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Maltese financial services: regulation, standards, direction

Maltese financial services: regulation, standards, direction. Malta. The Regulatory Framework. Legislation & Regulation. The legislative and tax framework is in line with main EU directives It is securely placed and is supported by the two major Maltese political parties

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Maltese financial services: regulation, standards, direction

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  1. Maltese financial services: regulation, standards, direction

  2. Malta The Regulatory Framework

  3. Legislation & Regulation • The legislative and tax framework is in line with main EU directives • It is securely placed and is supported by the two major Maltese political parties • Malta maintains high regulatory and anti-money laundering standards • This has led to the strong development of the Maltese financial services sector

  4. Financial Services Legislation Primary Legislation • Malta Financial Services Authority Act • Banking Act • Financial Institutions Act • Insurance Brokers and other Intermediaries Act • Insurance Business Act • Investment Services Act • Trustees and Trusts Act • Special Funds Act

  5. Financial Services Legislation Secondary Legislation • Companies (includes Limited Partnerships) Act • Financial Markets Act • Netting upon Insolvency Act • Securitisation Act

  6. Financial Services Legislation Supporting Legislation • Insider Dealing and Market Abuse Offences Act • Professional Secrecy Act • Prevention of Money Laundering Act

  7. Prevention of Money Laundering Act • Establishes the Financial Intelligence Analysis Unit • Two types of persons who can commit money laundering offences: • (a) Person carrying on relevant financial business • Banks • Licensed collective investment schemes • Life assurance companies • Persons carrying on investment business under the Investment Services Act • Stockbrokers • (b) Accessories

  8. Prevention ofMoney Laundering Act • Money laundering regulations: • Identification procedures • Internal reporting procedures • Record keeping procedures • Staff training procedures • Relationship between nominee company professionals and bank: • Evidence of identification • Declaration • Notification of change of circumstances

  9. International Evaluation • FATF – Financial Action Task Force (1999) • OECD – Organisation for Economic Co-operation and Development (2000) • Council of Europe Money Laundering Committee (2001) • EU Peer Review (2002) • International Monetary Fund – full FSAP (2003)

  10. International Evaluation • “Malta embraces international tax standards for transparency and exchange of information and has joined OECD member countries in committing to eliminate harmful tax practices.” (OECD Official News Release, June 2000) • “ a comprehensive and robust legal framework and a particularly well-regulated financial sector” (Report of the Council of Europe Money-laundering Committee, April 2003) • “Malta’s financial system appears to be healthy and well supervised …. Malta has a comprehensive legal framework and strongly adheres to most of the international standards and codes…. The authorities have undertaken major efforts in strengthening the supervisory framework” (International Monetary Fund, Financial System Stability Assessment (FSSA), September 2003)

  11. The Regulatory Authority MFSA MALTA FINANCIAL SERVICESAUTHORITY (http://www.mfsa.com.mt)

  12. Objectives of the MFSA • to regulate, monitor and supervise financial services in Malta; • to promote the general interests and legitimate expectations of consumers of financial services, and to promote fair competition practices and consumer choice; • to monitor and keep under review trading and business practices relating to the supply of financial products to private and non-private investors, and to provide relevant information and guidelines to the public; • to monitor the working and enforcement of laws that directly or indirectly affect the financial services consumer in Malta, and to undertake or commission any study, research or investigation which may deem necessary in this regard;

  13. Objectives of the MFSA • to advise the Government generally on the formulation of policies in the field of financial services, and to make recommendations to Government as to any action which in the opinion of the Authority it would be expedient to take in relation to matters in respect of which the Authority has such duties; • to investigate allegations of practices and activities detrimental to investors, and generally to keep under review trading practices relating to the provision of financial services and to seek to identify and to take measures to suppress and prevent any practices or transactions which may be unfair, harmful or otherwise detrimental to consumers of financial services; • to perform such other functions or duties as may be assigned to it under this Act or any other law.

  14. MFSA - Structure MFSA Legal and Intl Affairs Unit Board of Governors Chairman Co-ordination Committee President Supervisory Council Board of Management and Resources Director-General Chief Operations Officer

  15. Functions – Board of Governors • Board of Governors composed of seven members including the Chairman. Chairman and Governors appointed for a period of up to five years and their appointment may be renewed for further periods of up to five years; • Board of Governors sets policy; • The Legal and International Affairs Unit acts as Secretary to the Board of Governors.

