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.


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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Nominee Services

Question: What does the term ‘nominee’ mean?

Certain investment firms are authorised to hold your money and investment on your behalf in their own name – that is providing ‘nominee services’. An individual would not usually require to have his monies and investments held in the name of the investment firm. You may however find it convenient to have your investments held in this way. After you determine whether you need the services of an investment firm providing ‘nominee services’, make sure that the benefits and pitfalls of having your investments held by the firm in its own name are explained clearly at the outset.

Ask how your investments could be affected, if at all, if the firm ceases to trade.

Question: I noticed that my entity charges me a “custody fee”. Why is this? What does “custody” mean?

What we have discussed so far applies to both local and foreign investments acquired through a local investment firm offering nominee services.

When you acquire foreign investments, your investment entity would usually have a nominee account with a foreign entity which registers such investments in the name of the local financial entity. The foreign entity would not normally know who the beneficial owners of the investments are (i.e. the local entity would not provide details of the names of who owns the investments – although it could be asked to do so by the foreign entity).

However, there is still an important aspect which you need to keep in mind. Although physically, investments are no longer available in paper format (the printed certificates referred to above), there would still be the need to keep a proper and up-to-date register of all holdings. When it comes to foreign investments, this register is usually maintained by a “custodian”, typically a division of a major global bank. Obviously, the investments held in custody by one of these banks are segregated from those which it owns. The “Custody Fee” is the fee which is payable to such bank for keeping a proper register of the foreign investment.

Normally, and depending on the type of investment, custody banks operate in reputable jurisdictions that give top protection to clients’ holdings. If you are unsure about the level of protection in other jurisdictions, ask your financial entity for more information.

Question: Why have nominee accounts become so popular?

While the certificated form was the traditional way of holding investments, pooled nominee accounts are now by far the most common. Nominee accounts allow investors to own investments (such as shares, bonds, or funds) without becoming involved in any of the associated administration or paperwork. The benefit to customers is that the process to trade (buy and sell) investments is faster, simpler and most often cheaper.

Nevertheless, the fact that the investments are recorded in the name of the financial entity means you will have to get its authorisation to trade your securities. In other words, you cannot sell an investment which you purchased from entity A through entity B without having obtained authorisation from entity A. Most of the times, if you are unhappy with the services received from a particular entity and wish to transfer out of its nominee account to another firm, without selling your existing investments, you will usually be charged for this.

Question: How do nominee accounts work in practice?

When you accept to use nominee services offered by your investment firm, your investments would be legally owned by your financial entity.

While the entity would become the legal owner of the investments, you would still remain the beneficial owner, meaning that you have rights over them. Your entity will keep records of which client is the beneficial owner of all the investments held under nominee.

When you receive the contract note, which is a document issued by your investment firm indicating the price at which the investment has been purchased and any charges incurred, you are most likely to notice – along with your name and address – a reference such as “[name of the financial entity] nominee Account (or a/c)”. That means that your holdings are held under nominee. Nevertheless, the investment firm cannot trade the investments without your prior written consent (or as agreed in the terms and conditions by yourself and the entity).

Let’s assume that this is the first time that you will be buying an investment through an investment firm which offers nominee services..

Before buying or selling an investment, the entity would normally require your confirmation in writing. This can be done by e-mail (if an e-mail indemnity is in force) or through other means acceptable by the financial entity.

When you pay for the transaction, the investment firm will deposit the amount in a Clients’ Account. This is a bank account which the firm uses to channel all funds relating to investments belonging to investors. It is normally a pooled account – that is, all investors’ monies would be placed in such an account. However, the investment firm will also have an investment account in your name and at least once yearly, the firm is obliged to give you a breakdown of any incoming or outgoing funds specifically related to your transactions as the beneficial owner of the investments.

Any income from investments will be sent to the investment firm, which will then be distributed to the beneficial owners by cheque, credited to an account or reinvested, depending on the beneficial owner’s instructions.

Nominee accounts are designed to facilitate trading of investments as entities can conduct transactions electronically. This means that investments held in nominee accounts can be processed much more efficiently.

Many Investment firms now provide their clients with an online trading system which gives the beneficial owner the opportunity to trade outside the opening hours of their entity in the comfort of their own home.

Question: How do I know if a financial entity offers nominee services or not?

You may ask the financial entity for such information directly.

If you want to verify such information, you should check the investment service licence of the entity and check whether under services the Nominee Service is listed on its licence.

