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MALTA: Banks Face New Compliance Regulations Amid Payment System Overhaul

Strengthening Regulations for Payment Services Providers

Malta’s Central Bank Act has undergone significant changes aimed at strengthening regulations for payment services providers. The amended act introduces new terminologies, such as:

  • Payment applications
  • Payment card schemes
  • Payment transactions

under its scope.

New Requirements for Licensed Institutions

Under the revised legislation, licensed institutions are now required to inform the bank prior to introducing new services, allowing regulators to review rules and procedures to ensure compliance with existing laws and European regulations. This includes:

  • Informing the bank before introducing new services
  • Reviewing rules and procedures for compliance

Empowering the Central Bank of Malta

The Central Bank of Malta has been empowered to restrain licensed institutions from taking actions that may compromise the stability of the payments landscape in Malta or suspend services found to be in breach of local or European legislation.

Shift Towards Electronic Payment Methods

Malta’s payment system, characterized by a high reliance on paper-based instruments such as cash and cheques, is poised for a shift towards electronic modes of payment. This shift is expected to bring about:

  • Greater efficiencies in business operations
  • Reduced processing costs
  • Improved overall payment processing efficiency

Directives from the Central Bank

The Central Bank of Malta has issued several directives related to payment and securities settlement systems, including:

Directive No. 1: The Provision and Use of Payment Services

  • Transposes the revised Payment Services Directive (PSD2)
  • Aims to improve the payment industry and reinforce consumer protection

Directive No. 2: Payment and Securities Settlement Systems

  • Seeks to reduce legal and systemic risks associated with participation in payment and securities settlement systems

Directive No. 6: New Generation Trans-European Automated Real-Time Gross Settlement Express Transfer System (TARGET)

  • Lays down the legal framework for participation in the TARGET-Malta system

Directive No. 13: Approval of Payment Systems

  • Sets out parameters and terms and conditions for the approval of payment systems prior to commencement of operations

Directive No. 19: The Use of Cheques and Bank Drafts

  • Lays down rules for the safe and effective use of cheques and bank drafts in Malta

Directive No. 20: Cross-Border Payments

  • Stipulates that the Central Bank of Malta remains the competent authority for Regulation (EU) 2021/1230 on cross-border payments

Reporting Requirements

Payment service providers are required to report major incidents and ICT and security risks to the Central Bank using specific templates.

Guidance from the Central Bank

The bank also provides guidance on application processes for payment systems and approval requirements for payment services providers operating in Malta.