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The Financial Institutions (Amendment) Act, 2007 (Bill No. 94)

A BILL

entitled

AN ACT to amend the Financial Institutions Act (Cap. 376).

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:-

1. (1) The short title of this Act is the Financial Institutions (Amendment) Act, 2007, and it shall be read and construed as one with the Financial Institutions Act, hereinafter referred to as "the principal Act".

(2) The provisions of this Act shall come into force on such date or dates as the Minister responsible for finance may, by notice in the Gazette, establish, and different dates may be so established for different provisions and for different purposes of this Act.

2. Article 2 of the principal Act shall be amended as follows: (a) the present provision shall be re-numbered as

subarticle (1) thereof;
(b) in subarticle (1), as re-numbered, thereof:

Short title and commencement.

Cap. 376.

Amendment of article 2 of the principal Act.

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(i) the definition "branch" shall be substituted by the following new definition:
" "branch" means a place of business not having a legal personality and being other than the head office which is a part of a financial institution, and which carries out directly some or all of the transactions inherent in the business of a financial institution;";
(ii) immediately after the definition "credit facility", there shall be added the following new definition:
" "Directive" means the Directive of the European Parliament and of the Council on payment services in the internal market as may be amended from time to time and includes any implementing measures that have been issued or may be issued thereunder;";
(iii) immediately after the definition "director", there shall be added 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;";
(iv) the definition "financial institution" shall be substituted by 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 any of the Schedules to this Act:
Provided that these activities are not funded through the taking of deposits or other repayable funds from the public as defined in the Banking Act:
Provided further that this Act shall not apply to any of the activities regulated under the Investment Services Act;”;
(v) immediately after the definition "licence", there shall be added the following new definition:
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" "Member State" means a Member State of the
European Communities;";
(vi) immediately after the definition "own funds", there shall be added the following new definitions:
" "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;
"payment institutions" shall have the meaning assigned to it in article 11A;"; and
(c) immediately after subarticle (1), as re-numbered, thereof, there shall be added 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.".

3. Article 5 of the principal Act shall be amended as follows: (a) in subarticle (1) thereof:

(i) paragraph (d) shall be re-numbered as paragraph (e);
(ii) immediately after paragraph (c) thereof there shall be added 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 includes a clear organisational structure with well defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks it is or might be exposed to, 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;";

Amendment of article 5 of the principal Act.

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(iii) the proviso to paragraph (e), as re-numbered, shall be substituted by the following new proviso:
"Provided that -
(i) in respect of paragraphs (a), (b) and (c), if the applicant is a financial institution licensed or holding an equivalent authorisation in another country, it has its head office in the same country where it is registered and, or licensed;
(ii) in respect of paragraph (e), the company shall, after being licensed under this Act, inform the competent authority forthwith of any change in circumstances concerning the application of the said paragraph (e) and shall be further required to provide the competent authority with information necessary to monitor compliance with the conditions referred to in the said paragraph (e) on a continuous basis.";
(b) subarticle (4) thereof shall be substituted by 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, 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) subarticle (6) thereof shall be re-numbered as subarticle (7);
(d) immediately after subarticle (5) thereof there shall be inserted the following new subarticle:
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"(6) Where a financial institution is licensed to carry out any of the services listed in the Schedules, and at the same time engages in business activities not listed in the Schedules, the competent authority may require the establishment of a separate entity, where the other services activities 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 made under this Act.".

4. Article 6 of the principal Act shall be amended as follows: (a) subarticle (1) thereof shall be substituted by the

following new subarticle:
"(1) A licence shall automatically cease to have any effect if the holder
(a) renounces the licence, or
(b) does not commence business pursuant to the licence within twelve months of its issue or within such other period of time as may be specified in the licence; or
(c) has obtained the licence through false statements or any other irregular means; or
(d) is declared bankrupt or goes into liquidation or makes a composition with its creditors or is otherwise dissolved; or
(e) has ceased to operate as a result of a merger with another financial institution; or
(f) is a branch of an institution incorporated outside Malta and the competent authorities in the country of incorporation withdraw the licence of the institution.";
(b) in subarticle (2) thereof:
(i) in paragraph (b), for the words "in Malta for more than three months;", there shall be substituted the words "in Malta for more than twelve months;";
(ii) in paragraph (g), for the words "the integrity

Amendment of article 6 of the principal Act.

