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Act No. Ii Of 2010 Entitled The Financial Institutions And Other Financial Sevices Laws (Amendment) Act, 2010 And To Implement Directive 2007/64/Ec (Act No. Ii Of 2010)

ACT No. II of 2010

AN ACT to amend various laws on Financial Institutions and other

Financial Services and to implement Directive 2007/64/EC.

BE IT ENACTED by the President, by and with the advice and consent of the House of Representatives, in this present Parliament assembled, and by the authority of the same, as follows:-

1. The short title of this Act is Financial Institutions and other Financial Services Laws (Amendment) Act, 2010 and to implement Directive 2007/64/EC.

PART I

AMENDMENT OF THE MALTA FINANCIAL SERVICES AUTHORITY ACT, CAP. 330

2. (1) This Part amends and shall be read and construed as one with the Malta Financial Services Authority Act, hereinafter in this Part referred to as “the principal Act”.

(2) The provisions of this Part shall come into force on the date of publication of this Act.

3. Article 20A of the principal Act shall be amended as follows:

Short title.

Amendment of the Malta Financial Services Authority Act.

Cap. 330.

Amendment of article

20A of the principal

Act.

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(a) article 20A thereof shall be re-numbered as subarticle (1) thereof;
(b) immediately after subarticle (1) thereof there shall be inserted the following new subarticle (2):
“(2) The Minister, acting on the advice of the competent authority, may make regulations to give better effect to the provisions of this Act, and without prejudice to the generality of the foregoing may, by such regulations, prescribe anything that is to be or which may be prescribed and provide for any matter consequential, incidental to or connected with any of the above matters.”.

PART II

AMENDMENT OF THE BANKING ACT, CAP. 371

Amendment of the

Banking Act. Cap. 371.

Amendment of article

30 of the principal

Act.

Amendment of the Schedule to the principal Act.

Cap. 376.

4. (1) This Part amends and shall be read and construed as one with the Banking Act, hereinafter in this Part referred to as “the principal Act”.

(2) The provisions of this Part shall come into force on the date of publication of this Act.

5. In article 30 of the principal Act, for the words “or at any other time as may be exceptionally licensed by the competent authority -”, there shall be substituted the words “or at any other time as may be authorised in writing by the competent authority -”.

6. Activities 2 and 3 of the Schedule to the principal Act shall be substituted as follows:

  “2.  Payment  Services  as  defined  in  the  Financial 

Institutions Act;
3. Issuing and administering other means of payment (travellers’ cheques, bankers’ drafts and similar instruments) insofar as this activity is not covered by activity 2 above;”.

PART III

AMENDMENT OF THE FINANCIAL INSTITUTIONS ACT, CAP. 376

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7. (1) This Part amends and shall be read and construed as one with the Financial Institutions Act, hereinafter in this Part referred to as “the principal Act”.

(2) The provisions of this Part shall come into force on the date of publication of this Act.

8. Article 2 of the principal Act shall be amended as follows:

(a) article 2 thereof shall be re-numbered as subarticle
(1) thereof;
(b) in subarticle (1) as re-numbered:
(i) immediately after the words “In this Act, unless the context otherwise requires-” there shall be inserted the following new definition:
“ “agent” means a person who acts on behalf of a financial institution in providing those services listed under the First Schedule to the Act;”;

(ii)  for  the  definition  of  “branch”,  there  shall  be 

substituted the following new definition:

“ “branch” means a place of business other than  the  head  office  which  is  part  of  a  financial institution not having a legal personality and which carries out directly some or all of the transactions, as authorised, inherent in the business of a financial  institution;  all  the  places  of  business  set 

up  in  Malta  by  an  institution  with  a  head  office  in 

another Member State shall be regarded as a single
branch;”;

(iii)  for the definition of “close links”, there shall 

be substituted the following new definition:

“ “close links” means a situation in which two or more persons are linked in any of the following ways:
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Amendment of the Financial Institutions Act.

Cap. 376.

Amendment of article

2 of the principal Act. Cap. 386.

(a) by participation, in the form of direct ownership or by way of control, of
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twenty per centum or more of the voting rights or capital of a body corporate;
(b) by control, through the relationship between a parent undertaking and a subsidiary undertaking  as  defined  in  article  2  (2)  of  the Companies Act, or a similar relationship between any natural or legal person and an undertaking; or
(c) permanently to one and the same third person by a control relationship;”;

(iv)  for  the  definition  of  “control”,  there  shall  be 

substituted the following new definition:

“ “control” in relation to a body corporate, is the power to determine in any manner the financial and operating policies of the body corporate”;

(v)  immediately  after  the  definition  of  “credit facility”, there shall be inserted the following new definition:

“ “the Directive” means Directive 2007/64/ EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC,
2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC, as may be amended from time to time, and includes any implementing measures that have been issued or may be issued thereunder;”;

(vi)  immediately after the definition of “director”, 

there shall be inserted the following new definition:

“ “EEA State” means a State which is a contracting party to the agreement on the European Economic Area signed at Oporto on the 2nd May,
1992 as amended by the Protocol signed at Brussels on the 17th March, 1993 and as amended by any subsequent acts;”;

(vii)  the  definition  of  “equity  share”  shall  be 

deleted;

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(viii)  for  the  definition  of  “financial  institution”, 

there shall be substituted the following new definition:

“  “financial  institution”  means  any  person who regularly or habitually acquires holdings or undertakes the carrying out of any activity listed in

the First Schedule to the Act for the account and at the risk of the person carrying out the activity;”;

(ix)  for  the  definition  of  “financial  institutions directive”, there shall be substituted the following new definition:

“ “Financial Institutions Rule” means a Rule issued by the competent authority to regulate  financial  institutions  in  terms  of  powers arising under this Act, and “Rule” shall be read

accordingly;”,  and  for  the  words  “financial institutions  directive”,  “financial  institutions directives” and, or “directives”, wherever

they appear in the principal Act, there shall be substituted the words “Financial Institutions Rule”, “Financial Institutions Rules” and, or “Rules” respectively;