  16. Supervisory Council Responsible for licensing, monitoring and supervising all activities related to financial services

  17. Board of Management & Resources Ensures the regular day to day management of the Authority

  18. Co-ordination Committee Co-ordinates the application of policies approved by the Board of Governors. Serves as a channel of communication between the Board of Governors and the other organs of the Authority; President Chairman - Board of Governors Co-ordination Committee Director-General - Supervisory Council Chief Operations Officer - Board of Development and Resources

  19. Growth of employees at the MFSA 130 people are currently working at MFSA

  20. Qualified Staff

  21. MFSA MALTA FINANCIAL SERVICESAUTHORITY External Relations Co-operation with other Authorities and Agencies

  22. MFSA MALTA FINANCIAL SERVICESAUTHORITY Relations with CBM Entity Scope of Agreement: CBM Exchange of Information in the fields of financial services CBM Payment and Securities settlement systems CBM = Central Bank of Malta

  23. Relationships with International Organisations Entity Scope of Agreement: CESR The MFSA forms part of the CESR Multilateral MoU as from 1st May 2004 The MFSA is from 1st May 2004 also a member of CEIOPS and CEBS. The Authority continues to participate in other international fora such as Group de Contact, IOSCO and IAIS.

  24. MOUs Signed with non-EU Countries Entity Scope of Agreement: Gibraltar FSC Banking, Securities and Insurance (2004) Guernsey FSC Banking, Investment Services, Insurance and Fiduciary Services (2004) Mauritius FSC Securities, Insurance and Pensions (2004) Isle of Man FSC Banking, Investment Services and Corporate Services Providers (2004) BCCD [TR] Banking Supervision (2004) Exchange of Letters with the Swiss Federal Banking Commission (SFBC) MOU being negotiated with Bermuda, Jersey

  25. MOUs Signed with EU Countries Entity Scope of Agreement: CMVM [PT] Securities (2004) National Bank of Banking (2004) Slovakia FSA [UK] Banking, Insurance, Investment Services (2004) Bafin [DE] Banking, Securities and Insurance (2004) MOUs being negotiated with Austria, Estonia and Ireland

  26. MFSA MALTA FINANCIAL SERVICESAUTHORITY Consumer Protection • The MFSA Act provides for the establishment of a • Consumer Complaints Manager. • (appointed January, 2002).

  27. Consumer Protection Functions: • … to promote the general interests and legitimate expectations of consumers of financial services, and to promote fair competition practices and consumer choice in financial services; ... • … to investigate allegations of practices and activities detrimental to consumers of financial services, and generally to keep under review trading practices relating to the provision of financial services and to identify, and take measures to suppress and prevent, any practices which may be unfair, harmful or otherwise detrimental to consumers of financial services ...

  28. Consumer Protection Activities: • The Consumer Complaints Office has issued the following Guides: Invest Wisely! It’s Your Money! Teaching your children how to save and spend Top 10 Finance hints for young adults 6 booklets for the better understanding of insurance • A computer based CD, a video and an information website (www.mfsa.com.mt/consumer) have also been developed.

  29. Consumer Protection Office of the Consumer Complaints ManagerFormal Complaints Reviewed

  30. Consumer Protection Protection Schemes: Investor Compensation Scheme – a rescue fund for private consumers of failed investment intermediaries, which are licensed by the MFSA. Depositor Compensation Scheme – a rescue fund for private depositors of failed banks or other credit institutions, which are licensed by the MFSA. Protection and Compensation Fund – a rescue fund for private consumer of failed insurers, which are licensed by the MFSA.

  31. Malta An ideal location for international financial and company services operations

  32. Investment Services Investment Services Act The Act provides the basis for the regulation of investment services providers (licence holders providing investment advice and management services including stockbroking and acting as trustees and custodians) and collective investment schemes (SICAVs)

  33. Licence Holders • Category 1(a & b) - Provide any investment service but do not hold or control clients' money or assets nor deal for their own account or underwrite(excludes fund management companies) • Category 2 - Provide any investment service and hold or control clients' money or assets, but do not deal for their own account or underwrite(includesstockbrokers) • Category 3 - Provide any investment service, hold and control clients' money or assets and deal for their own account and underwrite • Category 4 - Act as trustees or custodians of collective investment schemes

  34. Licensing Requirements for Professional Investor Funds • Need not issue prospectus but offering document will be required • Not subject to any restrictions on investment or borrowing powers • Authorised investors (assets in excess of $1m) • Nominee investor allowed but must be known to manager • Custodian need not be in Malta but if manager is also external PIF must appoint a "judicial representative" • Licensing in 7 working days

  35. Primary & Secondary Listing • Listing document, prospectus or scheme particulars • Listing agreement with the Malta Stock Exchange $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ • Primary listing on an exchange acceptable to the MSE • Fund satisfies the MSE that it is suitable for listing • Produces a certificate of compliance from the exchange where it has a primary listing • Submits any documentation previously filed with the exchange where it has a primary listing

  36. Occupational Pensions Special Funds Act The legislation encourages the development of funded “second pillar” and “third pillar” pension arrangements by companies setting up plans for their own employees and by service providers who would create “packaged” plans for individuals and smaller businesses

  37. A Typical Structure Employer promises services Scheme retirement Employee benefits services fee Fund contributions shares annual reports, etc. Scheme Administrator Retirement Fund fee services services fee Registered Administrator Asset Manager

  38. Credit and Financial Institutions The Banking Act Provisions consistent with the EU directives covering regulation and prudential supervision; no licence restrictions; minimum paid up capital of Euros 2.0m. Supervision is serious, firm and aligned to the Basle Convention. It is carried out both onsite and offsite using modern and internationally recognised methodology.

