Malta Forex Brokers: MFSA Issues Revised Rules

Chetcuti Cauchi | 30 Oct 2014

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On the 20th of October 2014 the MFSA issued a notice to applicants for Category 2 and Category 3 investment services licenses looking to offer online forex trading to retail clients under the Investment Services Act, 1994. The general impact of the notice is to raise the entry requirements for Malta Forex brokers, which would typically have applied for a Category 2 Investment Services License. The notice also impacts Forex market makers which would typically apply for a Category 3 investment serices license, but the impact here is more muted. This article provides an overiew of the changes, and comments on the way forward.

Shareholding Structure

MFSA requires the shareholding structure of applicants to be such that at least one of the qualifying shareholders is already regulated in the provision of financial services. MFSA may also require such qualifying shareholer to actively participate in the management of the applicant. 

Capital Requirements

Applicants for a Category 2 licence will be subjected to a higher minimum initial capital of EUR 730,000, similar to that of Category 3 license holders. This higher requirement does not apply to all Category 2 licence holders but only to those that provide online Forex to retail clients. The capital requirement must be satisfied on an ongoing basis.

Local Presence and Governance Structures

Malta Forex brokers are required to identify Malta based human resources that are sufficient for the purposes of the business, and also to implement adequate control procedures. In particular, a local risk management function must be established in order to design, implement and monitor the risk management procedures of the licence holder. Category 2 license holders may be permitted to outsource this function to local entities. 

Category 3 licence holders are also required to ensure that the following functions are carred out from Malta:

  • The selection of counterparties and conclusion of agreements therewith;
  • The establishment of trading limits and other parameters; 
  • The setting of pricing policies; and
  • The monitoring of transactions undertaken with clients.


Where the applicant intends to use a proprietary online trading platform, whether this has been developed in-house or not, the MFSA will require evidence that such system has been certified by an independent IT Auditor duly qualified and that it has a satisfactory track record as a result of having been used by other regulated online forex companies in the EU or other recognised jurisdiction. The certification by the independent IT Auditor as to the adequacy of the systems will be required on an annual 

Applicants that intend to offer online trading platforms which are well-renowned in the  industry or which are used by regulated entities in this sector will be considered more favourably by the MFSA.

Liquidity Providers

Applicants can only appoint regulated financial services firms as their counterparties/liquidity providers, provided further that these are already authorised by the relevant competent authorities in an EU, EEA or other jurisdiction that has the equivalent regulatory framework as in Malta for the provision of the service/s in question. 


Applications submitted following the date of the notice are expected to make submissions that are in-line with the notice. Applicants whose applications are expected to comply immediately with all provisions of the notice except those relating to capital requirements and shareholding structure, where compliance is required within a one year period from the date of issuing of the notice. 

Way Forward

The additional requirements are broadly speaking welcome and reflect the jurisdiction's increasing maturity as a domicile for forex business. Indeed many of the rules already enjoy broad acceptance as industry standards of good practice. The higher minimum capital requirement however is likely to discourage smaller start-ups.It is also currently unclear how existing license holders will be impacted, although further communication from MFSA is likely in the near future. 




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Dr Jean-Philippe Chetcuti

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