(x)  for  the  definition  of  “group  of  companies”, 

there shall be substituted the following new definition:

“ “group of companies” means companies having a common holding company, and shall include the holding company itself;”;

(xi)  immediately  after  the  definition  of  “holding company”, there shall be inserted the following new definition:

“ “initial capital” means paid up capital and reserves  as  defined  in  a  Financial  Institutions Rule;”;

(xii)  immediately after the definition of “licence”, 

there shall be inserted the following new definition:

“ “Member State” means a Member State of the European Communities;”;
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(xiii)  immediately after the definition of “officer”, 

there shall be inserted the following new definition:

“ “overseas regulatory authority” means an authority which in a country or territory outside Malta exercises any function corresponding to the functions of the competent authority under this Act;”;

(xiv)  immediately  after  the  definition  of  “own funds”, there shall be inserted the following new definition:

“ “payment institution” shall have the meaning assigned to it in the Second Schedule;”;

(xv)  for  the  definition  of  “qualifying shareholding”, there shall be substituted the following new definition:

“ “qualifying shareholding” means a direct or indirect holding in a company which represents ten per centum or more of the share capital or of the voting rights, taking into account, the voting rights as set out in Articles 9 and 10 of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading and amending Directive
2001/34/EC, as well as the conditions regarding aggregation thereof laid down in Article 12 (4) and (5) of that Directive, or which makes it possible to exercise a

significant  influence  over  the  management  of 

the company in which that holding subsists,
and “qualifying shareholder” shall be construed accordingly:
Provided that, in determining whether the criteria for a qualifying shareholding are fulfilled,  the  competent  authority  shall  not take into account voting rights or shares which

investment  firms  or  credit  institutions  may 

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hold as a result of providing the underwriting of  financial  instruments  and,  or  placing  of financial  instruments  on  a  firm  commitment basis in terms of point 6 of Section A of
Annex 1 to Directive 2004/39/EC, provided that those rights are, on the one hand, not exercised or otherwise used to intervene in the management of the issuer and, on the other, disposed of within one year of acquisition;”;

(xvi)  immediately  after  the  definition  of “subsidiary”, there shall be inserted the following new definition:

“ “third country” means a country that is not a
Member State or an EEA state;”;

(c)  immediately  at  the  end  of  the  definition  “trade bills”, there shall be inserted the following new subarticle (2):

“(2) In this Act and in any regulations made thereunder,  if  there  is  any  conflict  between  the  English and the Maltese texts, the English text shall prevail.”.

9. Article 3 of the principal Act shall be amended as follows:

(a) in subarticle (2) (a) thereof, for the words “the activities listed in the Schedule to this Act”, there shall be substituted the words “the activities listed in the First Schedule to this Act”;
(b) immediately after subarticle (4) thereof, there shall be inserted the following new subarticles (5) and (6):

“(5)  A licensed financial institution may not take deposits or other repayable funds within the meaning of the Banking Act.

(6) Where a person is already licensed under the Banking Act or the Investment Services Act to carry out an activity listed in the First Schedule to this Act, such person shall not require a licence for such an activity under this Act.”.
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Amendment of article

3 of the principal Act.

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Amendment of article

4 of the principal Act.

Amendment of article

5 of the principal Act.

10. In subarticle (3) of article 4 of the principal Act, for the words “necessary for the purposes of determining an application for a licence or for the purposes of determining whether to restrict or revoke a licence.”, there shall be substituted the words “necessary for the purposes of determining an application for a licence.”.

11. Article 5 of the principal Act shall be amended as follows:

(a) subarticle (1) thereof shall be amended as follows: (i) in paragraph (a) thereof, for the words “its
own funds whether in euro or in any other currency”,
there shall be substituted the words “its initial capital whether in Euro or in any other currency”, and for the words “the competent authority as appropriate”, there shall be substituted the words “the competent authority in a Rule and as may be appropriate”;
(ii) paragraph (d) thereof shall be re-numbered as paragraph (e);
(iii) immediately after paragraph (c) thereof, there shall be inserted the following new paragraph (d):

“(d)  the  competent  authority  is  satisfied that  the  financial  institution  has  sound  and prudent management, and has robust governance

arrangements, which include a clear organisational structure  with  well  defined,  transparent  and consistent lines of responsibility, effective procedures to identify, manage, monitor and report the risks to which it is or might be exposed, and adequate internal control mechanisms, including
sound administrative and accounting procedures:
Provided that such arrangements, procedures and mechanisms shall be comprehensive and proportionate to the nature, scale and complexity of the services provided by the institution;”;
(iv) for the proviso to paragraph (e) thereof, as re-numbered, there shall be substituted the following:
“Provided that the company shall, after being licensed under this Act, inform the competent

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authority forthwith of any change in circumstances concerning the application and shall be further required to provide the competent authority with information necessary to monitor compliance with the conditions referred to in this paragraph on a continuous basis.”;
(b) for subarticle (4) thereof, there shall be substituted the following new subarticle:
“(4) (a) In granting a licence the competent authority  may  subject  a  financial  institution  to  such conditions as it may deem appropriate and having granted a licence it may, from time to time, vary or revoke any condition so imposed or impose new conditions.
(b) For the better carrying out of the provisions of this Act and to better transpose the provisions of the Directive, the competent authority may, from time to time, issue and publish Rules which shall be binding on

licence  holders  and  others  as  may  be  specified  therein. 

Such Rules may lay down additional requirements and
conditions in relation to activities of licence holders, the conduct of their business, their relations with customers, the public and other parties, their responsibilities to the competent authority, reporting requirements and any other matters as the competent authority may consider appropriate.”;
(c) for subarticle (6) thereof, there shall be substituted the following new subarticle:

“(6)  Where  a  licensed  financial  institution proposes to engage in business activities not listed in any of the Schedules, the competent authority

may require the establishment of a separate entity, where the proposed activities may in the opinion of the competent authority impair or threaten to  impair  either  the  financial  soundness  of  the institution or the ability of the competent authority to  monitor  the  financial  institution’s  compliance with all the obligations laid down in this Act or any regulations and Rules issued thereunder.”;
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(d) immediately after subarticle (6) thereof, there shall be inserted the following new subarticle (7):

“(7)  Where the applicant is a financial institution licensed or holding an equivalent authorisation in another country, it shall have its head office in the same country where it is registered and, or licensed.”.

