How to receive Electronic Money Institution license in Malta

Electronic Money Institution license in Malta

Requirement for an Electronic Money Institution Licence

Stand-alone Electronic Money Institutions (EMIs) are authorised to undertake the activity of issuing electronic money through a licence issued in terms of the Financial Institutions Act (Chapter 376 of the Laws of Malta). Specific regulation of EMIs is provided for under the relevant Malta Financial Services Authority’s Financial Institutions Rule (FIR/03).

The Third Schedule to the Financial Institutions Act (the ‘Act’) defines an EMI as:

“a financial institution that has been licensed in accordance with this Act and authorised to issue electronic money or that holds an equivalent authorisation in another country in terms of the Electronic Money Directive to issue electronic money.”

Clearly, this shows that the law targets “stand-alone” e-money institutions, that is to say companies desiring to undertake the business of electronic money institutions, to the exclusion of any other regulated activities. Credit institutions are explicitly excluded in the interest of avoiding the duplication of licensing requirements- such institutions would automatically be authorised to issue means of payment in the form of electronic money in virtue of their banking licence.

Electronic money is defined in the Third Schedule to the Act as:

“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 as defined in paragraph 1 of the Second Schedule and which is accepted by a natural or legal person other than the financial institutions that issued the electronic money.”

Licensable Activities

Under their licence, EMIs can only undertake the business of issuing electronic money (as defined above) in and from Malta, together with the following activities in terms of the Third Schedule to the Financial Institutions Act:

the provision of payment services listed in paragraph 2 of the Second Schedule

the granting of credit related to payment services referred to in paragraph 2(d) or (e) of the Second Schedule, where the following conditions are met:

i the credit is ancillary and granted exclusively in connection with the execution of a transaction; and

ii notwithstanding national rules on providing credit by credit cards, the credit granted in connection with a payment and executed with the Act shall be repaid within a short period which shall in no case exceed twelve months; and

iii such credit is not granted from the funds received or held for the purpose of executing a payment transaction; and

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i the own funds of the Electronic Money Institution are at all times appropriate in view of the overall amount of credit granted, to the satisfaction of MFSA.

ii the provision of operational services and closely related ancillary services in respect of the issuing of electronic money or the provision of payment services referred to in point (a);

iii the operation of payment systems as defined in the Second Schedule;

iv business activities other than the issuance of electronic money, having regard to the applicable law regulating such activities.

Credit referred to in paragraph (b) above shall not be granted from the funds received in exchange for electronic money and held in accordance with the prescribed safeguarding requirements.

EMIs based in Malta are allowed to outsource services subject to the MFSA’s evaluation on their own merits.

Statutory Minimum Criteria for Authorisation

For an entity to be granted a licence it must satisfy the following criteria:

its initial capital whether in Euro or in any other currency acceptable to the MFSA is equal to such amount established by the Authority in a Rule and as may be appropriate for the activities to be undertaken by the applicant.

Besides various other systemic, organisational and operational requirements, undertakings considering applying for an EMI license are to satisfy a minimum initial capital requirement of €350,000. The licensed EMI is obliged to ensure that its own funds do not fall below this amount of initial capital.

Furthermore, an EMI is required to maintain own funds amounting to at least 2% of the average outstanding electronic money. This percentage may be increased in proportion to the risk loss and risk management procedures presented by the applicant, and in the case of companies with no history, based on percentages of their business plan.

there are at least two individuals who will effectively direct the business of the financial institution in Malta - the “four-eyes” principle;

all qualifying shareholders, controllers and all persons who will effectively direct the business of the financial institution are suitable persons to ensure its prudent management;

the MFSA is satisfied that the financial institution has sound and prudent management, and has robust governance arrangements, which include a clear organisational structure with well defined, transparent and consistent lines of responsibility, effective procedures to identify, manage, monitor and report the risks to which it is or might be exposed, and adequate internal control mechanisms, including sound administrative and accounting procedures; provided that such arrangements, procedures and mechanisms shall be comprehensive and proportionate to the nature, scale and complexity of the services provided by the institution;

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The MFSA is satisfied that, where there are close links between that company and another person or persons, such links do not through any law, regulation, administrative provision or in any other manner prevent it from exercising effective supervision of that company under the provisions of the Act or any Financial Institutions Rule: Provided that the company shall, after being licensed under the Act, inform the MFSA immediately of any change in circumstances concerning the application and shall be further required to provide the Authority with information necessary to monitor compliance with the conditions referred to in this paragraph on a continuous basis.

The Application Process

The application process may be divided into three phases, namely (1) Intent and Preparatory Stage; (2) Pre- licensing stage and (3) Post-Licensing/Pre-Commencement of Business Stage.

Intent and Preparatory stage:

We have a very good working relationship with the MFSA and have on various occasions advised and assisted clients in obtaining a financial institution license. Initially, a statement of intent is submitted to the MFSA in order for us to outline the proposal to the regulator. If required, within ten working days from submission of intent, the regulator will request to hold a preliminary meeting to discuss any queries. After all queries/pending issues are settled, a draft license application form is submitted together with the supporting documentation required such as the detailed business plan and any audited accounts, Personal Questionnaire forms, Memorandum and Articles of Association and supporting Board resolution.

The application and documentation are then reviewed by the regulator. The MFSA may ask for more information and may make such enquiries as it considers necessary together with any ‘fit and proper’ checks.

Pre-licensing stage

Once the draft application and supporting documents have been reviewed and the draft licence conditions have been agreed to, the MFSA will determine whether to issue its ‘in principle’ approval for the issue of the licence. Any outstanding matters such as company incorporation and the final copies of the documentation are to be settled at this stage.