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of the country’s financial system is threatened.", there shall be substituted the words "there would constitute a threat to the stability of the financial system in Malta.";
(c) in subarticle (3) thereof for the words "the provisions of this Act and the conditions,", there shall be substituted the words "the provisions of this Act or any regulations and Rules issued under this Act and the conditions,"; and

Amendment of article 8 of the principal Act.

Amendment of article 8A of the principal Act.

(d) in subarticle (6) thereof, for the words "shall inform the competent authorities", there shall be substituted the words "shall inform the overseas regulatory authorities".

5. Immediately after subarticle (2) of article 8 of the principal

Act, there shall be inserted the following new subarticle:
"(3) Where the competent authority has reasonable grounds to suspect that, through such branch, 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 could increase the risk of
money laundering or terrorist financing, it shall inform the Member State or EEA State in which the financial institution is established, who may refuse to register the branch, or may withdraw the registration of the branch.".

6. Article 8A of the principal Act shall be amended as follows:

(a) in subarticle (1) thereof for the words "of the competent authority;" there shall be substituted the words "of the competent authority after having communicated any information which the competent authority may require;";
(b) subarticles (2) and (3) thereof shall be re-numbered as subarticles (3) and (4) respectively; and
(c) immediately after subarticle (1) there shall be added the following new subarticle:
"(2) Where the financial institution licensed or holding an equivalent authorisation in another Member State or EEA State carries out activities in Malta by engaging an agent, the financial institution shall follow the procedures laid out in a Financial Institution Rule:
Provided that if the competent authority has
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reasonable grounds to suspect that, through such 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 agent could increase the risk of money laundering or terrorist financing, it shall inform the Member State or EEA State in which the financial institution is established, and may refuse to register the agent, or may withdraw the registration of the agent.".

7. Article 9 of the principal Act shall be amended as follows: (a) in subarticle (1) thereof for the words "imposed

under this Act,", there shall be substituted the words "imposed
under this Act or any regulations and Rules issued under this
Act,"; and
(b) in subarticle (2) thereof for the words "the provisions of this Act.", there shall be substituted the words "the provisions of this Act or any regulations and Rules issued under this Act.".

8. Immediately after article 11 of the principal Act there shall added the folowing new article:

Amendment of article 9 of the principal Act.

Addition of new article to the principal Act.

"Financial Institutions carrying out payment services activities.

11A. (1) This article shall apply to a financial institution carrying out payment services activities within the meaning of the Second Schedule.

(2) For the purposes of this article and the Second Schedule, a financial institution carrying out payment services shall be referred to as a payment institution.
(3) A payment institution shall be regulated by this article, by the Second Schedule and, unless otherwise provided in the said Schedule, by the remaining provisions of this Act.
(4) The Minister, acting on the advice of the competent authority, may make regulations for the better carrying out of any of the provisions of the Second Schedule and may, without prejudice to the generality of the foregoing, by such regulations make provisions as to any of the following matters:
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(a) to regulate the licensing of such payment institutions and any matters incidental thereto;
(b) to amend any of the definitions laid down in the Second Schedule;
(c) to regulate any matter to be prescribed under this Act in relation to such payment institutions;
(d) to prescribe fees payable by payment institutions under this Act;
(e) to exempt any payment institution or any category thereof from any of the provisions of the Second Schedule or of this Act, as the case may be, subject to such modifications, variations and conditions as may be specified;
(f) to regulate the freedom of establishment and the freedom to provide services by such institutions licensed under this Act throughout the Community;
(g) to transpose, implement and give effect to the requirements of the Directive;
(h) to provide for transitory arrangements in respect to any person who on the coming into force of the Second Schedule was already in possession of a licence issued in terms of this Act.
(5) Regulations made under this article may make different provisions for different cases or classes of cases.
(6) 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 said regulations.
(7) The provisions of this article and of the Second Schedule seek to transpose the relevant requirements of the Directive in particular Titles I, II, chapters 3 and 4 of Title IV, Article 82 of Title VI and the Annex.
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(8) The competent authority nominated by the Minister in terms of article 12 shall serve as the competent authority for all purposes of this article and of the Second Schedule and for the purposes of the Directive as transposed in this Act.".

