Investment Services and Collective Investment Schemes are regulated by the Investment Services Act, 1994 ('the Act') as amended by Act XVII of 2002. This Act establishes a balanced regulatory regime aimed at affording adequate protection to investors, enhancing market stability and ensuring an attractive environment for market participants to carry on their business in or from Malta. The Investment Services Act also delegates extensive rule making powers to the Malta Financial Services Authority, the latter having the power to issue guidelines and directives to operators in the sector, whilst also being empowered to negotiate with market participants on an individual basis, in that the possibility of derogations from certain standard licence conditions within the guidelines to the Act is provided for, should circumstances so warrant.
The Investment Services Act defines an "investment service" as "any service falling within the First Schedule to this Act when provided in relation to an instrument". The provision of an Investment Service in relation to an Instrument is a licensable activity. The Act's First Schedule lists the following services:
- reception and transmission of orders in relation to one or more instruments;
- execution of orders on behalf of other persons;
- dealing on own account;
- management of investments;
- trustee, custodian or nominee services;
- investment advice;
- underwriting of instruments and, or placing of instruments on a firm commitment basis;
- placing of instruments without a firm commitment basis;
- operation of a Multilateral Trading Facility
The Investment Services Act also provides for a list of “Instruments” in the Second Schedule to the Act, with many types of instruments being provided for including:
- transferable securities;
- money market instruments;
- units in collective investment schemes;
- derivative instruments for the transfer of credit risk;
- rights under a contract for differences or under any other contract the purpose or intended purpose of which is to secure a profit or avoid a loss by reference to fluctuations in the value or price of property of any description or in an index or other factor designated for that purpose in the contract;
- certificates or other instruments which confer property rights in respect of any instrument mentioned within the schedule;
- various types of derivatives;
- foreign exchange acquired or held for investment purposes
A recent phenomenon is the surge in interest from various market players in the foreign exchange field, ranging from specialist software providers interested in using Malta as a base for their operations, to FOREX specialised asset managers and FOREX trading platforms looking to use Malta as a launch platform from where to penetrate overseas markets. Businesses which provide services in relation to FOREX would normally require a license from the MFSA. The possibility of establishing a branch or carrying on business on a cross-border basis within the EEA without requiring a licence in each case is an added advantage.
Fund administration is now no longer a licensable activity, with firms providing this service now being required to apply to the Malta Financial Services Authority for recognition in terms of the Act. There are also a number of exemptions from the requirement of having an investment services licence, which apply in particular circumstances.
In assessing a licence application, the Malta Financial Services Authority must be satisfied that the applicant is “fit and proper” and willing and capable to act in accordance with the law and any Standard Licence Conditions attached to the licence issued. The “fit and proper” test is a fundamental regulatory concept which requires potential and existing licencees and their qualifying shareholders and senior staff to demonstrate competence, integrity and solvency in all their dealings. These requirements apply both at the licensing stage and on an on-going basis thereafter.
Investment services companies are subject to the provisions applying to all other companies under the Income Tax Act, 1948 and Income Tax Management Act, 1994.
Companies providing back office services in the financial services sector must seek the approval of the Malta Financial Services Authority, prior to commencing operations.
Advance revenue rulings may be obtained as to the tax treatment of transactions involving financial instruments and international business. These rulings apply for 5 years and may be renewed for a further 5 years. Such rulings also survive any change in the relevant legislation for a maximum period of 2 years.
The firm advises and assists clients in the investment services and funds sectors both in the setting up process and on an on going basis thereafter, including assistance to obtain and relevant license, authorization or recognition.
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