General Information


As with all high-risk, speculative investments, consumers should make sure they understand what they’re investing in, the risks associated with investing, and any regulatory protections that apply.

Client Classification

Before providing you with an investment service, your firm is required to carry out a client classification and categorise you as a Retail or Professional client.  Since the information included here is mainly targeted for retail clients, we will focus on such client classification and the protection afforded by such classification.

As a Retail client you receive the highest level of investor protection. The Conduct of Business Rulebook awards more protection to investors with less/no investment knowledge and experience (Retail clients), while investors with more investment knowledge and experience (Professional clients) are provided with less protection. Professional clients include banks, governments, pension funds, large companies and exceptionally some individuals.

In limited circumstances you can be treated as a Professional client. You may want to consider this to access products which are not available to Retail clients, or if you want to become a client of a firm that does not do business with Retail clients.

If you want to become a Professional client you need to feel confident that you are capable of making your own investment decisions, capable of assessing the risks that you incur, and do not need a high level of investor protection.

If you choose to be a Professional client, you will lose some of the regulatory protections that apply to Retail clients. The firm will explain this to you. For example, you will generally receive less information and fewer disclosures or warnings on a number of topics.

Before classifying you as a Professional client, a firm will first have to assess whether this category is appropriate for you. The purpose of the assessment is for the firm to establish that you are capable of making your own investment decisions and you are able to understand the risks involved.

Your firm will be able to categorise you as a Professional client only if you meet at least two of the following three conditions:

  • you frequently carry out transactions;
  • you have a large portfolio;
  • you have worked in the field of investment services for at least one year.

Documentation to be Provided Pre and Post the Provision of a Service

These are some documents which you will come across when investing:

Fact Find

A firm has a duty to ask you details about you and your finances, and your present and future needs before it provides you with advice or to manage your portfolio. The answers which you provide are recorded in a document called ”Fact Find” or “Client Profile”. For your protection this document is kept on file and a copy is provided for your records. The firm will rely on this information to be able to assist you. Be honest when replying to the questions posed by the firm.

The sort of questions /information that will be asked/requested by your firm may include:-

  • Personal details (which may include age, children or dependants, occupation);
  • Summary of assets (such as cash held at bank, property, other investments);
  • Summary of liabilities (such as periodic payments for house loans or other loans, school fees, future commitments, life assurance covers);
  • Retirement planning arrangements;
  • Overall investment objectives including your attitude to risk;
  • Level of education and the type of transactions you are familiar with.

If there are sections on the ”Fact Find” that do not apply to you please write ‘none or N/A’ in those sections rather than leaving them blank or just putting a line through them. All information which you provide will be treated confidentially and will only be used for recommending you on your financial affairs and for no other purpose.

Retail Client Agreement

This is also referred to as the terms of business letter. It sets out rights and obligations of the firm and customer, including terms on which the firm will provide services to the customer. As a customer, you should expect to be provided with this document irrespective of the type of investment service.

Order Instructions

When you instruct a firm to buy or sell a product, your order should be executed promptly, sequentially (in the order in which it was received by the firm) and in a timely manner.

If for any reason a firm has a material difficulty in handling your order sequentially, it should notify you.

To complete the purchase or sale of financial products your firm has to execute your orders in such a way as to consistently achieve the best possible result for you. This is referred to as best execution’.

In essence, your firm will identify ‘execution venues’ that enable it to obtain best execution. Examples of execution venues are stock exchanges, trading platforms, other firms, or even your firm itself (by offering to purchase the instruments you are willing to sell itself or, vice-versa, by selling you instruments you wish to buy from its own portfolio. However, not all investment firms are licensed to carry out such transactions).

Your firm can achieve best execution for your orders by taking a variety of factors into account, such as price, costs of execution, speed and likelihood of execution.

The most important factors (for retail clients) a firm will take into account when executing your order are price and total costs (that is, the total financial consideration to be paid by you for a transaction, including the price, all expenses, execution venue fees, clearing and settlement fees and any other fees paid to third parties involved in the execution).

You will receive information about how your firm achieves best execution for you in practice. Such information includes:

  • how the firm determines the factors that are more important for achieving best execution;
  • what are the execution venues that the firm relies on;
  • a warning that if you give a specific execution instruction to the firm this will take priority and the firm will not be able to follow its own process for achieving best possible result for you – it will simply follow your instructions. For example, if you instruct your firm to execute your transaction on a specific market, you may lose the benefit of achieving a better price somewhere else.

Contract Notes

After you have bought or sold a financial product, your firm will send you a transaction confirmation (i.e. contract note) with essential information such as name of the product, price, date and time and the total sum of commissions and expenses charged.

You should expect your firm to send you the contract note for a purchase or sale of an instrument no later than the first business day following execution. If confirmation is received by the firm from a third party (for example, another stockbroker), the contract note should be sent to you by no later than the first business day following receipt of confirmation from such third party. The contract note should include information about the trading day and trading time, type of order, venue identification, name of instrument, quantity, unit price and total consideration. You should also have complete disclosure of the commissions and expenses for the transaction, including commission payable to any counterparty.

Where your firm manages your investments on your behalf, the firm should send you periodic reports with information such as the contents and valuation of your investments, the total amount of fees and charges and how your investments have performed during the reporting period.

It is in your interest to retain copies of all documentation you receive from a firm.

Statements

A firm is obliged to send you at least on a quarterly basis statements of your holdings.  You may request more frequent statements, especially if your portfolio consists of a large number of investments. Your statement should include information about the contents and valuation of the portfolio, including market values, cash balances at the beginning and end of the reporting period, total amount of dividends and interest received during the period, and the total amount of fees and charges. You may request a detailed breakdown of these items.

Frequently Asked Questions

This section gives you easy access to commonly-asked questions about investments aspects.

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The Role of the MFSA

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.

Licensing Type

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.

Choosing the Investment Services Provider

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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