Financial Crime World

Malta’s Banking Sector: A Comprehensive Guide

Malta’s banking sector is a vital part of the country’s financial system, with numerous banks operating within its borders. In this article, we will delve into the intricacies of Malta’s banking sector, exploring the requirements for obtaining a banking licence, the procedure for doing so, and the minimum capital requirements that apply to banks in the jurisdiction.

Repayable or Not?

According to Article 7 of the Banking Act, a credit institution (including banks) must borrow or raise money from the public through the issue of debentures or other instruments creating or acknowledging indebtedness for the purpose of employing such money in whole or in part by lending to others or otherwise investing.

Additional Activities

In addition to traditional banking activities, banks in Malta may engage in any of the additional activities listed in the First Schedule to the Banking Act. These include:

  • Accepting and processing payment transactions
  • Providing custodial services
  • Trading in securities
  • Operating a stock exchange

Obtaining a Banking Licence

To obtain a banking licence, applicants must satisfy certain requirements, including:

  • An initial capital of at least €5 million
  • At least two individuals effectively directing the company’s business
  • Notification of shareholders/members having qualifying holdings (if applicable)
  • Satisfactory assessment that shareholders/members and controllers are suitable persons
  • Arrangements for sound and effective risk management

Procedure for Obtaining a Licence

The procedure for obtaining a banking licence is governed by MFSA’s Banking Rule BR/01. The application process typically involves:

  1. Submission of an Application: Submitting an application to the Malta Financial Services Authority (MFSA), which must be accompanied by certain documentation, including:
    • A copy of the institution’s Memorandum and Articles of Association
    • Audited financial statements
    • A business plan
  2. Review and Assessment: Reviewing and assessing the application by the MFSA, which may require additional information or clarification.
  3. Determination of the Application: Determining the application within six months of receipt, unless incomplete or requiring additional information.

Appeals

In the event of an adverse decision, applicants have the right to appeal to the independent Financial Services Tribunal.

Funding

Banks in Malta can be broadly categorized into three groups:

  • Core Domestic Banks: Rely predominantly on resident deposits for funding
  • Non-Core Domestic Banks: Generate more funding from shareholders’ equity
  • Internationally-Oriented Banks: Typically fund themselves through the wholesale market or their parent banks

Minimum Capital Requirements

The Banking Act requires a credit institution to have an initial capital of at least €5 million. However, prudential ratios apply, and minimum capital requirements may exceed this threshold for specific proposed banking operations.

Conclusion

In conclusion, obtaining a banking licence in Malta involves satisfying certain requirements and following a specific procedure. Banks must also ensure compliance with minimum capital requirements and other regulatory guidelines to operate effectively in the jurisdiction.