Malta is quite fortunate in that it has a very central and strategic location, and has become quite a powerful force in the world of financial market trading. It also gained further benefits when it joined the European Union as a full member in 2004. It has become a very attractive proposition for offshore brokers and financial service providers looking for a base of operations because it is located right in the middle of Europe. Many of the country’s financial sectors are experiencing strong growth, and you will find an increasing number of MFSA-regulated brokers to choose from.
Does the MFSA have a good reputation with regard to regulation?
The Malta Financial Services Authority (MFSA) is the regulatory body charged with regulating the financial industry in Malta. It has received rave reviews for its well-developed infrastructure and framework, as well as for the sophistication of its financial market.
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The Financial Services Authority of Malta has also earned a good reputation for the high compliance standards it works hard to maintain. From an investor’s point of view, it has helped to eliminate many of the usual complexities and uncertainties.
Malta’s banking system has also gained a good reputation, backed up by the traditional principles that credit institutions have chosen to stick to. In the area of foreign exchange, a number of very experienced market players have been tempted to the island of Malta; not just Forex brokers, but asset managers, and developers of Forex trading platforms. With all these positive benefits and a superb central European location, it’s no wonder that the country has become so popular, and that increasing numbers of financial services providers are looking to the MFSA for official recognition.
MFSA-regulated brokers and MiFID
As you are now aware there are a number of reasons for Forex brokers to be interested in setting up a trading business in Malta. The benefit of its central location is further improved by the country’s membership of the European Union. As a member, it is able to take advantage of passporting rights provided by MiFID. These passporting rights allow a broker operating out of Malta to offer services to clients in other European Economic Area member states, without the need for further regulation.
Perhaps we should explain what MiFID is before going any further. MiFID stands for the Markets in Financial Instruments Directive. This is a European Directive, currently under revision, which aims to harmonise the authorisation and operation of investment firms that operate within the EU.
The role of the MFSA within Malta
The Malta Financial Services Authority performs a number of important functions, including the following:
- Regulating and supervising the financial services industry in Malta
- Protecting consumer and investor interests
- Managing Malta’s Registry of Companies
- Encouraging operators in the financial services industry to provide a service of the highest possible standard
- Working on initiatives that will improve the standard of education and training for those involved in the financial services industry
- Keeping investors informed with regard to local and global developments in the financial industry
- Improving existing legislation, and creating new legislation if necessary
- Issuing licenses subject to an initial assessment
- Inspecting licensed businesses on a regular basis to ensure compliance with current regulations
- Issuing guidance notes and directives to the financial services industry
- Communicating with national and international organisations with regard to the industry
The different types of licences issued to brokers regulated by the MFSA
Providing investment services in Malta requires a licence issued by the MFSA, according to the Investment Services Act, Chapter 370, of the Laws of Malta. There are a number of different types of licence depending on the activity of the applicant.
Category 1a – The holder of this type of licence is authorised to receive and transmit orders relating to one or more financial instruments, and also to provide investment advice and place instruments without any commitment.
Category 1b – This type of licence holder is able to place instruments on behalf of professional clients without any firm commitment.
Category 2 – This type of licence holder can provide an investment service that includes controlling clients’ money, but not dealing on their own account, or place instruments on a firm commitment basis, or underwrite.
Category 3 – This type of licence permits the holder to provide investment services, and hold and control clients’ money or assets.
Category 4 – A Category 4 licence holder is permitted to act as custodian or trustee of collective investment schemes.
Category 3 and 4 licences are the ones you need to be most concerned with if you are looking for regulated Forex brokers in Malta. A Category 3 licence is issued to a financial services provider that deals on its own account; but a white label partner, or one who matches trades with a single entity and acts as a counterparty to the trade, will need to apply for a Category 2 licence.
Licence holders are able to deal in financial instruments on their own account as well as providing clients with different types of investment service, but it requires different types of licence for each individual type and level of activity.
The future’s looking bright for Forex brokers in Malta
Malta is working hard to improve the strength of its operational and service framework. The set-up costs and ongoing expenses of setting up a financial services business in Malta are definitely favourable, and the country’s regulatory processing efficiency is commendable, all of which makes Malta an attractive location, and leads to increased benefits for Forex traders in Malta. As a final piece of advice, you should remember that choosing an MFSA-regulated broker is going to offer you the best protection for you and your investment. While an unregulated broker may appear to be a more attractive proposition, there will be nothing to help you if things go wrong.
