The MFSA is responsible for the licensing and supervision of entities providing investment services in or from Malta. The regulated entities would be licensed to provide investment services in relation to those financial instruments (for example shares, bonds) listed in their licence.
The MFSA will only issue an investment services licence if it 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 at all times all the rules applicable to the licence holder.
The concept of fit and proper is a fundamental regulatory concept. This is a rigorous test which requires senior staff and potential and existing licensees to demonstrate competence, integrity and solvency i.e. they have sufficient capital, in all their dealings. This concept needs to be practised both at licensing stage and on an on-going basis thereafter.
Frequently Asked Questions
This section gives you easy access to commonly-asked questions about investments aspects.
Question: Is the MFSA authorised to provide investment services?
No. The MFSA is prohibited from providing investment services to the public. The role of the MFSA is to license, regulate and supervise those entities providing investment services in or from Malta. That is why the MFSA is defined as the single regulator for financial services in Malta. The MFSA is therefore not in a position to provide you with any advice on investments.
Question: How do I make sure that the firm is authorised by the MFSA and is reliable?
All entities authorised by MFSA undergo a rigorous and lengthy process before they are authorised to service your investment requirements. The MFSA must be satisfied that these firms are professional, knowledgeable and trained. Moreover, the MFSA goes into great lengths to ensure that such firms are of the highest integrity.
One can visit the MFSA website to check whether such entity is licensed or not and if licensed what activities it is licensed to carry out. In the licence there is indicated what services an entity is licensed to provide and in relation to which financial instruments it is authorised to provide the mentioned services.
Moreover, a firm is required to state that it is regulated by MFSA to conduct investment services on its letterheads, business cards, stationery and adverts.
You should know that not all investment firms licensed by the MFSA are the same or can provide the same investment services. An investment firm can be authorised under one of the different four ‘licence categories’ – from Category 1 to 4. Of these four categories, Category 4 would be of the least interest to you because firms licensed under this category provide services to collective investment schemes and not to retail investors.
We hope that the following notes help you understand better the type of services which the various categories of investment firms in Malta are able to offer you.
Category 1 - Investment Services Licence Holder
Typically provides information, advice and executes instructions of the investor BUT would not be able to hold your money or your assets in his own name or otherwise. Therefore, if you avail yourself of the services of a Category 1 investment firm:
- You should be offered to choose from a range of products, although this may be limited. There can be instances where the firm is a representative of a particular product, such as a collective investment scheme;
- You cannot allow your firm to have discretion over your portfolio. Therefore, the firm has to consult you, and obtain your approval, before making a transaction on your own behalf;
- Contract notes of any purchase or sale should show that the investments are registered in your own name;
- Payments will have to be made to the company (such as the fund manager of a collective investment scheme) and not to the investment firm;
- The firm would not be able to accept cheques or other means of payment in its own name or in the name of officials working at the firm;
Category 2 - Investment Services Licence Holder
Typically provides information, advice, gives recommendations, manages portfolios and executes instructions of the investor BUT would be able to hold your money or your assets in his own name or otherwise. Therefore, if you avail yourself of the services of a Category 2 investment firm:
- Investments can be registered either in your own name or, upon your request, in the name of the firm (if permitted to do so by MFSA – please ask the investment firm). If you opt for your investments to be registered in the name of your firm, the investment will still belong to you even though they will not be registered in your name. Your firm can explain more about this. In any event, you should be given a contract note to show how much you have invested;
- The firm may be authorised by MFSA to have discretion in the management of your portfolio. In which case and subject to your agreement, the firm will be entrusted to manage your investments without having to obtain your prior consent before effecting changes to your portfolio;
- Payments can be made directly to the firm. Cheques or other means of payment should be payable to the firm and not to its representative;
Category 3 - Investment Services Licence Holder
This is very similar to a Category 2 investment firm except for one aspect. In this category, the firm would have a fairly large amount of securities from which to sell to individuals or institutions, and may also buy securities from investors, intermediaries or banks acting as a market maker
A category 3 Investment services licence holder can provide any type of investment service.
Question: How do I choose an investment firm?
The best advice that we can give you about how to choose an investment firm is to ask questions. Do not hesitate to ask questions about how your firm proposes to invest your money. It does not matter if you are a beginner or have been investing for many years – it is never early or too late to start asking questions.
All firms will welcome your questions, no matter how basic. After all, investment firms would prefer you asking them questions before you invest rather than having to confront your uncertainties after your investment. So never feel intimidated or shy. Remember, it is your money!
Question: Before you make an investment, you must decide which firm to use. We have prepared some notes which may assist you in the course of making your decision:
Think about your investment objectives. For example, you could ask yourself: – Do I need my investment to provide me with periodic income or do I wish my capital to grow over a period of years? What financial commitments do I already have or plan to have? What is my appetite for risk – should I go for risky or less risky products? These are some basic questions which a potential investment firm may ask you – usually at the beginning of your meeting. Have your answers prepared in your mind or, better still, written down. It does not matter if there are some aspects which are not clear – you can always discuss them later with your potential firm.
Do not hesitate to talk to two or more different firms. It would be useful for you to enquire about their investment experience and professional background. If possible, meet them face to face at their offices. Ask them as to what they are allowed to do under their licence. If you can, do shop around for products available. It is in your interest to learn about the number of products available on the market.
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