Addition of new article 5A to the principal Act.

12. Immediately after article 5 of the principal Act, there shall be inserted the following new article 5A:

“Own funds.

5A. (1) Without prejudice to the minimum level of the capital requirements laid down in a Financial Institutions Rule, the own funds of a financial institution may not fall below the amount of initial capital or any such amount as may be required by the competent authority from time to time, unless such a reduction is of
a temporary nature and is effected after having obtained the prior approval of the competent authority.
(2) Notwithstanding the initial capital requirements as may be set out in a Financial Institutions Rule, financial institutions providing any of the services listed in the Second Schedule to the Act shall at all times hold own funds calculated in accordance with one of the three methods laid down in the said Rule.
(3) Where the amount of own funds of a financial  institution  falls  below  the  amount  established under subarticles (1) and (2), the competent authority shall  require  that  financial  institution  to  take  the necessary measures to restore the level of own funds
within such period as the competent authority may determine:
Provided that if the level of own funds of a financial institution is not restored within the determined period, the competent authority may, in addition to the power to impose an administrative penalty, exercise any of the powers granted to it under the provisions of article
6(4).”.

Amendment of article

6 of the principal Act.

13. Article 6 of the principal Act shall be amended as follows:

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(a) for subarticle (1) thereof, there shall be substituted the following new subarticle:
“(1) The authority shall withdraw a licence issued

to a financial institution where the latter:

(a) expressly renounces the licence,
(b) does not commence business pursuant to the licence within twelve months of its issue, or has ceased to engage in business for more than six months or within such other period of time as may

be specified in the licence; 

(c) if any document or information accompanying an application for a licence or any information given in connection therewith is false in any material particular or if the holder of a licence conceals from, or fails to notify to the competent authority any document or information or change therein which it was its duty to reveal or notify under this Act;

(d)  no  longer  fulfils  the  conditions  required 

for the granting of the licence;
(e) is declared bankrupt or goes into liquidation or makes a composition with its creditors or is otherwise dissolved;
(f) has ceased to operate as a result of a

merger with another financial institution; 

(g) is a branch of an institution incorporated outside Malta and the overseas regulatory authority in the country of incorporation withdrew the authorisation of the institution; or
(h) would constitute a threat to the stability of the payment system by continuing its payment services within the meaning of the Second Schedule to this Act.”;
(b) subarticles (2), (3), (4), (5), (6) and (7) thereof shall be re-numbered as subarticles (3), (4), (5), (6), (7) and (8) thereof;
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(c) immediately after subarticle (1) thereof, there shall be inserted the following new subarticle (2):
“(2) Where the competent authority withdraws

a  licence,  it  shall  inform  the  financial  institution  of  the 

reasons for the withdrawal of a licence and notice of
such withdrawal shall be made public.”;
(d) for subarticle (3) thereof as re-numbered, there shall be substituted the following new subarticle:
“(3) The competent authority may impose restrictions or revoke a licence in any of the following circumstances:
(a) if the holder no longer possesses

sufficient own funds; 

(b) if the holder is likely to become unable to meet its obligations;

(c)  if  the  holder  has  insufficient  assets  to 

cover its liabilities; or
(d) if the competent authority considers that, by reason of the manner in which the financial institution is conducting or proposes to conduct its affairs, or for any other reason, these would

constitute  a  threat  to  the  stability  of  the  financial 

system.”;
(e) for subarticle (4) thereof as re-numbered, there shall be substituted the following new subarticle:
“(4) Restrictions imposed by the competent authority pursuant to subarticle (3) shall be such restrictions as the competent authority shall consider appropriate for

the  proper  compliance  by  the  financial 

institution with the provisions of this Act or
any regulations and Rules issued under this Act and the conditions, if any, of its licence and for the protection of the integrity of the country’s financial system and may include-

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(a)  the  removal  of  any  officer of  the  financial  institution  or  the replacement  of  any  officer  by  such person as the competent authority may

designate;
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(b) the

requirement

for any

person who

directly or

indirectly

possesses a qualifying shareholding in

the financial institution to divest himself 

of all or part of that holding;
(c) the requirement for the financial  institution  to  take  or  refrain from taking any action;
(d) the requirement that the financial  institution  be  prohibited from undertaking any transaction or transactions or any activity listed in the First Schedule to this Act or be permitted to undertake any transaction
or transactions or any activity listed in the First Schedule to this Act only upon such terms as the competent authority may prescribe.”;
(f) in subarticle (6) thereof as re- numbered, for the words “after consultation with the competent authorities of the country of incorporation,”, there shall be substituted the words “after consultation with the overseas regulatory authority of the country of incorporation,”;
(g) in subarticle (7) thereof as re-numbered, for the words “shall inform the competent authorities of the country of any foreign states in which  the  financial  institution  or  its  subsidiaries are carrying on any activity under the Schedule to this Act”, there shall be substituted the words
“shall inform the overseas regulatory authorities of the country in which the financial institution or its subsidiaries are carrying on any activity under the First Schedule to this Act”.
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Amendment of article

8 of the principal Act.

14. For article 8 of the principal Act there shall be substituted the following:

“Opening

of branches and exercise of European Rights.

8.  (1)  A  financial  institution  shall  inform  the 

competent authority in writing before opening a new
branch in Malta.

