Financial Crime World

ECB Grants Banking Licence: MFSA Plays Key Role in Authorisation Process

The European Central Bank (ECB) has granted a banking licence to a credit institution in collaboration with the Malta Financial Services Authority (MFSA), Malta’s national competent authority.

The Single Supervisory Mechanism Framework Regulation

Under the Single Supervisory Mechanism (SSM) Framework Regulation, the ECB has the power to grant authorisations to credit institutions in collaboration with National Competent Authorities (NCAs). The SSM Framework Regulation establishes common procedures for granting authorisations, which are decided by the ECB regardless of the significance of the credit institution concerned.

Application Process

The application process begins when an applicant submits its request to the MFSA, along with a comprehensive set of documentation. This includes:

  • A copy of the institution’s Memorandum and Articles of Association
  • Audited financial statements for the last three years (if applicable)
  • A business plan that demonstrates:
    • Proportionate, appropriate, sound, and adequate internal governance, compliance function, operational risk assessment, conduct risk assessment, and anti-money laundering measures to its business model

The MFSA reviews the application and notifies the ECB of its receipt within 15 working days. If there are any omissions or inconsistencies in the application, the MFSA requests the applicant to ensure its completeness.

Once the application is complete, it undergoes a comprehensive assessment by the MFSA, ECB, and other concerned NCAs (if applicable). The MFSA proposes a draft decision containing its assessment and recommendations to the ECB. If the final decision is positive, the MFSA communicates the outcome to the applicant.

Appeal Process

In terms of Article 10 of the Banking Act, an applicant who is aggrieved by a decision of the MFSA has the right of appeal to an independent Financial Services Tribunal.

Determination Period

The MFSA must determine an application for a licence within six months of receipt. If an application is incomplete or requires additional information, the determination period may be extended.

Funding and Capital Requirements

The banking sector in Malta can be broadly divided into three groups:

  • Core domestic banks: predominantly funded through resident deposits
  • Non-core domestic banks: have a higher Tier 1 capital adequacy ratio and generate more funding from shareholders’ equity
  • Internationally-orientated banks: primarily funded through the wholesale market or their parent banks

Capital Requirements

The Banking Act requires that a credit institution may not have an initial capital of less than €5 million. However, prudential ratios apply, and minimum capital requirements for a specific proposed banking operation may exceed this threshold.

In addition to the minimum capital requirement, banks are required to abide by rules provided by the Capital Requirements Regulation (CRR) and other applicable EU legislation, which may result in higher capital requirements than the minimum established by law.