Electronic Money Institutions (hereinafter referred to as an ‘EMI’) in Malta are regulated by the Financial Institutions Act, Chapter 376 of the laws of Malta (hereinafter referred to as the ‘Act’). They are under the Directive 2009/110/EC (hereinafter the ‘Directive’) and are defined as institutions licenced by the Malta Financial Services Authority (hereinafter referred to ‘MFSA’ or the ‘competent authority’) authorised to issue electronic money.
The Third Schedule of the Act defines Electronic Money as to electronically, including magnetically, stored monetary value, represented by a claim on the issuer issued on the receipt of funds for payment transactions. This includes the transferring or withdrawing of funds accepted by a natural or legal person other than the financial institutions that issued the electronic money.
Benefits of setting up an EMI in Malta
Malta, an EU Member State in the hub of the Mediterranean, has increasingly developed a reputation as a centre of financial excellence in the financial services industry. It has seen an influx of e-Commerce companies and e-Gaming companies requiring payment services. Malta also boasts a strong banking sector and a stable IT infrastructure.
Moreover, Malta is an excellent choice to set up an EMI. The country’s initial capital requirement in setting up a financial institution is as low as three hundred and fifty thousand Euro (€350,000).
Granting of Licence
For a company to acquire a licence to operate an EMI under the Act, such company should provide among other things:
- The initial capital of €350,000
- At least two individuals to direct the business of the financial institution in Malta
- Assurance that all shareholders and persons vested with the control or directorship of the business are suitable persons to ensure prudent management
Furthermore, MFSA should also be satisfied that the EMI has sound and prudent management, a clear organisation structure, set procedures, and transparency regarding the responsibility of the persons controlling the business.
A company may be granted a licence unconditionally or subject to conditions, according to the discretion of the competent authority, albeit such licence may also be refused.
EMI’s are licenced to carry out the following activities:
- The provision of specific payment services, including:
a. Services enabling cash to be placed on a payment account as well as operations required for operating a payment account;
b. Services enabling cash withdrawals from a payment account as well as operations required for operating a payment account;
c. Execution of payment transactions, including transfer of funds on a payment account and including the execution of direct debits, credit transfers and payment transactions through a payment card or similar device;
d. Execution of payment transactions where a credit line covers the funds for a payment service user, including the execution of direct debits, credit transfer and payment transactions through a payment card or other device;
e. Issuing and/or acquiring of payment instruments;
f. Money remittance;
g. Execution of payment transactions where the payer gives consent for a payment transaction through telecommunication, digital or IT devise and the payment is also made by the latter, which acts as an intermediary on behalf of the payment service user.
The granting of credit related to payment services made in terms of clauses 1(d),(e) and (g) above, when (i) the credit is ancillary or granted exclusively in connection with the execution of a transaction, (ii) the credit granted in connection with payment shall be repaid within a short period, not exceeding twelve months, (iii) such credit is not granted from the funds received or held to execute a payment transaction and (iv) the own funds of the payment institution are at all times to the satisfaction of the supervisory authority, appropriate in view of the overall amount of credit granted.
2. The provision of operational services and closely related ancillary services in respect of issuing electronic money;
3. The operation of payment systems, whereby the latter, is defined by the Act as a funds transfer system with clear and organised arrangements and rules for processing, clearing and settling payment transactions;
4. Business activities other than issuing electronic money.
The Practicality of Electronic Money
In a world where technology has become crucial in everyday transactions, electronic money can be the next step both in technology and in the financial services industry.
Online purchases are on the increase. Currently, electronic money is used either through a payment device in the purchaser’s possession or stored on a server and managed by the purchaser through an account.
One of the most popular methods is the prepaid card, which is now being used even for travel and gift purposes. Paypal is an example of an EMI that stores clients’ balances on a server and the client manages their balances themself.
An EMI increases the privacy and security of the client’s personal and financial details. Clients may make purchases at ease as well. Though not all prepaid card issuers and those who account managers require a licence, any company falling under the activities of a financial institution under the Act is required to acquire a licence.
The Directive seeks to remove barriers to market entry and facilitate the taking up and pursuit of electronic money issuance while ensuring a level playing field for all payment service providers.
The Directive does not strive to cater to those prepaid instruments that may be used in a limited manner. Instead, it seeks to cater to prepaid instruments issued in exchange for funds that may be used for payment purposes because third parties accept it as payment.
Liability of EMI’S
EMI’s are obliged by law to segregate the funds of a payment service user from the funds of any other person. Such funds shall be held separately and shall remain identifiable at all times.
EMI’s shall be liable for any loss or prejudice suffered by the payment service user due to fraud, wilful default or negligence of the financial institution’s obligations, in terms of the Financial Institutions Act (Safeguarding of Funds) Subsidiary Legislation 376.04.