Back in August 2025, the Malta Financial Services Authority (MFSA) issued a consultation on an updated Chapter 1 of the Financial Institutions Rulebook (FIR/01), which was set to replace the existing chapter upon finalization. This updated FIR/01 aimed to provide clearer authorisation procedures for financial institutions under the Financial Institutions Act, including cross-references to the MFSA Authorisations Charter.
Key features of the revised Chapter 1 included:
- A more structured and clear authorisation process organized into a three-title structure guiding applicants through application, licensing, and post-licensing requirements.
- Enhanced clarity on the scope of the Financial Institutions Act, specifying the types of entities covered or excluded.
- Licensing considerations with a heightened focus on demonstrating substance and local presence in Malta, including the requirement for effective mind and management locally.
- Governance expectations, including the implementation of a three lines of defence framework covering risk management, compliance, and internal audit functions.
- Preliminary meeting requirements mandating a detailed presentation at least 10 working days before the meeting, covering the business model, group structure, fund flows, financial projections, outsourcing arrangements, and safeguarding measures.
- Procedures for licence modification or surrender.
- Clearer rules on regulatory thresholds and exemptions, including annual notification obligations for exempt entities.
Stakeholders were invited to submit feedback by 26 September 2025 during the consultation period.
On 14 October, the MFSA issued the revised Chapter 1 of the Financial Institutions Rulebook (FIR/01), outlining the regulatory framework and rules applicable to financial institutions applying for authorization under the Financial Institutions Act, 1994, as amended.
Key points include:
- The rulebook provides application procedures and requirements for persons seeking to undertake financial institution activities in or from Malta, covering licensing, registration, and ongoing compliance obligations.
- It clarifies definitions relevant to financial institutions and the activities covered, including lending, leasing, payment services, guarantees, trading, underwriting, money broking, and electronic money issuance.
- The document distinguishes financial institutions from credit institutions regulated under the Banking Act, particularly regarding funding methods (no deposit-taking allowed).
- Guidance is provided on what constitutes habitual financial institution activities and the need for legal analysis to determine appropriate regulation.
- Applicants must demonstrate business viability, governance frameworks, local substance, risk management, and comply with outsourcing restrictions.
- The application process involves submission of extensive documentation, including business plans, financial projections, organizational charts, compliance arrangements, and capital adequacy.
- Fit and proper assessments apply to key persons, including directors and compliance officers, emphasizing responsibilities and expectations for compliance oversight.
- Pre-licensing and post-licensing conditions ensure firms meet regulatory requirements before commencing business, including safeguarding client funds and implementing policies.
- Other procedures covered include license modification, changes in ownership or control, surrender of license, and the MFSA’s rights to restrict, suspend, or withdraw authorization.
Overall, this chapter establishes a comprehensive framework for authorizing and supervising financial institutions, emphasizing prudential standards, governance, and ongoing regulatory compliance to protect investors and Malta’s reputation.