    (2)  A  financial  institution  incorporated  in Malta wishing to open a branch, agency or office outside Malta  and  a  financial  institution  incorporated  in  Malta wishing to set up or acquire any subsidiary in or outside

Malta shall require the prior written approval of the competent authority.
(3) Subarticle (2) shall not apply to any

licensed financial institution which:

(a) provides any of the activities listed in the First Schedule to this Act, other than paragraph
4 thereof,

(b)  fulfils the conditions of regulation 13 of 

the European Rights Regulations, and
(c) wishes to provide services in a Member State or an EEA State, in exercise of a European right; and accordingly is subject to the European Rights Regulations.
(4) Subarticle (2) shall not apply to any licensed  financial  institution  carrying  out  payment services  wishing  to  provide  services  for  the  first  time in a Member State or an EEA State, in exercise of a
European right.

    (5)  Licensed  financial  institutions  referred to in subarticle (4) shall inform the competent authority of their intention to exercise a European right and the

competent authority shall within one month of receiving this information, inform the overseas regulatory authority concerned of:

(a)  the  name  and  address  of  the  financial 

institution;

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(b) the names of those responsible for the management of the branch;
(c) its organisational structure; and
(d) the kind of services it intends to provide in the territory of the Member State or EEA State.
(6) In this article:
(a) “European Right” refers to the rights described in the European Rights Regulations; and
(b) “European Rights Regulations” means the European Passport Rights for Credit Institutions Regulations, 2004.”.

15. For article 8A of the principal Act there shall be substituted the following:

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L.N. 88 of 2004.

Amendment of article

8A of the principal

Act.

“Agency

8A.  (1)  No  financial  institution  shall  enter 

Arrangements. into agency arrangements, with third parties, unless

it has communicated the following information to the competent authority:
(a) the name and address of the agent;
(b) a description of the internal control mechanisms that will be used by agents in order to comply with the obligation in relation to Money Laundering and Terrorist Financing under the Prevention of Money Laundering Act and the Prevention of Money Laundering and Funding of Terrorism Regulations, 2008; and
(c) the identity of the directors and persons responsible for the management of the agent to be used in the provision of services, and evidence that they are suitable persons:
Provided that a person who is appointed as agent  of  a  financial  institution  shall  only  act  as agent:

Cap. 373.

L.N. 180 of 2008.

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(i) in respect of those activities for which  the  financial  institution  to  which  he will act as agent, is licensed under this Act;
(ii) to not more than one person licensed under this Act; and

(iii)  subsequent  to  the  verification  by the competent authority of the information provided by the financial institution.

(2) The competent authority may subject the person who will be appointed as agent to any of the obligations imposed on the company licensed under this Act.
(3) The competent authority may list the agent in the public register as provided for in article
8D and if it refuses to list such agent it shall inform the financial institution in writing of the reasons for the refusal:
Provided that if the competent authority is not satisfied  that  the  information  provided  to  it  is  correct, it shall refuse to list the agent in the public register as provided for in article 8D.”.

Addition of new articles 8B, 8C and

8D to the principal

Act.

16. Immediately after article 8A of the principal Act, there shall be inserted the following new articles 8B, 8C and 8D:

“Outsourcing of operational functions.

8B.  (1)  Where  a  financial  institution  intends  to outsource operational functions of its services and, or activities, such outsourcing provider shall require the

recognition of the competent authority:
Provided that the outsourcing of important operational functions may not be undertaken in such way as to impair materially the quality of its internal control and the ability of the competent authority to monitor the

financial  institution’s  compliance  with  all  obligations 

provided for under this Act, and any Regulation or Rules
made thereunder.

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(2) For the purpose of this Act or any Regulations or Rules issued thereunder, an operational function shall be regarded as important if a defect or failure in its performance would materially impair the

continuing compliance of a financial institution with the 

requirements of its licence or its other obligations under
this Act or any Regulations or Rules issued thereunder, or  its  financial  performance,  or  the  soundness  or continuity of its services:
Provided that the competent authority shall ensure  that,  when  financial  institutions  outsource important operational functions, the financial institutions comply with the following conditions:
(a) the outsourcing shall not result in the delegation by senior management of its responsibility;
(b) the relationship and obligations of the financial institution towards its service users under this Act, Regulations or Rules issued under the Act, shall not be altered;

(c)  the  conditions  with  which  the  financial institution must comply in order to be licensed in accordance with this Act, Regulations or Rules

issued under this Act, and to remain so, must not be undermined; and
(d) none of the other conditions subject to which the financial institution’s licence was granted must be removed or modified. 
(3) The competent authority may issue a Rule, laying down the requirements for the recognition of the outsourcing service providers and the provision of such outsourced services.

    (4)  Where  the  financial  institution  licensed or holding an equivalent authorisation in another Member  State  or  EEA  State  and  benefitting  from  the right of establishment and freedom to provide services,

carries out the activities listed in the Schedules to the Act in Malta through a branch or by engaging an agent, as the case may be, the financial institution shall follow the procedures set out in a Rule:
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Provided that if the competent authority has reasonable grounds to suspect that, through such branch or agent, money laundering or terrorist financing, within the meaning of Council Directive 2005/60/EC, is being or has been committed or attempted, or that the engagement of such branch or agent could increase the  risk  of  money  laundering  or  terrorist  financing,  it shall inform the home Member State, which may refuse to register the branch or agent, or may withdraw the registration, if already made, of the branch or agent.

Liability.

Registration.

8C.  (1)  Where financial institutions rely on third parties for the performance of operational functions, those  financial  institutions  shall  take  reasonable  steps to ensure that the requirements of this Act are complied

with.
(2) Financial institutions shall remain fully liable for any acts of their employees, or any agent, branch or entity to which activities may have been outsourced.
8D. (1) It shall be the duty of the competent authority to maintain a public register of all licensed financial  institutions  or  financial  institutions  holding an equivalent authorisation in another country, and their branches and agents, within which there shall be identified the services for which the financial institution is licensed. Such records shall be kept for a period of time as may be laid out in a Rule.
(2) Such register shall be publicly available for consultation, shall be accessible online and shall be updated on a regular basis.”.

Amendment of article

9 of the principal Act.

