Malta FOREX Company
Introduction
Investment Services are regulated by the Investment Services Act (Chapter 370 of the Laws of Malta) as amended in 2002. This law establishes the regulatory framework for two types of licences namely Investment Services Licences and Collective Investment Schemes Licences.
The Investment Services Act (ISA) provides that it is an offence to conduct licensable activity without a licence. The provision of an Investment Service in or from Malta is a licensable activity. In terms of the ISA, an investment service refers to ‘any service falling within the First Schedule to the Act when provided in relation to an Instrument‘.
The Licensing Process
An Investment Services Licence is issued only if the MFSA is satisfied that the applicant is a fit and proper person to provide the investment service concerned and that the applicant will comply with and observe any Investment Services Rules and Regulations made under the ISA and applicable to the licence holder.
A service with respect to foreign exchange is licensable under the ISA and is passportable under the EU Markets in Financial Instruments Directive (MiFID), if the service relates to contracts for difference, derivatives in relation to foreign exchange and rolling spot forex. However, the provision of a service with respect to foreign exchange, which is acquired or held for investment purposes, also licensable under the ISA, is not considered a MiFID service and cannot therefore be passported under this EU Directive. Online forex trading is generally provided in one of two forms, either by dealing on own account or by acting as a riskless principal. An entity which would like to deal on its own account is required to have a Category 3 investment services license. On the other hand, in the latter scenario, the entity would be involved in executing two matching trades entered at the same time and price, with the entity acting as counterparty to both transactions. This is considered as execution of orders on behalf of the client and hence a Category 2 investment services licence is required.
The main difference in the requirements applicable to a Category 2 and a Category 3 investment services licence holder relates to the capital requirements. A Category 2 investment services licence holder is required to have an initial capital of €125,000 as well as it has to have own funds which are higher than either:
1. Initial capital; or
2. The sum of all the risk components calculated in terms of the rules but excluding the operational risk component; or
3. The fixed overheads requirement.
A Category 3 investment services licence holder is required to have an initial capital of €730,000 and also should have its own funds which are higher than either:
1. The initial capital; or
2. The sum of all the risk components calculated in terms of the rules including the operational risk component.