The licence is issued once all pre-licensing issues are resolved.

Post-Licensing/Pre-Commencement of Business Stage

In certain cases, the applicant may also be required to satisfy a number of post-licensing matters prior to formal commencement of business.

The process to obtain a licence usually takes around 9 to 12 months from submission of complete application and supporting documents however this depends on due diligence checks and the efficiency of the applicant in providing information to MFSA’s requests for clarifications. 4

Safeguarding of Client Money

The MFSA requires payment institutions and electronic money institutions providing payment services to safeguard all funds which have been received from payment service users or received through another payment service provider for the execution of payment transactions. Such funds shall not be commingled at any time with the funds of any natural or legal person other than the financial institution’s client(s) on whose behalf the funds are held. In the event that by the end of the business day following the day when the funds are received, they are still held by the financial institution, these shall be deposited in a separate account in a credit institution or invested in secure, liquid low-risk assets. Such funds shall be insulated in terms of the Financial Institutions Act (Safeguarding of Funds) Regulations (S.L. 376.04) and any other applicable Legal Notice to protect the interests of the financial institution’s clients against claims of other creditors of the financial institution, in particular in the event of insolvency.

Such funds may be alternatively covered by an insurance policy or some other comparable guarantee from an insurance company or credit institution, which does not belong to the same group as the financial institution itself, for an amount equivalent to that which would have been segregated in the absence of the insurance policy or other comparable guarantee, payable in the event that the financial institution is unable to meet its financial obligations. For the purpose of the criteria established in regulation 7 of the Financial Institutions Act (Safeguarding of Funds) Regulations (S.L. 376.04) and any other applicable Legal Notice, secure low-risk assets are deemed to be liquid if they fall within one the categories listed hereunder:

i cash and cash equivalents;

ii listed debt securities issued by the Government of Malta or the Central Bank of Malta;

iii short-term deposits in credit institutions authorised in Malta or in another Member State where the term of short-term deposit is no longer than 6 months;

iv other assets equivalent to the quality and liquidity of the above assets, as may be approved by the MFSA upon request in writing by the financial institution

Given the crucial importance of safeguarding, an electronic money institution shall inform the MFSA in advance of any material change in measures taken for safeguarding of funds that have been received in exchange for electronic money issued. Such a material change may include inter alia a change in the safeguarding method, a change in the credit institution where safeguarded funds are deposited or a change in the insurance undertaking which insured or guaranteed the safeguarded funds.

Exercise of Passport Rights by Maltese EMIs

A Maltese EMI may exercise a European right to provide payment services and, or issue electronic money in another Member State or EEA State once it gives notice to the MFSA, in accordance with regulation 7 of the European Passport Rights for Financial Institutions Regulations 2011.

A Maltese electronic money institution may only exercise its European right to establish a branch in another Member State or EEA state once it gives notice to the MFSA in accordance with regulation 8 of the European Passport Rights for Financial Institutions Regulations 2011. 5

Regulatory Fees

i MFSA

Application & Processing Fees €3,500

Supervision Fee 0.0002 X Items in the Balance Sheet But not less than €2,500 and not more than €50,000

Documents & Information Required for EMI Licence Application

1. Completed MFSA licence application form and any supplementary MFSA questionnaires (corporate questionnaire if an entity is involved in the structure).

2. Certificate of incorporation of the applicant entity, Memorandum & Articles of Association (or equivalent constitutional documents).

3. Register of shareholders and share capital details of the applicant entity.

4. Business plan covering at least three years, describing:

o the nature and scale of the business, target markets and services to be offered;

o the organisational structure, governance arrangements and key functions;

o risk management and internal control framework.

5. Financial projections for the first three financial years (income statement, balance sheet, cash flow) plus proof of initial capital/own funds.

6. Identity and due-diligence documentation for each director, senior manager, key function holder (such as MLRO/Compliance Officer) and any qualifying shareholder (holding 10% or more)-

7. Curriculum vitae (CVs) of directors, senior managers and key personnel, showing relevant experience and qualifications.

8. Fit and Proper assessments of directors, senior managers and qualifying shareholders. Personal Questionnaire for each individual is also to be submitted.

9. Disclosure of beneficial ownership: identities of all individuals holding, directly or indirectly, qualifying holdings and details of their holdings and source of funds.

10. Description of the applicant’s physical presence and operational substance in Malta (head office, premises, staffing, operational systems).

11. Organisational chart of the applicant showing lines of responsibility and key functions (first three years).

12. Description of internal control mechanisms, audit arrangements and compliance monitoring programme.

13. Policies and procedures, including but not limited to:

o AML/CFT policy and KYC procedures;

o Safeguarding policy for electronic money and client funds;

o Outsourcing policy (where applicable);

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o ICT security policy;

o Business continuity plan.

14. Description of systems, processes and IT infrastructure supporting the business (including payment and e-money issuance systems, data protection, incident reporting).

15. If outsourcing- submission of Outsourcing assessment.

16. Safeguarding arrangements for client funds: details of how funds are segregated, held, and protected (third-party accounts, low risk investments, etc.).

17. Auditor and external audit firm details (if applicable), and internal audit programme.

18. Description of risk management framework: identification of risks, monitoring, reporting, mitigation strategies.

19. Any previous audited financial statements of the applicant (if already in existence) for the last 3 years.

20. Any other documentation or information requested by the MFSA in connection with the application.

21. Submission of application fee and payment of MFSA-prescribed fees