Regulations, 2020

Suppliment tal-Gazzetta tal-Gvern ta’ Malta Nru. 20,368, 17 ta’ Marzu, 2020 B 607

L.N. 71 of 2020

FINANCIAL INSTITUTIONS ACT

(CAP. 376)

Financial Institutions Act (Safeguarding of Funds) (Amendment)

Regulations, 2020

IN EXERCISE of the powers conferred by article 12(1)(c), (d)

and (h) of the Financial Institutions Act, the Minister responsible for

the regulation of financial services, acting on the advice of the Malta

Financial Services Authority, has made the following regulations:-

(1) The title of these regulations is the Financial Citation and

Institutions Act (Safeguarding of Funds) (Amendment) Regulations, scope.

2020 and they shall be read and construed as one with the Financial

Institutions Act (Safeguarding of Funds) Regulations, hereinafter S.L. 376.04.

referred to as "the principal regulations".

(2) The purpose of these regulations is to transpose Article 10

of Directive (EU) 2015/2366 of the European Parliament and of the

Council of 25 November 2015 on payment services in the internal

market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/

EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/

64/EC, and to provide for ancillary matters related thereto.

Regulation 1 of the principal regulations shall be Amends

regulation 1 of

substituted by the following

the principal

regulations.

"1. The title of these regulations is the Financial

Institutions Act (Safeguarding of Funds) Regulations.".

Regulation 2 of the principal regulations shall be amended Amends

regulation 2 of

as follows

the principal

regulations.

(a) the marginal note thereof shall be substituted by the

following

"Interpretation.";

(b)

sub-regulation (1) thereof shall be deleted;

(c)

sub-regulation (2) thereof shall be amended as

follows

(i)

immediately before the definition "business

day", there shall be added the following new definition

" "the Act" means the Financial Institutions

Act;";

(ii) in the definition "business day", the words

"payment services provider or electronic money issuer of

the payer or the payment services provider or electronic

money issuer of the payee", shall be substituted by the

words "payment service provider or electronic money

issuer of the payer or the payment service provider or

electronic money issuer of the payee";

(iii) immediately after the definition "business day",

there shall be added the following new definitions

" "electronic money institution" means a

financial institution issuing electronic money in terms

of the Third Schedule to the Act;

"financial institution" means a payment

institution as defined in these regulations and, or an

electronic money institution;";

(iv) immediately after the definition "funds", there

shall be added the following new definition

" "payment institution" means a financial

institution providing payment services as referred to

in paragraphs 2(a) to (f) of the Second Schedule to

the Act;";

(v) the definition "Payment Services Directive"

shall be substituted by the following

" "Payment Services Directive" means

Directive (EU) 2015/2366 of the European

Parliament and of the Council of 25 November 2015

on payment services in the internal market, amending

Directives 2002/65/EC, 2009/110/EC and 2013/36/

EU and Regulation (EU) No 1093/2010, and

repealing Directive 2007/64/EC, as may be amended

from time to time and includes any implementing

measures, implementing technical standards,

regulatory technical standards and similar measures

that have been or may be issued thereunder;";

(vi) immediately after the definition "Payment

Services Directive" as amended, there shall be added the

following new definition

" "the Commission Delegated Regulation"

means the Commission Delegated Regulation (EU)

2015/61 of 10 October 2014 to supplement

Regulation (EU) No 575/2013 of the European

Parliament and the Council with regard to liquidity

coverage requirement for credit institutions, as

amended from time to time;";

(d)

sub-regulation (3) thereof shall be deleted; and

(e) immediately after sub-regulation (3) thereof, as

deleted, there shall be added the following new sub-regulation

"(4) Words and expressions used in these regulations

which are also used in the Act, but which are not defined

herein, shall have the same meaning as in the Act.".

Regulation 3 of the principal regulations shall be amended Amends

regulation 3 of

as follows

the principal

regulations.

