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.

(L.S.) G eorge A bela

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:-

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

(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.

Article 20A of the principal Act shall be amended as

follows

(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

(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.

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 -”.

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,

(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.

Article 2 of the principal Act shall be amended as

(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

(a) by participation, in the form of

direct ownership or by way of control, of

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;

(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;”;

(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

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) 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.”.

Article 3 of the principal Act shall be amended as

(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.”.

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.”.

Article 5 of the principal Act shall be amended as

(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

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.”;

(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.”.

Immediately after article 5 of the principal Act, there

shall be inserted the following new article 5A

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).”.

Article 6 of the principal Act shall be amended as

(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;

(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-

(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;

(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”.

For article 8 of the principal Act there shall be

substituted the following

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;

(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.”.

For article 8A of the principal Act there shall be

substituted the following

8A. (1) No financial institution shall enter

“Agency

into agency arrangements, with third parties, unless

Arrangements.

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

(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.”.

Immediately after article 8A of the principal Act, there

shall be inserted the following new articles 8B, 8C and 8D

8B. (1) Where a financial institution intends to

“Outsourcing

of operational

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.

(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

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.

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.”.

Article 9 of the principal Act shall be amended as

(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

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

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”.

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-”.

Article 12 of the principal Act shall be amended as

(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.”.

Article 12A of the principal Act shall be deleted.

Article 12B of the principal Act shall be re-numbered as

article 12A of the principal Act.

Article 13 of the principal Act shall be amended as

(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.”;

(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.”.

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;”;

(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.”.

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”.

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;”.

Article 20 of the principal Act shall be amended as

follows

(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

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.”.

Article 22 of the principal Act shall be amended as

(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;

(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.”.

Article 23 of the principal Act shall be amended as

(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-

three thousand and one hundred seventy four euro and

ninety-four cents (93,174.94).”.

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”.

Article 25 of the principal Act shall be amended as

(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.”.

The sub-title “MISCELLANEOUS” immediately

preceding article 26 shall be substituted by the new sub-title

“CONSUMER COMPLAINTS”.

For article 26 of the principal Act, there shall be

substituted the following new article

26. (1) (a) The

Consumer

Complaints

“Investigation

Manager appointed under article 20 of the Malta

of complaints

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

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.”.

Immediately after article 26 of the principal Act there

shall be inserted the new sub-title “MISCELLANEOUS”.

For article 27 of the principal Act, there shall be

substituted the following new article

27. The objective of this Act is, in part, to

“Objective.

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.”.

For the Schedule to the principal Act, there shall be

substituted the following

“FIRST SCHEDULE

(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;

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

Immediately after the First Schedule, there shall be

Second Schedule to

inserted the following new Schedule

the principal Act.

“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;

“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;

“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;

(f) Money remittance;

(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.”.

(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.

M ichael F rendo

Speaker

P auline A bela

Clerk to the House of Representatives

€3.35