The Depositor Compensation Scheme is a rescue fund for depositors of failed banks which are licensed by the MFSA. The Scheme, which has been in force since 2003, can only pay compensation if a bank is unable to meet its obligations towards depositors or has otherwise suspended payment.

The Scheme is managed by a committee appointed by the MFSA and is made up of persons representing the MFSA, the Central Bank, licensed investment firms, the banks and consumers.

The regulations (Legal Notice 369 of 2003) which transpose the EU Directive on Depositor Guarantee Schemes obliges the committee to compensate depositors following a process of due diligence which should not take longer than three months (which may be extended to another six months by the competent authority).

All depositors of Maltese banks are covered up to EUR100,000 (per depositor, per bank) and depositors will no longer have to bear the initial 10% of their losses.

Most types of deposit are covered, including current, deposit and savings accounts. Similarly, most depositors are covered by the Scheme. There are however some depositors who might not be able to claim. Companies which are permitted to draw up abridged balance sheets in terms of the Companies Act are also covered by the Scheme.

Joint accounts are divided equally between account holders where there is no indication of the share of each holder in the account. Each will be covered up to the limits prescribed in the Regulations, subject to eligibility. In respect of deposits held by a person acting as trustee or nominee for one or more beneficial owners, the deposit making up the claim shall be deemed to belong to such beneficial owners equally unless there exists specific information which may otherwise determine the beneficial interests of such persons.

A depositor can only submit one claim for all his deposits taken in aggregate against a failed licensed bank, including the depositor’s share in a joint account or a client account, less any amounts due to the bank (such as loans).

The Scheme covers deposits denominated in euro and deposits in the currencies of EEA countries whose currency is not the euro. This means that deposits in Australian dollar are not covered by the scheme.

In the unlikely event of a bank failure and the Scheme needs to compensate depositors, the payout period is 20 working days that are reckoned from the date when the competent authorities determine that a credit institution is unable to repay its deposit liabilities – with a possible extension of 10 working days in exceptional circumstances.

Credit Institutions are also required to be more transparent with regard to the information that they are obliged to provide to current or prospective depositors in connection with the scheme.  The information on the scheme contained in advertising by participants will be subject to certain restrictions in order to prevent adverse repercussions on the stability of the banking system or on depositor confidence.

More information about the Scheme is available from www.compensationschemes.org.mt.

Question: I have been noticing multiple adverts on newspapers and TV advertising very good rates for fixed deposit account by banks which I had never been aware of. All these adverts claim that my deposit is protected under the Depositor Compensation Scheme but I want to make sure that none of these adverts is misleading – such as for example, enticing me to deposit my hard-earned savings with them on the basis that my deposit is covered by the scheme, when in actual fact it is not.

All banks licensed by the MFSA are required to be members of the Depositor Compensation Scheme. The Scheme provides a level of coverage of up to €100,000 for each depositor in the event that a bank becomes insolvent and therefore is unable to honour its obligations towards such depositors.

In light of the new regulations which came into force in August 2009, all banks are required to indicate clearly that they are members of the Depositor Compensation Scheme in Malta. Very shortly, all banks will also be providing information to their depositors (on demand or through their websites) relating to the scheme including the circumstances under which the scheme would pay compensation. This information is already available on the Depositor Compensation Scheme’s website (www.compensationschemes.org.mt) but banks are now also required to provide this information to depositors to enable them to understand better how the scheme works and whether and to what extent their deposits are covered.

In brief, the scheme covers deposits made by individuals and small companies which are allowed to draw up abridged balance sheets in terms of the Companies Act. The scheme covers deposits in the currencies of all EU and EEA (European Economic Area). Other non – EU currencies are excluded. There is no closing date as to the limit of €100,000 (as many depositors continue to think). The limit is per person, per bank so for example, if two banks are unable to honour their obligations at the same time, a depositor is covered for up to that limit for each insolvent bank.