(a) sub-regulation (1) thereof shall be substituted by the

following

"(1) A financial institution in receipt of funds from

a payment service user, or through another payment service

provider for the execution of payment transactions, or from

an electronic money holder in exchange for electronic

money that has been issued, shall hold such funds solely for

and on behalf of and in the interest of that payment service

user or electronic money holder.";

(b)

sub-regulation (2) thereof shall be amended as

follows

(i)

the words "Notwithstanding anything stated in

article 1894 of the Civil Code or in the agreement", shall be

substituted by the words "Notwithstanding the provisions

of article 1894 of the Civil Code or any other law, or the

agreement"; and

(ii)

the words "the payment services user or

electronic money holder or the fact that the payment

services user’s funds", shall be substituted by the words

"the payment service user or electronic money holder, or

the fact that the payment service user’s funds"; and

(c)

sub-regulation (3) thereof shall be amended as

follows

(i)

the words "Without prejudice to any relevant

provisions of the Act,", shall be substituted by the words

"Notwithstanding the provisions of any other law,";

(ii)

the words "payment services user", and

wherever they appear in the principal regulations, shall be

substituted by the words "payment service user"; and

(iii) the words "nor shall it create any form of loan",

shall be substituted by the words "nor shall it create any

form of loan or any other similar credit facility".

Regulation 4 of the principal regulations shall be amended

as follows

(a) in the marginal note thereof, the word "user" shall be

substituted by the words "user or electronic money holder"; and

(b) in sub-regulation (1) thereof, the words "A payment

service user", as amended, shall be substituted by the words

"Notwithstanding the provisions of any other law, a payment

service user".

Regulation 5 of the principal regulations shall be amended

as follows

(a)

sub-regulation (1) thereof shall be amended as

follows

(i)

the words "The creditors", shall be substituted

by the words "Notwithstanding the provisions of any other

law, the creditors"; and

(ii)

the words "for and on behalf" shall be

substituted by the words "for and on behalf of"; and

(b)

sub-regulation (3) thereof shall be amended as

follows

(i)

the words "In the event that any funds held

under the control of the financial institutions", shall be

substituted by the words "Notwithstanding the provisions

of any other law, in the event that any funds held by the

financial institution for and on behalf of and in the interest

of any payment service user or electronic money holder";

(ii)

the words "on whose behalf", shall be

substituted by the words "on whose behalf and in the

interest of whom".

Regulation 7 of the principal regulations shall be amended Amends

regulation 7 of

the principal

regulations.

(a) sub-regulation (1) thereof shall be substituted by the

following

"(1) A payment institution shall, for the purpose of

article 10B of the Act, safeguard all funds in either of the

following ways

(a) funds shall not be commingled at any time

with the funds of any natural or legal person other

than payment service users on whose behalf the funds

are held, provided that, where the funds of payment

service users are held in a common account, the funds

belonging to each payment service user shall be

identifiable at all times. Where funds are still held by

the payment institution and not yet delivered to the

payee or transferred to another payment service

provider by the end of the business day following the

day when the funds have been received, they shall be

deposited in a separate account in a credit institution

or invested in secure liquid low-risk assets, as defined

in sub-regulation (1A). Funds shall be insulated in

accordance with these regulations in the interest of

the payment service users against the claims of other

creditors of the payment institution, in particular in

the event of insolvency; or

(b) funds shall be covered by an insurance

policy or some other comparable guarantee from an

insurance company or a credit institution, which does

not belong to the same group as the payment

institution itself for an amount equivalent to that

which would have been segregated in the absence of

the insurance policy or other comparable guarantee,

payable in the event that the payment institution is

unable to meet its financial obligations.";

