Fintech

Fintech

The digital revolution has caught up with the financial services sector. The Fintech industry took the financial services sector by storm in 2015 and continued to flourish, so much so that regulators are feeling the need to create specific legislation to cater for this burgeoning new industry in the financial services sector. Today, in many different ways, the use of technology to provide, advance or ‘disrupt’  financial services is leaving a great impact on the sector. 

What is Fintech?

Fintech, short for financial technology, is largely used to refer to a segment of the technology start ups that are progressively revolutionising the financial services sector by providing efficient solutions via the Internet. They are directly competing with market players such as retail banks and insurance companies, offering services such as money transfer solutions, peer to peer loans (P2P) via crowd funding platforms, virtual currency operators, online securities intermediaries as well as online wealth management services.

Thus, Fintech is an umbrella term which encompasses a multitude of different businesses. A typical Fintech firm is one which focuses on a specific service within the financial services industry and fuses this service with information technology (IT) in order to improve the process by which the service is provided. This improvement often translates in greater connectivity and accessibility of online data, made possible through the communication devices which are becoming staples in our everyday lives.

The Fintech Industry in Malta

Malta has gained a solid reputation as a prime European financial services hub for funds and fund managers, and this has paved its way to become a European hub for Fintech services as well. Malta offers an optimal environment for such start ups and companies who are seeking to relocate their Fintech business, and thus it has the potential to become a Fintech niche. A particular Fintech sector which has exceptionally taken root in Malta is the Payment Services sector, which encompasses businesses such as payment account providers, card acquirers and other businesses that aim to hasten the payment process and make it more cost-effective. We have seen a number of such companies setting up shop in Malta. Malta is also progressively becoming an attractive jurisdiction for Electronic Money Institutions, as well as Bitcoin businesses and crowdfunding.

Payment Service Providers

Following the implementation of the Payment Services Directive (PSD 1), and soon the PSD 2 which will succeed the PSD 1, the number of Payment Service Providers licensed in Malta has risen significantly over the last few years. Malta’s success in the thriving i-Gaming and e-Commerce industries has also helped it become a leading jurisdiction for the setting-up of Payment Service Companies in Malta. Malta’s low operational costs and competitive fiscal regime, the availability of a skilled English-speaking workforce and a sound ICT infrastructure are all significant benefits which are attracting entrepreneurs to our shores.

The licensing process for PSPs, which is carried out by the Malta Financial Services Authority, is a highly thorough one in order to ensure that only serious applicants who are willing to adhere to a certain high standard of professionalism are licensed. Whilst requesting a high level of professionalism, our regulator maintains a flexible approach in order to attract businesses which are willing to comply with a high level of quality.

Upon licensing, PSPs will benefit from the right of offering payment services cross border throughout the EU on the basis of a Malta payment services license without the need to acquire supplementary licenses or authorisations from other member states. Moreover, there are a number of additional benefits, including an EU Passport, effective corporate and personal tax rates, highly qualified persons benefits and minimal to no restrictions on activities.

Our seasoned Financial Services team has assisted a number of payment services operators with the local set up procedure. Our dedicated team provides assistance to prospective PSPs looking to set up shop in Malta by taking care of the preparation of all application documents, managing correspondence with the local regulator, advising on regulation, tax and corporate matters as well as providing useful and practical knowledge about the jurisdiction.

Electronic Money Institutions

With its state-of-the-art telecoms infrastructure, as well as over 250 i-gaming companies established in Malta requiring payment services and e-wallet institutions, Malta has already attracted a number of Electronic Money Institutions (EMIs) which have either established operations in Malta or passported to Malta from other EU Member States. Substantive investments in IT and telecoms, as well as the relevant infrastructure already present in Malta have spurred the growth of the island into one of the most ideal locations for e-commerce activities. Moreover, the country’s licence for e-Money institutions offers the opportunity to start operations with a lower capital requirement when compared to a full banking licence. This gives Malta an edge over competing jurisdictions, making it a truly attractive license.

Similarly to Payment Service operators, prospective Electronic Money Institutions need to undergo a ‘fit and proper’ test on the applicant whereby the shareholders, directors and senior staff members must demonstrate solvency, competence and integrity in all their dealings. 

At Chetcuti Cauchi we assist prospective EMIs by compiling and preparing all applications documents, managing correspondence with the local regulator and offer advice on regulation, tax and corporate matters. Through our 'on the ground' knowledge, we can truly guide the client with respect to conducting modern businesses in Malta.

Malta Blockchain Strategy

April 2017 has just seen the Malta Cabinet of Ministers approving a Malta Blockchain Strategy which would soon be issued for public consultation, making Malta one of the first countries in the world to have a national strategy.

Prime Minister Joseph Muscat said that the potential widespread use of blockchain technology is just being appreciated. These range well beyond financial services to land registries and health records, but it is obvious that the financial services world will experience an earth-shaking disruptive effect. It is up the industry to decide whether to run away from this or embrace it and make use of it.

“Having a strategy would encourage investors to come here. Malta could be a trailblazer in this sphere,” he said, adding that the island also needed to look at adopting crypto currency, in spite of the wariness of regulators. “We need to be a frontline country when it comes to this innovation; we cannot wait for the regulators to reach their conclusions and then have to copy what other countries are already doing.”

Fintech, blockchain and crypto currencies are being regarded as new growth areas for the Maltese economy. The strategy does not focus merely on crypot currencies but also encompasses blockchain technology implemented in the Lands Registry and the national health registries. Malta can truly serve as a test-bed for new sectors and foreign firms to test their new technology and products locally and it intends to be a global trailblazer in this regard. 

Obviously there are still limitations in this area, such as for example, the inadmissibility of blockchain technology as evidence in court. However it is being predicted that If Malta develops a legal framework, hence giving confidence to start ups and investors, blockchain technology companies would be encouraged to come and set up shop here.

The above is all within Malta’s strategy for the next 3-5 years. Malta is appealing to the EU to become the “Bitcoin continent of Europe” and the island is striving and aiming to become “the Silicon Valley of Europe”. This is in line with Malta’s target to develop the world’s best environment for the development and commercialisation of Fintech models and disruptive innovation. The Maltese government is committing itself to developing the most appropriate regulatory framework, the right tax system and the best infrastructure to support this ambition.


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Dr Maria Chetcuti Cauchi

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