17. Article 9 of the principal Act shall be amended as follows:

(a) subarticle (1) thereof shall be amended as follows: (i) in paragraph (a) thereof, for the words “to
acquire or dispose of a qualifying shareholding in

a  financial  institution  or  to  increase  or  reduce  such 

qualifying shareholding”, there shall be substituted

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the words “to acquire or dispose, directly or indirectly, of  a  qualifying  shareholding  in  a  financial  institution or to increase or reduce, directly or indirectly, such qualifying shareholding”, and for the words “falls below
20 per cent, 33 per cent or 50 per cent”, there shall be substituted the words “falls below 20 per cent, 30 per cent or 50 per cent”;
(ii) for the words “without obtaining the prior consent of the competent authority or, alternatively, if after having obtained such consent”, there shall be substituted the words “without obtaining the prior approval of the competent authority or, alternatively, if after having obtained such approval”;
(iii) for the words “any other penalty which may be imposed under this Act,”, there shall be substituted the words “any other penalty which may be imposed under this Act or any regulations or Rules issued thereunder,”;
(b) in subarticle (2) thereof, for the words “the competent authority to consider any request made by such person for the consent of the competent authority under the provisions of this article to constitute a request to apply for

a  licence  to  conduct  the  business  of  a  financial  institution 

under the provisions of this Act.”, there shall be substituted
the words “the competent authority to consider whether any request made by such person for the approval of the competent authority under the provisions of this article constitute a request to apply for a licence to conduct the

business of a financial institution under the provisions of this 

Act or any regulations and Rules issued under this Act.”;
(c) in subarticle (3) thereof, for the words “shares listed on a recognised investment exchange in terms of the Financial Markets Act.”, there shall be substituted the words “shares listed on a regulated market in terms of the Financial Markets Act, or on an equivalent market in a third country.”;
(d) in subarticle (4) thereof, for the words “he shall before taking such action notify the competent authority. The competent authority shall within two months of receiving such  notification  give  its  consent  or  otherwise”,  there  shall be substituted the words “he shall before taking such action
A 163
A 164 VERŻJONI ELETTRONIKA
notify the competent authority in writing. The competent authority shall within two months of receiving such notification give its approval or otherwise”;
(e) in subarticle (5) (a) thereof, for the words “shall notify to the competent authority full particulars of any person”, there shall be substituted the words “shall notify to the competent authority in writing the full particulars of any person”.

Amendment of article

10 of the principal

Act.

Amendment of article

12 of the principal

Act.

Deletion of article

12A of the principal

Act.

18. In subarticle (1) of article 10 of the principal Act, for  the  words  “A  financial  institution  shall  not-”,  there  shall  be substituted the words “Without prejudice to the provisions of paragraph  3(e)  of  the  Second  Schedule  to  the  Act,  a  financial institution shall not-”.

19. Article 12 of the principal Act shall be amended as follows:

(a) for subarticle (2) thereof, there shall be substituted the following new subarticle:
“(2) The Minister, acting on the advice of the competent authority, may make regulations to give effect to the provisions of this Act, and without prejudice to the generality of the foregoing may, by such regulations, in particular, do any of the following:
(a) amend any of the Schedules to this Act; (b) transpose, implement and give effect to
the requirements of the Directive.”;
(b) immediately after subarticle (2) thereof there shall be inserted the following new subarticle (3):
“(3) Where regulations have been issued in terms of this article, the competent authority may issue Rules within the meaning of this Act for the better carrying out and to better implement the provisions of the regulations.”.

20. Article 12A of the principal Act shall be deleted.

VERŻJONI ELETTRONIKA

21. Article 12B of the principal Act shall be re-numbered as article 12A of the principal Act.

22. Article 13 of the principal Act shall be amended as follows:

(a) subarticle (1) thereof shall be substituted as follows:
“(1) It shall be the duty of the competent authority to carry out the functions assigned to it by this Act  and  to  ensure  that  financial  institutions  carrying  on business in Malta comply with this Act, regulations, directives and Rules issued under this Act and with the conditions of their licences. In carrying out such
functions, the competent authority shall ensure that the controls exercised for checking continued compliance in terms of this Act, or any Regulations and Rules issued thereunder are proportionate, adequate and responsive to

the risks to which financial institutions are exposed. 

Such functions consist inter alia of the following:

(a)  to  require  the  financial  institution  in terms of article 14 of this Act to provide any information needed to monitor compliance;

(b) to carry out on-site inspections at the  financial  institution,  at  any  agent  or  branch providing licensable activities under the responsibility  of  the  financial  institution,  or  at  any entity to which activities are outsourced;
(c) to suspend or withdraw authorisation in cases referred to in article 6 of the Act; and
(d) notwithstanding the requirements of articles 5 and 5A, to take all necessary steps to ensure  sufficient  capital  for  the  activities  carried 

out  by  a  financial  institution,  in  particular  where 

activities  of  a  financial  institution  other  than 

those listed in the Schedule to the Act impair or

are  likely  to  impair  the  financial  soundness  of  the 

institution.”;
A 165

Renumbering of article 12B of the principal Act.

Amendment of article

13 of the principal

Act.

A 166 VERŻJONI ELETTRONIKA
(b) in subarticle (3) thereof, for the words “shall make copies thereof available to the public.”, there shall be substituted the words “shall make copies thereof available to the public upon request.”.

Amendment of article

14 of the principal

Act.

