- Issuing and/or acquiring of payment instruments;
- Money remittance;
- Execution of payment transactions where the payer gives consent for a payment transaction by means of a telecommunication, digital or IT device and the payment is also made by the latter, which acts as an intermediary on behalf of the payment service user.
The granting of credit related to payment services made in terms of clause 1(d),(e) and (g) above, when (i) the credit is ancillary or granted exclusively in connection with the execution of a transaction, (ii) the credit granted in connection with a payment shall be repaid within a short period of time, not exceeding twelve months, (iii) such credit is not granted from the funds received or held for the purpose of executing a payment transaction and (iv) 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 creditgranted.
The provision of operational services and closely related ancillary services in respect of issuing electronic money;
The operation of payment systems, whereby the latter, is defined by the Act as a funds transfer system with clear and organised arrangements and rules for processing, clearing and settling payment transactions;
Business activities other than issuing electronic money.
The Practicality of Electronic Money
In a world where technology has become crucial in every day transactions, electronic money can be seen as the next step both in the world of technology and in the industry of financial services. Online purchases are on the increase and currently, electronic money is used either by means of a payment device in the possession of the purchaser or stored on a server and managed by the purchaser through an account. One of the most popular methods is the prepaid card which is now being used even for travel and gift purposes. Paypal is an example of an EMI which stores clients’ balances on a server and can be managed by the client himself. An EMI increases the privacy and security of the personal and financial details of the client and the latter may make purchases at ease. This phenomenon is increasing becoming more popular as a safe and secure manner in purchasing online. Although not all issuers of prepaid cards and those who manage an account as referred to above, require a licence, any company falling under the activities of a financial institution under the Act is required to acquire a licence in terms of the said Act to carry out the activities of a financial institution.
The Directive seeks to remove barriers to market entry and facilitate the taking up and pursuit of the business of electronic money issuance, whilst ensuring a level playing field for all payment service providers. The Directive does not strive to cater for those pre-paid instruments which may be used in a limited manner but rather seeks to cater for pre-paid instruments issued in exchange for funds which may then be used for payment purposes because it is accepted by third parties as payment.
Liability of EMI’S
EMI’s are obliged at law to segregate the funds of a payment service user from the funds of any other person, where such funds shall be held separately and shall remain identifiable at all times and in default shall be liable for any loss or prejudice suffered by the payment service user due to fraud, wilful default or negligence of the financial institution’s obligations, in terms of the Financial Institutions Act (Safeguarding of Funds) Subsidiary Legislation 376.04.