  39. Banking Directives • Submission of statutory information • Publication of audited financial statements • Capital Adequacy • Credit and Country Risk Provisioning • Consolidated Supervision

  40. Credit and Financial Institutions The Financial Institutions Act Provisions for non-bank financial institutions undertake financial activities except for deposit taking, investment services and insurance. These are subject to the general regulatory framework applicable for banks but specific regulatory conditions and capital requirements depend on the activities that are undertaken by the particular non-bank financial institution. Licensable activities under the Act include: • Lending, trading for their own account or on behalf of customers • Financial Leasing • Venture or risk capital • Money transmission services • Issuing and administering means of payment (such as credit cards, travellers’ cheques and bankers’ draft) • Guarantees and commitments

  41. eMoney Institutions • Regulatory requirements included in the Banking Directive issued in terms of the Banking Act 1994 is modeled on EU Directive 2000/46/EC on the Taking up Pursuit of and Prudential Supervision of Electronic Money Institutions. • Regulatory requirements for emoney institutions are less onerous then those necessary for credit institutions.

  42. Insurance Legislation Insurance Business Act Insurance Brokers and Other Intermediaries Act The legislation aims to create a favourable regulatory and competitive environment particularly in potential growth areas such as affiliated (captive) insurance and insurance management companies operating carrying out international business. It reflects Malta’s international commitments, in particular the WTO and provides a procedure for exchange of information between the MFSA and foreign insurance regulatory authorities, other local or overseas regulatory, judicial or enforcement authorities;

  43. Insurance Legislation • modeled on European Union rules (particularly with regards to solvency margin and technical provision requirements) and provides for passporting of products and services in relation to the EU single market by Malta-based intermediaries; • continuance of companies provisions apply to all insurance companies, insurance managers and insurance brokers; • Protected Cell Company provisions apply to insurance companies, insurance managers and insurance brokers; • Application determined within 6 months of submission of complete information - 3 months in the case of affiliated insurance; • Insurance licence holder to meet following criteria on an ongoing basis: a) Fit and proper persons b) Sound and prudent management c) Financial soundness

  44. Affiliated Insurance (captive insurance) Definition of Affiliated Insurance Company (AIC): An insurance company registered in Malta whose business is restricted to insuring risks originating with shareholders or connected undertakings or entities including: - parent companies; - associated or group companies; - persons/entities with majority ownership or control in AIC ; - members of trade, industry or profession associations insuring risks related with their trade.

  45. Affiliated Insurance (captive insurance) Affiliated Insurance regulations: provide a regulatory framework tailor-made for such companies AICs are exempt from a number of provisions of the Insurance Business Act Material Exemptions Protection and Compensation Fund Document Duty chargeable on contracts of insurance in so far as concerns contracts relating to a risk situated outside Malta Other features Redomiciliation of companies carrying on affiliated insurance; Protected Cell Companies

  46. Trusts and Trustees Trusts and Trustees Act The legislation creates the trustee following the elimination of the nominee and transparency in the management of trusts

  47. Regime for Trustees • The relationship whereby a person holds assets for another, in the name of the former, is defined as a trust relationship and is covered by the Act. • Regulations apply to trustees in the holding of all types of assets and not only shares in Maltese companies • Any person who acts as a trustee in Malta needs a licence if he is remunerated, holds himself out to provide such services or is a company. All trustees will be “subject persons” under the Prevention of Money Laundering legislation • Private trustees (non-remunerated, non-corporate and not holding themselves out as such) will not need a licence.

  48. Registration of Trusts • The regulation will focus on trustees and not on trusts which are not entities but assets under administration. All laws to apply to beneficiary and if not declared for the purposes of any law, then the law will apply to the trustee. • Ring fencing to non-residents is eliminated and anyone can form trusts for any property. • Principle of transparency introduced.Confidentiality provisions eliminated and trustees subject only to limits of Professional Secrecy Act. • Duty to report suspicion of money laundering. “Know your client” obligations and clear record keeping obligations on the part of trustees. • MFSA will not hold but will have access to records in cases to be defined by the law particularly in case of irregularities. • Trustees will be obliged to ensure that beneficiaries act regularly.Trustees given wide powers to deal with assets in such cases.

  49. Malta Critical Success Factors

  50. Critical Success Factors • Well educated/low cost pool of labour • Inexpensive and modern office developments with capacity • Good telecommunications infrastructure • Very competitive tax regime • Flexible legal and regulatory environment • English is the spoken and written language of business

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