23. Article 14 of the principal Act shall be amended as follows:

(a) in subarticle (1) thereof, for the words “such information and statements relating to its branches in or outside Malta as the competent authority may require in the discharge of its duties under this Act or any other law.”, there shall be substituted the words “such information and statements as the competent authority may require in the discharge of its duties under this Act or any regulations and Rules issued thereunder or any other law.”;
(b) subarticle (5) thereof shall be deleted;
(c) subarticles (3) and (4) thereof shall be re-numbered as subarticles (4) and (5) respectively;
(d) immediately after subarticle (2) thereof, there shall be inserted the following new subarticle (3):
“(3) Financial institutions providing services listed under the Second Schedule to the Act shall provide separate accounting information for payment services listed in point 2 and point 3 of the said Schedule, subject to an auditor’s report.”;
(e) in subarticle (6), paragraph (c) thereof, for the words “may reasonably require for the performance of its functions under this Act.”, there shall be substituted the words “may reasonably require for the performance of its functions under this Act or any regulations and Rules issued thereunder.”;
(f) subarticle (12) thereof shall be amended as follows: (i) in paragraph (d) thereof, for the words “a

controller  of  that  financial  institution;  or”,  there  shall 

be  substituted  the  words  “a  controller  of  that  financial 

institution;”;

VERŻJONI ELETTRONIKA

(ii) in paragraph (e) thereof, for the words “a qualifying  shareholder  of  that  financial  institution,”, there shall be substituted the words “a qualifying shareholder of that financial institution; or”;
(iii) immediately after paragraph (e) thereof, there shall be inserted the following new paragraph (f):
“(f) an agent appointed in terms of article 8A
of this Act.”;
(iv) immediately after the new paragraph (f) thereof, the words “and the provisions of this article shall apply to that person.” shall be deleted;
(g) in subarticle (13) thereof, for the words “is guilty of committing any offence under this Act.”, there shall be substituted the words “is guilty of committing any offence under this Act or any regulations and Rules issued thereunder.”.

24. Subarticle (1) of article 17 of the principal Act shall be amended as follows:

(a) for the words “that any of the circumstances indicated in article 6(2) apply”, there shall be substituted the words “that any of the circumstances indicated in article
6(3) apply”, and for the words “revoke a licence under the provisions of article 6(2)”, there shall be substituted the words “revoke a licence under the provisions of article 6(3)”;
(b) in paragraph (d) thereof, for the words “appoint a competent person to assume control of the business”, there shall be substituted the words “appoint a competent person to take over the business”.

25. In paragraph (a) of article 19 of the principal Act, for the words “is required to be communicated by virtue of this Act;”, there shall be substituted the words “ is required to be communicated by virtue of this Act or any regulations and Rules issued thereunder;”.

26. Article 20 of the principal Act shall be amended as follows:

A 167

Amendment of article

17 of the principal

Act.

Amendment of article

19 of the principal

Act.

Amendment of article

20 of the principal

Act.

A 168 VERŻJONI ELETTRONIKA
(a) in subarticle (1) thereof, for the words “may share its supervisory duties with other foreign competent authorities in the case of a financial institution”, there shall be substituted the words “may share its supervisory duties with

other overseas regulatory authorities in the case of a financial 

institution”;
(b) for subarticle (2) thereof, there shall be substituted the following new subarticle:
“(2) The competent authority shall, further, exchange information with the following:
(a) overseas regulatory authorities responsible for the licensing and supervision of financial institutions carrying out payment services solely for their supervisory and regulatory purposes

or  for  such  other  purposes  as  may  be  specifically 

agreed upon with the competent authority ;
(b) the European Central Bank, other Member States’ central banks and the Central Bank, in their capacity as monetary and oversight authorities, and, where appropriate, other public authorities responsible for overseeing payment and settlement systems;
(c) other relevant authorities designated under Directive 2007/64/EC, Directive 95/46/ EC, Directive 2005/60/EC and other Community legislation applicable to payment service providers, including measures regulating the protection of individuals with regard to the processing of personal data and the prevention of money

laundering and terrorist financing.”;

(c) for subarticle (3) thereof, there shall be substituted the following new subarticle:
“(3) The competent authority may further, on the basis of international agreements, or upon reciprocity agreements, disclose information to the overseas regulatory authorities, in particular, in the case of infringements or suspected infringements by an agent, a branch, or an entity to which activities are outsourced:

VERŻJONI ELETTRONIKA

Provided that the competent authority shall communicate upon request, all relevant information and, on their own initiative, all the requested information.”;
(d) for subarticle (4) thereof, there shall be substituted the following new subarticle:
“(4) The competent authority shall notify the relevant overseas regulatory authority whenever it intends to carry out an on-site inspection in another Member State:
Provided that the competent authority may upon agreement delegate to the relevant overseas regulatory authority, the task of carrying out on-site inspections of the institution concerned.”;
(e) in subarticle (5) thereof, for the words “disclose to the Central Bank any information”, there shall be substituted the words “disclose to the European Central Bank and, or the Central Bank any information”, and for the words “for the discharge of the duties of the Central Bank under the law.”, there shall be substituted the words “for the discharge of the duties of the European Central Bank and, or the Central bank under the law.”;
(f) for subarticle (8) thereof, there shall be substituted the following new subarticle:
“(8) The competent authority and the Central Bank shall periodically discuss matters of mutual interest  regarding  financial  institutions,  and  they  shall at all times afford such co-operation to each other as may be necessary for the discharge of their respective duties.”.

27. Article 22 of the principal Act shall be amended as follows:

(a) in subarticle (1) (f) thereof, for the words “any person under this Act,”, there shall be substituted the words “any person under this Act or any regulations and Rules issued thereunder,”;
(b) subarticle (3) thereof shall be deleted;
A 169

Amendment of article

22 of the principal

Act.

A 170 VERŻJONI ELETTRONIKA
(c) subarticle (2) thereof shall be re-numbered as subarticle (3) thereof;
(d) immediately after subarticle (1) thereof, there shall be inserted the following new subarticle (2):
“(2) Any person who for the purposes of, or pursuant to, any of the provisions of this Act or of any regulations or Rules made thereunder, or any condition, obligation, requirement, directive or order made or given as aforesaid, furnishes information or makes a statement which he knows to be inaccurate, false or misleading in any material respect, or recklessly furnishes information or makes a statement which is inaccurate, false or misleading in any material respect, shall be guilty of an offence.”;
(e) for subarticle (4) thereof, there shall be substituted the following new subarticle:
“(4) A person guilty of an offence under the provisions of this article shall be liable on conviction to  a  fine  (multa)  not  exceeding  four  hundred  and  sixty-

five  thousand  and  eight  hundred  and  seventy-four 

euro and sixty-eight cents (465,874.68) or to a term of
imprisonment not exceeding four years, or to both such

fine and imprisonment.”.

