Financial
Services Regulation
Revision No. 14 -
Last Updated :
09-10-2002
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Quick Reference: (Click on any link in the table to go straight to the relevant paragraph) |
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The Insurance Business Act
and the Insurance Brokers and other Intermediaries Act |
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The primary form of protection afforded by the Investment Services Act is the rule requiring any person who wishes to advise people on financial products and instruments, including company shares, bonds, foreign currency and other securities, to apply for a license from the Malta Financial Services Centre. The Centre is an autonomous authority set up by Act of Parliament to supervise the provision of financial services.
A license is only issued to firms that can show competence and reliability. The Centre examines their track-record, qualifications and financial and human resources set-up. The objective of the exercise is to ensure that investors are only advised by professionals who are competent, qualified and licensed to do so.
The law also requires the Centre to vet and control advertising methods and promotional material used by financial services practitioners to entice clients.
Breaches of the Investment Services Act may involve considerable punishments.
The
Banking Act
The Act replaces the previous banking legislation and introduces modern regulatory concepts and supervisory practices into the Malta financial scenario. The EU Directives have been the main source of reference for most changes but the concepts introduced reflect Malta’s commitment to adhere with the general trend for harmonisation in international banking legislation.
In the field of banking, the supervisory and licensing authority is also the MFSC which is legally obliged to ensure that licensees are financially stable and adequately qualified to offer banking services to customers in Malta or overseas.
The underlying concept behind the Banking Act is to provide the regulatory flexibility necessary in a modern and dynamic banking environment while, at the same time, allowing pro-activeness in the monitoring of new risks that may arise in an evolving and expanding environment.
The Insurance Business Act and the Insurance Brokers and other Intermediaries Act
The legislation regulates both domestic and international insurance activities being carried out by authorised companies and enrolled insurance brokers. It provides for the regulation and supervision of different types of insurance companies including captives and re-insurers and insurance intermediaries.
Again, the new insurance legislation has been broadly modelled on EU principles, particularly with regard to solvency margin and technical provision requirements.
The Malta Stock Exchange (MSE) was established by a special Act of Parliament in 1990 as a statutory authority entrusted with the functions of promoting and supervising the listing of securities and other instruments (including units in unit trusts), as well as with the function of licensing and overseeing the activities of stockbrokers.
The Malta Stock Exchange Act establishes the Council as the regulatory authority of the Exchange making it primarily responsible for:
· Maintaining the highest ethical standards in the conduct of business;
· Promoting and sustaining an orderly and visible securities market;
· Licensing stockbrokers; and
· Approving applications for listing.
The Act also provides for the establishment of a Stock Exchange Committee whose main function is to advise the Council on matters affecting trading procedures, as well as to exercise a first line of self-regulation on the licensed stockbrokers and to make any recommendations to the Council as it deems fit in this regard.
The MSE operates in a completely automated environment that integrates the trading process, clearing and settlement and securities registration into one complete seamless electronic system. Trades are often driven and are carried out through the Malta Automated Transfer System, a fully electronic structure that permits a validation criteria that virtually eliminates the possibility of failed trades.
The Central Securities Depository (CSD) has made possible the dematerialisation of certificates for listed securities. The CSD allows investors to hold and transfer listed securities without the need for actual physical certificates or for security transfer documents. Each listed security is represented by a computerised register of accounts which is updated at the end of each trading session to reflect the day’s transactions.
The Financial Institutions Act
In broad terms, the Act regulates areas of financial services not covered by the Banking Act or by the Investment Services Act. The Act defines financial institutions as including lending, financial leasing, venture or risk capital, money transmission services, issuing and administering means of payment, underwriting share issues and the participation in such issues and foreign exchange bureau activity.
The Act establishes a general regulatory environment for financial institutions including a requirement that any person wishing to provide such services must obtain a license from the Central Bank of Malta. The Act sets out the obligations of license holders as well as the powers of the Central Bank being the supervisory authority.
A new Companies Act, which replaced the Commercial Partnerships Ordinance, 1962, came into force on 1 January, 1996. The Act, in line with the Company Law Harmonisation Directives of the EU, particularly, the First, Second, Third, Fourth, Sixth, Seventh and Twelfth Directives, built on the existing legal framework in the Ordinance, developing and updating it to meet the needs of a more sophisticated and complex financial and commercial environment.
The Companies Act has introduced a number of new features. The Act, for instance, recognises and regulates new corporate investment vehicles such as the SICAV, a limited liability company with variable share capital, and the INVCO, an investment company with fixed share capital. Both these corporate structures are ideal for collective investment purposes.
In addition, there is a greater emphasis on corporate responsibility in the Act. All companies are now required to appoint a company secretary who must ensure that the company satisfies its administrative, record-keeping and filing obligations. Detailed provisions govern the possibility of a company acquiring its own shares. There are novel structures and rules for the dissolution and winding up of companies.
The Prevention of Money Laundering Act
The Prevention of Money Laundering Act defines the crime of money laundering along the lines adopted in the EU and makes it a criminal offence to utilise or to employ money derived from crime. The offence may also be committed by those who aid or abet money laundering.
The supervisory authorities and operators within the financial sector are duty-bound to report any evidence of money laundering which comes to their knowledge to the Police.
The Act brings Maltese legislation on insider dealing into line with EU standards. It prohibits dealing on the Stock Exchange in stocks of a company by persons who have information about the company by virtue of their being connected with it or who have information which is known to be price sensitive unpublished information.
The Act defines the categories of ‘connected persons’ who may be held liable for breaches of this legislation and provides for criminal sanctions.
The Professional Secrecy Act, 1994, ensures that all companies conduct their business in total privacy. Confidentiality is maintained even after liquidation and striking-off of a company.
Moreover, licensed nominee companies and professionals providing services to companies are bound by law to the strictest confidentiality and are liable to incur heavy civil and criminal liabilities in case of breach of secrecy.
The Professional Secrecy Act makes it clear that the duty of professional secrecy does not only extend to government officials and to professionals, but also to their employees and agents.
An express statutory exception has been made to the rules governing professional secrecy in order to allow financial operators and supervisory authorities to communicate cases of suspected money laundering to the Police.
As we have seen, Malta has the basis for a comprehensive investor protection law for the benefit of investors and the general public. Even though new financial services and products are constantly being devised and introduced on the market, the laws have been drafted in such a manner as to be flexible enough to address any new situations that may arise.
· This Document in PDF Format.
· Further Reading : The Regulator
· Further Reading : Guide to the provision of Investment Services
· Further Reading : Professional Investor Funds
· Further Reading : Money Laundering
· Further Reading : Confidentiality
· Further Reading : Collective Investment Schemes
· Further Reading : Listing Collective Investment Schemes on the Malta Stock Exchange
· Further Reading : Guide for Alternative Listing on the Malta Stock Exchange.