9. Article 12 of the principal Act shall be amended as follows:

(a) subarticle (2) thereof shall be substituted by 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, may amend or revoke such regulations 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;
(b) amend any of the definitions laid down in article 2."; and
(b) immediately after subarticle (2) thereof there shall be added the following new subarticle:
"(3) Where regulations have been made in terms of this article, the competent authority may issue Financial Institutions Rules within the meaning of this Act for the better carrying out and to better implement the provisions of the regulations.".

10. Article 12A of the principal Act shall be repealed.

11. Article 12B of the principal Act shall be re-numbered as article 12A of the principal Act.

12. Immediately after article 13 of the principal Act, there

Amendment of article 12 of the principal Act.

Repeal of article

12A of the

principal Act.

Amendment of article 12B of the principal Act.

Addition of new article to the principal Act.

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shall be added the following new article:

Amendment of article 14 of the principal Act.

"Registration. 13A. It shall be the duty of the competent authority to establish a public register of all licensed financial institutions and their branches and agents, within which there shall be identified the services for which the financial institution is licensed:
Provided that such register shall be publicly available for consultation, shall be accessible online and shall be updated on a regular basis.".

13. Article 14 of the principal Act shall be amended as follows:

(a) in subarticle (1) thereof for the words "under this Act or any other law.", there shall be substituted the words "under this Act or any regulations and Rules issued under this Act or any other law.";
(b) in paragraph (c) of subarticle (6) thereof for the words "under this Act.", there shall be substituted the words "under this Act or any regulations and Rules issued under this Act."; and

Amendment of article 19 of the principal Act.

Amendment of article 20 of the principal Act.

Amendment of article 22 of the principal Act.

(c) in subarticle (13) thereof for the words "under this Act.", there shall be substituted the words "under this Act or any regulations and Rules issued under this Act.".

14. In paragraph (a) of article 19 of the principal Act for the words "the provisions of this Act or is required to be communicated by virtue of this Act;", there shall be substituted the words "the provisions of this Act or any regulations and Rules issued under the Act or is required to be communicated by virtue of this Act or any regulations and Rules issued under this Act;".

15. In subarticle (5) of article 20 of the principal Act 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".

16. Article 22 of the principal Act shall be amended as follows:

(a) in subarticle (1) thereof:
(i) in paragraph (b), for the words "with the
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provisions of any financial institutions directive, regulations or licence condition;", there shall be substituted the words "with the provisions of any regulations or Financial Institutions Rules issued under this Act or any licence condition;";
(ii) in paragraph (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 under this Act,";
(b) for subarticle (3) thereof, there shall be substituted the following new subarticle:
"(3) A person guilty of an offence under the provisions of this article shall be liable on conviction to a fine (multa) not exceeding two hundred thousand liri or to a term of imprisonment not exceeding four years, or to both such fine and imprisonment.";
(c) subarticle (4) thereof shall be deleted; and
(d) subarticles (5) and (6) thereof shall be re-numbered as subarticles (4) and (5) respectively.

17. Article 23 of the principal Act shall be amended as follows:

(a) subarticles (1) and (2) thereof shall be re-numbered as subarticles (2) and (3) respectively; and
(b) immediately before subarticle (2), as re-numbered, there shall be inserted the following new subarticle:
"(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 forty thousand liri.".

18. Article 25 of the principal Act shall be amended as follows:

(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 under the Act

Amendment of article 23 of the principal Act.

Amendment of article 25 of the principal Act.

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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 under the Act, except"; and

Substitution of article 26 of the principal Act.

(c) in subarticle (6) thereof for the words "referred to in the Schedule.", there shall be substituted the words "referred to in the Schedules.".

19. Article 26 of the principal Act shall be substituted by the following new article:

"Applicabi- lity of Act to the Central Bank.

26. Nothing in this Act shall affect the functions and powers of the Central Bank arising under the Central Bank of Malta Act or any other law.".