Amendment of article

23 of the principal

Act.

28. Article 23 of the principal Act shall be amended as follows:

(a) subarticles (1) and (2) thereof shall be re-numbered as subarticles (2) and (3) respectively;
(b) immediately before subarticle (2) as re-numbered there shall be inserted the following new subarticle (1):

“(1)  Where  the  competent  authority  is  satisfied that a person’s conduct amounts to a breach of any of the provisions of this Act or any regulations and

Rules issued thereunder, the competent authority may by notice in writing and without recourse to a court hearing impose on any person as the case may be, an administrative penalty which may not exceed ninety-

VERŻJONI ELETTRONIKA

three thousand and one hundred seventy four euro and ninety-four cents (93,174.94).”.

29. In paragraph (a) of article 24 of the principal Act, for the words “licence revoked under article 6(2) and”, there shall be substituted the words “licence revoked under article 6(3) and”.

30. Article 25 of the principal Act shall be amended as follows:

(a) in subarticle (1) thereof, for the words “Nothing in this Act shall”, there shall be substituted the words “Nothing in this Act or any regulations and Rules issued thereunder shall”;
(b) in subarticle (2) thereof, for the words “under this Act except -”, there shall be substituted the words “under this Act or any regulations and Rules issued thereunder except -”;
(c) for subarticle (4) thereof, there shall be substituted the following new subarticle:

“(4)  Officers  of  the  competent  authority, including  past  and  present  officers,  as  well  as  auditors or experts acting on behalf of the competent authority, shall  not  disclose  information  obtained  from  financial institutions in the course of carrying out supervisory and

other duties and which is governed by the obligation of professional secrecy, unless such disclosure of information be done in summary or collective form, so as  not  to  enable  the  identity  of  the  financial  institution, to whom such information relates, to be ascertained:

Provided  that  the  said  officers,  auditors  or  experts may divulge such information for the purpose of the performance of their duties or the exercise of their

functions, or when lawfully required to do so by any court or under a provision of any law.”;
(d) in subarticle (6) thereof, for the words “the activities referred to in the Schedule.”, there shall be substituted the words “the activities referred to in the Schedule issued under the Banking Act, 1994.”.
A 171

Amendment of article

24 of the principal

Act.

Amendment of article

25 of the principal

Act.

A 172 VERŻJONI ELETTRONIKA

Amendment of the sub-title preceding article 26 of the principal Act.

Substitution of article

26 of the principal

Act.

31. The sub-title “MISCELLANEOUS” immediately preceding article 26 shall be substituted by the new sub-title “CONSUMER COMPLAINTS”.

32. For article 26 of the principal Act, there shall be substituted the following new article:

“Investigation of complaints by the Consumer Complaints Manager.

Cap. 330.

Cap. 387.

Cap. 378.

26. (1) (a) The Consumer Complaints Manager appointed under article 20 of the Malta Financial Services Authority Act shall have the function of investigating complaints from a payment service user arising out of, or in connection with, any alleged infringement by a service provider of the provisions of this Act implementing the Directive.
(b) The provisions of article 20 of the Malta Financial Services Authority Act shall apply, mutatis mutandis, to complaints made under this article.
(c) Complaints from a payment service user under subarticle 1(a) may include complaints from interested parties, within the meaning of the Directive, as well as complaints from consumer associations.
(2) (a) A dispute between a payment service user and payment service provider may, at the discretion of the payment service user, or if agreed between the parties involved in the dispute, whether by written agreement or otherwise, be referred to arbitration in accordance with the Arbitration Act. The appointing authority and administrator shall be the Malta Arbitration Centre, and only one arbitrator shall be appointed in such disputes.
(b) Reference of a dispute to arbitration in accordance with paragraph (a) shall be one of the conditions of a licence of persons licensed under this Act.
(c) The Consumer Complaints Manager shall, in his reply to a complaint, inform the complainant of the possibility of having the dispute settled through arbitration proceedings in terms of this article:

VERŻJONI ELETTRONIKA

Provided that any action taken by the Consumer Complaints Manager shall be without prejudice to the right of a consumer, within the meaning of the Consumer Affairs Act, to submit a claim to the Consumer Claims Tribunal established under that Act, or to exercise any other rights under that Act.
(3) “Payment services user”, “payment service provider” and “payment transaction” shall have the meaning assigned to the terms in the Second Schedule to the Act.”.

33. Immediately after article 26 of the principal Act there shall be inserted the new sub-title “MISCELLANEOUS”.

34. For article 27 of the principal Act, there shall be substituted the following new article:

A 173

Inserts a new sub-title preceding article 27 of the principal Act.

Amendment of article

27 of the principal

Act.

“Objective.

27. The objective of this Act is, in part, to implement the provisions of the Directive of the European Parliament and of the Council on payment services in the internal market, in particular Titles I, II, Chapter 5 of Title IV and the Annex and shall be interpreted and applied accordingly.”.

35. For the Schedule to the principal Act, there shall be substituted the following:

“FIRST SCHEDULE

Amendment of the Schedule to the principal Act.

(Article 2)

ACTIVITIES OF FINANCIAL INSTITUTIONS

1. Lending (including personal credits, mortgage credits, factoring with or

without recourse, financing of commercial transactions including forfaiting);

2. Financial leasing;
3. Venture or risk capital;

4.  Payment services as defined in the Second Schedule;

A 174 VERŻJONI ELETTRONIKA
5. Issuing and administering other means of payment (travellers cheques, bankers’ drafts and similar instruments) in so far as this activity is not covered by point 4 above;
6. Guarantees and commitments;
7. Trading for own account or for account of customers in:

(a)  money  market  instruments  (cheques,  bills,  Certificates  of  deposits 

and similar instruments);

(b)

foreign exchange;

(c) 

financial futures and options;

(d)

exchange and interest rate instruments;

(e)

transferable instruments;

8. Underwriting share issues and the participation in such issues;
9. Money broking.”.

Addition of new Second Schedule to the principal Act.