(b) immediately after sub-regulation (1) thereof, as

amended, there shall be added the following new sub-

regulations

"(1A) For the purpose of this regulation

(a)

secure, low-risk assets are

(i) asset items falling into one of the

categories set out in Table 1 of Article 336(1) of

the CRR for which the specific risk capital

charge is no higher than 1.6% but excluding

other qualifying items as defined in Article

336(4) of the CRR; or

(ii) units in an undertaking for

collective investment in transferable securities

(UCITS) which invests solely in assets referred

to in sub-paragraph (i)

Provided that in exceptional

circumstances and with adequate justification,

the competent authority may, based on an

evaluation of security, maturity, value or other

risk elements of the assets referred in sub-

paragraphs (i) and (ii), determine which of

those assets do not constitute secure, low-risk

assets for the purpose of sub-regulation (1).

(b) secure, low-risk assets shall be deemed to

be liquid if they fall within the criteria set out in a

Financial Institutions Rule.

(1B) Where a payment institution is required to

safeguard funds pursuant to article 10B of the Act and a

portion of those funds is to be used for future transactions,

with the remaining amount to be used for non-payment

services, that portion to be used for future transactions shall

also be subject to the requirements of the said article.

Where that portion is variable or not known in advance, the

payment institution shall safeguard a representative portion

assumed to be used for payment services, provided that

such a representative portion can be reasonably estimated

on the basis of historical data to the satisfaction of the

competent authority.

(1C) An electronic money institution shall safeguard

funds which have been received in exchange for electronic

money that has been issued in accordance with sub-

regulations (1), (1A) and (1B)

Provided that funds received in the form of

payment by payment instrument need not be safeguarded

until they are credited to the electronic money institution’s

payment account or are otherwise made available to the

electronic money institution in accordance with the

execution time requirements laid down in the Payment

Services Directive, where applicable. In any event, such

funds shall be safeguarded by not later that five business

days after the issuance of electronic money.

(1D) Sub-regulations (1) to (1B) shall also apply to

electronic money institutions undertaking the activities

listed in paragraph 2(a) to (f) of the Second Schedule to the

Act that are not linked to the activity of issuing electronic

money."; and

(c) in sub-regulation (2) thereof, the words "such other

functions", shall be substituted by the words "any other

functions".

Regulation 8 of the principal regulations shall be amended Amends

regulation 8 of

as follows

the principal

regulations.

(a)

sub-regulation (1) thereof shall be amended as

follows

(i)

the words "payment services users or electronic

money holders shall be liable for any loss or prejudice

suffered by the payment services users due to the financial

institution’s fraud, wilful default or negligence", shall be

substituted by the words "payment service users or

electronic money holders shall be liable for any loss or

prejudice suffered by the payment service users or

electronic money holders due to the financial institution’s

fraud, wilful default, misconduct or negligence"; and

(ii)

the words "entered into with the payment

services users", shall be substituted by the words "entered

into with the payment service users"; and

(b) in sub-regulation (2) thereof, the words "financial

institution to whom functions, duties or funds may be delegated

or entrusted", shall be substituted by the words "financial

institutions to whom functions or duties may be delegated or to

whom funds are entrusted".

Regulation 9 of the principal regulations shall be amended

as follows

(a)

sub-regulation (1) thereof shall be amended as

follows

(i)

the words "delegates or entrusts functions or

duties", shall be substituted by the words "delegates

functions or duties or entrusts funds"; and

(ii)

the words "by the payment services users or

electronic money holders as a result of the acts, omissions

or insolvency of the financial institution.", shall be

substituted by the words "by the payment service users or

electronic money holders as a result of the acts, omissions

or insolvency of such person."; and

(b) sub-regulation (2) thereof shall be substituted by the

following

"(2) Where the financial institution delegates

functions or duties or entrusts funds to a person which is

not a group company, without prejudice to the liability of

such person, the financial institution shall be liable for any

loss or prejudice suffered by the payment service users or

electronic money holders as a result of the acts, omissions

or insolvency of such person.".

Regulation 10 of the principal regulations shall be deleted.

€0.36