Question: How safe are Nominee accounts?

Many investors don’t understand exactly know how their investments are held and what the risks to their account are if the worst happens. Unless you have been informed otherwise, your account is almost certainly a pooled nominee one. This means that the legal owner of the shares is your entity and your investments are aggregated with those of other investors dealing with the entity.

Put like that, it may sound quite alarming but you should not worry too much because there are legal systems in place to safeguard your holdings and money.

The MFSA’s Conduct of Business rules clearly stipulate that your investments should be held separate from those of your investment firm. Nominee accounts are “ring-fenced” (that is, they are held separately) from the entity’s business accounts – so you should not worry that your investments are being combined with those belonging to the entity.

The separation between clients’ investments (and monies) and the entity’s investments (and monies) is crucial to how this arrangement operates. This is however not the only requirement, the rules also require the entity to keep proper records of each customer’s investments such that they are easily identifiable from the investments of other clients, also held under nominee.

Furthermore, the law stipulates that in the case of liquidation of a financial entity (the process which ensues after a company is declared insolvent), the creditors of that entity shall be unable to claim or demand any right of action on or against the investments held under the control of such entity for and on behalf of and in the interest of any of its customers. In the event of any such insolvency or bankruptcy, the entity shall – on request of the customer or the Authority – immediately transfer the control, possession and title to all assets held by or in the name of an investor to another entity or to such other person as may be instructed by the customer or the Authority.


Licensing Type

The Investment Services Act provides that Investment Firms can choose from a wide variety of different activities to offer clients. In this respect, not every Investment Firm is authorised to offer the same licensable activities. An Investment Firm can be authorised based on the type of services offered to the potential clients.

Hereunder, please find an explanation of the different activities an investment firm can apply for, and what each activity provides.

1. Reception and transmission of orders in relation to one or more financial instruments.

The reception from a person, the end client, to buy, sell or subscribe for instruments and the subsequent transmission of that order to a third party for execution. In this respect, the Investment firm would not be the entity executing the trade.

2. Execution of orders on behalf of clients.

Acting to conclude agreements to buy or sell one or more instruments on behalf of clients and includes the conclusion of agreements to sell instruments issued by an investment services licence holder or a credit institution at the moment of their issuance. The trade is executed by the Investment firm.

3. Dealing on own account.

The Investment firm would be trading against its own proprietary capital, resulting in conclusion of transactions in one or more instruments. The Investment firm is therefore required to properly monitor its open positions, in order to ensure that the capital can cover such exposures.

4. Management of Investments / Portfolio management.

The Investment firm will manage assets belonging to another person, based on criteria that are suitable to the end client. The investment firm will have discretion to invest in one or more instruments on behalf of the client.

If those assets consist of or include one or more instruments or the arrangements for their management are such that the person managing or agreeing to manage those assets has a discretion to invest any of those assets in one or more instruments.

5. Investment advice.

The investment firm would be giving, offering, or agreeing to give, to persons in their capacity as investors or potential investors or as agent for an investor or potential investor, a personal recommendation in respect of one or more transactions relating to one or more instruments, based on the underlying type of client.

6. Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis.

The underwriting or placing of instruments would mean that the Investment firm assumes the risk of bringing a new securities issue to the market by buying the issue from the issuer, thereby guaranteeing the sale of a certain number of shares to investors.

7. Placing of financial instruments without a firm commitment basis.

The marketing of newly-issued securities or of securities which are already in issue but not listed, to specified persons and which does not involve an offer to the public or to existing holders of the issuer’s securities’ - without assuming the risk of guaranteeing the sale of a certain number of shares by buying the relative securities from the issuer.

8. Trustee, Custodian or Nominee Services

The investment firm is authorised to act as trustee, custodian or nominee holder of an instrument as part of providing the services 1 to 5 as highlighted above. Additional information on nominee services is provided in an ad-hoc section further down this webpage.


Once an Investment Firms has been licensed by the MFSA, for the safeguard of its clients, there are different prudential requirements which, according to the size, complexity and range of services offered, the Firm will have to satisfy. According to such requirements, deriving from the EU Investment Firms Regulation (EU 2019/2033) and EU Investment Firms Directive (EU 2019/2034), an Investment Firm is classified under one of the following four Classes:

  • Class 1
  • Class 1 minus
  • Class 2
  • Class 3
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.

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