36. Immediately after the First Schedule, there shall be inserted the following new Schedule:

“SECOND SCHEDULE

FINANCIAL INSTITUTIONS CARRYING OUT PAYMENT SERVICES

Objective
The purpose of this Schedule is to set out the regulatory framework under which payment services within the means of issuing and administering payment as referred to in the First Schedule to this Act, may be carried out.
Interpretation
1. In this Schedule, unless the context otherwise requires, the following

definitions shall apply - 

“direct debit” means a payment service for debiting a payer’s payment account, where a payment transaction is initiated by the payee on the basis of the payer’s consent given to the payee, or payee’s payment service provider or to the payer’s own payment service provider;
“funds” means banknotes and coins, scriptural money and electronic money;

VERŻJONI ELETTRONIKA

A 175
“group” means a group of undertakings, which consists of a parent undertaking, its subsidiaries and the entities in which the parent undertaking or its subsidiaries hold a participation, as well as undertakings linked to each other by a relationship within the meaning of Article 12(1) of Directive 83/349/ EEC.
“money remittance” means a payment service where funds are received from a payer, without any payment accounts being created in the name of the payer or the payee, for the sole purpose of transferring a corresponding amount to a payee or to another payment service provider acting on behalf of the payee, and/or where such funds are received on behalf of and made available to the payee;
“outsourcing” means a licensed entity’s use of a third party (the outsourcing service provider) to perform activities that would normally be undertaken by the licensed entity, now or in the future. The supplier may or may not be a licensed entity;
“outsourcing service provider” means the supplier of goods, services or facilities, which may or may not be a licensed entity, and which may be an affiliated  entity  within  a  corporate  group  or  an  entity  that  is  external  to  the group;
“payee” means a person who is the intended recipient of funds which have been the subject of a payment transaction;
“payer” means either a person who holds a payment account and allows a payment order from that payment account, or, where there is no payment account, a person who places an order for a payment transaction;
“payment account” means an account held in the name of one or more payment service users which is used for the execution of payment transactions;
“payment institution” means a company that has been licensed in accordance with this Act or that holds an equivalent authorisation in another country in terms of the Directive to provide and execute payment services;
“payment instrument” means any personalised device and/or set of procedures agreed between the payment service user and the payment service provider and used by the payment service user in order to initiate a payment order;
“payment order” means any instruction by a payer or payee to his payment service provider requesting the execution of a payment transaction;
A 176 VERŻJONI ELETTRONIKA
“payment service” means the business activity referred to in paragraph 4 of the First Schedule and includes the activities that a payment institution may carry out in terms of this Schedule;
“payment service provider” means undertakings referred to in this Act; “payment service user” means a person who makes use of a payment
service in the capacity of either payer or payee, or both;
“payment system” means a funds transfer system with formal and standardised arrangements and common rules for the processing, clearing and/ or settlement of payment transactions;
“payment transaction” means the act, initiated by the payer or by the payee, of placing, transferring or withdrawing funds, irrespective of any underlying obligations between the payer and the payee.
List of Activities
2. Payment institutions may engage in the following activities:
(a) Services enabling cash to be placed on a payment account as well as all the operations required for operating a payment account;
(b) Services enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account;
(c) Execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider:
(i) execution of direct debits, including one-off direct debits;
(ii) execution of payment transactions through a payment card or a similar device;
(iii) execution of credit transfers, including standing orders;
(d) Execution of payment transactions where the funds are covered by a credit line for a payment service user:
(i) execution of direct debits, including one-off direct debits;
(ii) execution of payment transactions through a payment card or a similar device;
(iii) execution of credit transfers, including standing orders; (e) Issuing and/or acquiring of payment instruments;

VERŻJONI ELETTRONIKA

(f) Money remittance;
A 177
(g) Execution of payment transactions where the consent of the payer to a payment transaction is transmitted by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting solely as an intermediary on behalf of the payment service user and the supplier of the goods and services;
3. The following additional activities may also be carried out by a payment institution:
(a) The provision of operational and closely related ancillary services such as ensuring execution of payment transactions, foreign exchange services strictly in relation to payment services, safekeeping activities, and storage and processing of data;
(b) The operation of payment systems;
(c) Without prejudice to the provisions of Article 5 (6) of the Act, business activities other than the provision of payment services;
(d) When payment institutions engage in the provision of payment services, they may only hold payment accounts used exclusively for transactions; any funds received by payment institutions from payment service users with a view to the provision of payment services shall not constitute a deposit or other repayable funds within the meaning of article 2 of the Banking Act, or electronic money within the meaning of article 2 of the Banking Act;
(e) Payment institutions may grant credit related to payment services referred to in paragraphs (d), (e) or (g) of paragraph (2) of this Schedule only if the following requirements are met:
(i) the credit is ancillary and granted exclusively in connection with the execution of a transaction; and
(ii) notwithstanding national rules on providing credit by credit cards, the credit granted in connection with a payment and executed with the act shall be repaid within a short period which shall in no case exceed twelve months; and
(iii) such credit is not granted from the funds received or held for the purpose of executing 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.”.
A 178 VERŻJONI ELETTRONIKA

Savings.

37. (1) This article applies to persons who on the coming into  force  of  this  Act  hold  a  licence  as  a  financial  institution carrying out money transmission services, and after the coming into force of this Act wish to provide payment services in terms of the Second Schedule.
(2) Such persons need not re-apply for a new licence under the principal Act to carry out payment services activities, provided they have given to the satisfaction of the competent authority such information as it may request within such period as it may prescribe. Upon the lapse of a transitional period to be established by notice by the competent authority, such persons may only carry out payment services activities in accordance with the provisions of the principal Act, as amended by this Act.
Passed by the House of Representatives at Sitting No. 213 of 3rd May, 2010.
MichAel Frendo

Speaker

PAuline AbelA

Clerk to the House of Representatives

Ippubblikat mid-Dipartiment tal-Informazzjoni (doi.gov.mt) — Valletta — Published by the Department of Information (doi.gov.mt) — Valletta

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