Malta has become an attractive jurisdiction for the establishment of e-Money Institutions (‘EMIs’) and this can be credited to the growth in the e-commerce and i-gaming industries. EMIs fall under Malta’s Financial Institutions Act (the ‘Act’) and the EU Electronic Money Institutions Directive (the ‘Directive’) which was transposed by Malta in 2011.
The Directive defines an EMI as a legal person that has been granted authorization to issue electronic money. Electronic Money is in turn defined 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, and which is accepted by a natural or legal person other than the electronic money issuer.
EMIs that are set up in Malta benefit from a reduced capital requirement when compared to credit institutions, as well as operational costs that are significantly lower than in most European countries. The 250+ i-gaming companies that are already established in Malta, as well as the wider range of e-commerce companies that are being attracted to the island, all require payment services, making it a great opportunity for investors to set up EMIs in Malta.
Features and Requirements of e-Money Institutions
The Directive allows EMIs to perform other activities in addition to issuing electronic money. These institutions are entitled to engage in the following activities:
- The provision of certain payment services;
- The granting of credit related to certain payment services in accordance with the safeguarding requirements for funds;The provision of operational services and closely related ancillary services;
- The operation of payment systems; and
- Business activities other than the issuance of electronic money, with regards to the applicable law regulating such activities.
The initial capital requirement for EMIs at the time of authorization is €350,000. The licensed EMI is obliged to ensure that its own funds do not fall below the initial capital requirement, or 2% of the average outstanding electronic money, whichever is higher. This is unless the institution undertakes payment services not related to the issuance of electronic money. In case of the latter, the Financial Institutions Rules issued by the MFSA stipulate varying methods for calculating the required amount.
EMIs must have at least two individuals who will effectively direct the business of the EMI in Malta. The persons involved must prove themselves as being fit and proper persons exercising prudent conduct with integrity and professionalism.
EMIs, with the exception of small electronic money issuers, may exercise a European right to issue electronic money in another Member State or EEA State. This can be done either through the establishment of a branch or under the freedom to provide services if the applicable provisions are satisfied.
Obligations of e-Money Institutions
Institutions which are authorized to issue electronic money must do so at par value on the receipt of funds. Said institutions must ensure that, at any moment, upon request by the holder, they are in a position to redeem the monetary value of any electronic money held, at par value and without delay.
The Act prohibits the granting of interest, or of any other benefit, related to the length of time during which EMIs hold electronic money. EMIs must safeguard all funds received by payment services users or in exchange for electronic money that has been issued.
License Application and Fees
Prospective e-Money Institutions must apply in writing to the MFSA for a license prior to commencing business. The MFSA requires that applications be submitted to it on the appropriate application forms accompanied by:
- A programme of operations;
- A copy of the Memorandum and Articles of Association of the proposed institution;
- The proposed level of initial capital;
- Audited financial statements for the last three years;
- A business plan featuring the structure, organisation, and management systems of the institutions;
- A description of the internal control mechanisms;
- A description of the structural organisation;
- Measures concerning safeguarding of funds where applicable;
- The identity of the statutory auditors and audit firms where applicable;
- The identity of all directors, controllers and managers of the institution;
- The identity of all shareholders with qualifying shareholding or partners;
- The identity of the individuals who will be effectively directing the business of the prospective institution;
- The applicant’s legal status and the address of his head office.
The MFSA requires a one-time application fee, which is non-refundable irrespective of whether it is accepted or refused, of €3,500. Additionally, institutions are faced with an annual supervision fee equivalent to 0.02% of the total assets as reported at the end of the preceding year in the balance sheet, but never less than €2,500.