MFSA (Malta Financial Services Authority)

Prior to 2014, Malta serves as a refuge for all sorts of binary options and Forex brokers. As the country's authorities became more and more concerned with Malta's reputation in the financial industry, the regulatory framework matured, becoming one of the most interesting (both to brokers and traders) in the world.

The MFSA (Malta Financial Services Authority) is the sole regulator for financial service providers in Malta. Before the establishment of MFSA in July 2002, the financial institutions in Malta were supervised by the Central Bank of Malta, Malta Stock Exchange, and the Malta Financial Services Centre. This autonomous body is a member of the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA), to name a few.

Responsibilities

Regulate, monitor, and supervise financial services.
Promote financial market integrity.
Maintain stability within the financial sector.
Review financial services provided to retail customers.
Advise the government on necessary legislation.
Investigate bad practices and act on complaints.
Ensure high standards of management conduct in the financial industry.

Who should register?

The following should be authorized by the MFSA to carry out their activities in Malta:

Credit institutions (banks)
Financial institutions
Insurance and reinsurance undertakings
Insurance intermediaries
Investment firms (this category includes Forex brokers)
Collective investment schemes
Trustees
Company service providers
Retirement scheme administrators
Virtual financial assets (cryptocurrencies and smart contracts that constitute a financial instrument)

Registration and compliance requirements

Forex brokers must get category 2 (white label entities) or category 3 (own account dealers with multilateral trading facility) investment services licenses from the MFSA.
At least one of the qualifying shareholders should be regulated in the provision of financial services. Additionally, the shareholder should also be involved in active management of the company.
Forex brokers with any model of operation (STP or market maker) would need a minimum capital of €730,000.
A fee of €7,000 should be paid while applying for a category 3 license. Annual supervisory fee is €6,000 + €400 per each €250,000 of revenue above €250,000. Category 2 license is somewhat cheaper — €5,000 application fee, €4,500 annual fee + €400 per each €250,000 of revenue above €250,000. The annual fee stops rising after €5 million revenue.
The board of directors and other senior staff should possess a sufficient level of competence and experience.
Forex brokers should not offer a leverage higher than 1:30 on Forex instruments to retail clients.
An annual audit of the IT systems of Forex brokers has been proposed but the decision stands pending.
Forex brokers can only use liquidity providers that are authorized by officials in the European Union or some other reputed jurisdiction.
Monitoring of clients' transactions, setting pricing policies, establishing limits, and client agreement conclusion should be carried out from Malta.
Offering Forex bonuses and rewards is not permitted.
Brokers should inform the public about the risks of CFD/Forex trading and display a percentage of retail traders that lost their money during the last 12 months at this platform.
Negative balance protection and cautionary margin calls should be implemented for retail traders.
Traders' capital of up to €100,000 per person is protected by the Investor Compensation Scheme of Malta in case of a broker's bankruptcy.
Brokers should communicate a clear policy regarding the use of automated expert advisors by their customers.
License holders should record all trading transaction data and have it readily available in a Malta office for the MFSA's compliance checks.
Only certified trading platform software should be offered to retail traders by a registered broker.
The broker's liquidity providers should have the appropriate licenses and authorizations by a regulator from inside the EU, EEA or other jurisdiction with similar regulatory conditions.

Powers at MFSA’s disposal

Depending on the level of violation of its rules, the Malta Financial Services Authority can unilaterally decide the level of punishment:

Conduct investigation for breach of regulation.
Issue warnings. On September 13, 2021, the MFSA issued a warning about Alpha Capital Trade (Cyprus) Limited, a scam investment project that deceitfully claimed to be associated with a regulated Maltese company and that its website is approved and authorized by that company.
Impose penalty. For providing investment services without a license, Dennis Muscat was fined €150,000 on September 23, 2020.
Impose a directive. On March 8, 2021, the MFSA imposed a directive on OKCOIN EUROPE LTD to cease the onboarding of new clients until June 30, 2021.
Cancel license. On August 7, 2020, the MFSA withdrew the license of Corporate & Commercial FX Services Limited for numerous deficiencies in its regulatory compliance.

Conclusion

MFSA regulatory environment can serve as an example of sound protection for retail traders combined with openness to new companies and the lack of competition suppression. In the past, Malta was considered an offshore jurisdiction with little to no oversight over FX/CFD brokers. Today, it is a reputable destination both for companies and traders.

If you want to share your opinion, observations, conclusions, or to ask a question regarding the Malta Financial Services Authority (MFSA), feel free to start a discussion on our Forex forum.

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