Substitution of article 27 of the principal Act.

General amendment of the principal Act.

Substitution of the Schedule to the principal Act.

20. Article 27 of the principal Act shall be substituted by the following new article:

"Objective. 27. The objective of this Act is, in part, to implement the provisions of the Directive of the European Parliament and of the Council on payment services in the internal market and it shall be interpreted and applied accordingly. In the event that any of the articles of this Act are in conflict with the provisions of the Directive, the provisions of the Directive shall prevail.".

21. In the principal Act, for the words "financial institutions directive", "financial institutions directives", and "directives", wherever they appear, there shall be substituted the words "Financial Institutions Rule", "Financial Institutions Rules", and "Rules" respectively.

22. The Schedule to the principal Act shall be substituted by the following new schedule:

"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);
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2. Financial leasing;
3. Venture or risk capital;
4. Issuing and administering means of payment with respect to travellers’ cheques;
5. Guarantees and commitments;
6. Trading for own account or for account of customers in:
(a) money market instruments (cheques, bills, Certificates of deposits, etc.);
(b) foreign exchange;
(c) financial futures and options;
(d) exchange and interest rate instruments; (e) transferable instruments;
7. Underwriting share issues and the participation in such issues;
8. Money broking.".

23. Immediately after the First Schedule of the principal Act, there shall be added the following new Schedule:

"SECOND SCHEDULE (Article 11A)
ACTIVITIES OF FINANCIAL INSTITUTIONS CARRYING OUT PAYMENT SERVICES
Interpretation
1. In this Schedule, unless the context otherwise requires, the following definitions shall apply -
"agent" means a person who acts on behalf of a payment institution in carrying out payment services;
"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

Addition of new Schedule to the principal Act.

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service provider;
"funds" means banknotes and coins, scriptural money and electronic money as referred to in Directive 2000/46/EC;
"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;
"material activities" means:
(i) activities of such importance that any weakness or failure in the provision of these activities could have a significant effect on the licensed entity’s ability to meet its regulatory responsibilities and, or to continue in business;
(ii) any other activities requiring a licence from the supervisory authority;
(iii) any activities having a significant impact on its risk management; and
(iv) the management of risks related to these activities; "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 an 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;
"payment institutions" means a company or other corporate body that have been licensed in accordance with this Act to provide and execute payment services;
"payment service" means business activities as listed in this
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Schedule;
"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;
"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;
"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;
"payee" means a person who is the intended recipient of funds which have been the subject of a payment transaction;
"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 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 order" means any instruction by a payer or payee to his payment service provider requesting the execution of a payment transaction;
"payment instrument" means any personalised device(s) 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.
List of Activities
2. Payment institutions shall be entitled to 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
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account as well as all the operations required for operating a payment account;
(c) Execution of payment transactions, including transfer 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;
(h) The provision of operational and closely related ancillary services such as ensuring execution of payment transactions, foreign exchange services, safekeeping activities, and storage and processing of data;
(i) The operation of payment systems;
(j) Business activities other than the provision of payment services, having regard to applicable Community and
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national law;
(k) When payment institutions engage in the provision of payment services, they may only hold payment accounts used exclusively for transactions;
(l) Payment institutions may grant credit related to payment services referred to in paragraphs (d), (e) or (g) in 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.
General Rules
3. (1) Where a payment institution intends to 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 regulations or Rules made thereunder.
(2) The competent authority may issue a Payment Institution Rule, as the case may be, laying down the requirements for the recognition of the outsourcing service providers and the provision of such outsourced services.
4. (1) Where the payment institution relies on third parties for the performance of operational functions, the payment institution
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shall take reasonable steps to ensure that it complies with this Act, regulations and Rules issued under this Act and with the conditions of their licences.
(2) Payment Institutions shall remain fully liable for any acts of their employees, or any agent, branch or entity to which activities may have been outsourced.".

Objects and Reasons

The main object of this Bill is to implement the provisions of the Directive of the European Parliament and of the Council on payment services in the internal market and amending Directives 97/
7/EC, 2002/65/EC, 2006/48/EC and 2006/49/EC.