As with diversification, there is absolutely no harm for a depositor to diversify and distribute his/her savings between different banks.

More information on the Depositor Compensation Scheme is available here.

1. This product offers pensioners the possibility to translate part of the value of their property into a liquid asset.
2. By entering into this contract, the pensioner will have more cash in hand whilst enjoying their retirement in their own home.
3. Individuals who subscribe to this scheme will be essentially taking out a loan in exchange for regular income. The loan will be repaid when the property is sold.

Who is offering it and when?

1. This product can be offered by licensed credit and financial institutions operating in or from Malta.
2. MFSA is currently working on the regulatory framework that needs to be in place for it to regulate the equity release financial product.
3. The equity release financial products regulations [Regulations’] will come into force on the 1st of September 2019. After this date no credit or financial institutions can offer such product without being duly authorised.
4. Any licensed institutions providing such financial products will have one year to comply with the requirements set out in the Regulations published by the Authority.

Any tips?

1. MFSA encourages interested individuals to seek independent professional advice and weigh their options before entering into an equity release transaction for the first time.
2. It is your right to receive all the information you need to make an informed decision.
3. MFSA will issue further updates once the framework comes into force. The public is encouraged to follow the Authority’s channels on Linkedin, Twitter and Facebook, or alternatively visit www.mfsa.mt for the latest updates.

Article 188 of the Maltese Civil Code (Of Majority, Interdiction And Incapacitation) states that ‘Majority is fixed at the completion of the eighteenth year of age’. On the other hand, Article 971A of the Civil Code providing with the ability of children over sixteen years to open and operate bank account provides that ‘Notwithstanding any provision of this Code, a child who has attained the age of sixteen years may deposit money in an account opened by the child in his or her own name with any bank, and any money deposited in any such account may only be withdrawn by such child notwithstanding that such money may be subject to the administration, usufruct or authority of any other person. For all purposes of law the child shall with regard to the opening and operation of any such account be considered a major.’

In this respect, paternal authority ceases as soon as a child opens a bank account in his/her name.

Facilities may only be granted to a minor who has attained the age of sixteen years and such minor shall be deemed to be major with regard to obligations contracted by him/her for purposes of trade, if (i) he/she has previously been authorized to that effect by the parent to whose authority he/she is subject, by means of a public deed registered in the Civil Court or, where both parents are dead, interdicted or absent, he has been authorized by the judge of the Civil Court and (ii) a summary of the deed of authorization or of the decree aforementioned has been published by means of a notice in the Government Gazette and in another newspaper.

In this regard, minors who are traders authorized as aforesaid can by reason of their trade charge, hypotheca for personal purposes (home loan).

For instance, banks would not issue a credit card to young adults under 18 years of age. They may only do so if the primary cardholder is either the parent or legal guardian – in that case, the supplementary cardholder may be the young adult. Any debts incurred by suchte and even alienate their property, without any of the formalities prescribed by the civil law. It is important to note that in these instances facilities may only be provided to minors in relation to their trade (business loan) and not supplementary cardholder would be under the responsibility of the primary cardholder.

With regards to the first question, there is really nothing one can do because a bank may impose an early repayment charge if a loan is paid in full or in part before the time established by the agreement. The actual charge and the period until when it is applicable would be clearly indicated on the sanction letter or any other credit agreement.

The Home Loan Regulations (Legal Notice 415 of 2011) establish the bank’s obligation to provide the consumer with pre-contractual information that includes a list of related costs, such as administrative costs, insurance costs, legal costs, the costs of intermediaries and the conditions applicable (if any) in case of early repayment.

These Regulations also provide that in any home loan agreement, the bank is obliged to ensure that the agreement includes the consumer’s right to a reduction if he/she pays credit before it is due.

Nevertheless, the Regulations state that if costs directly arising from the credit agreement have been specified in the agreement and such costs are fair and reasonable, taking into account all relevant circumstances, the bank shall be entitled to a fair and objectively justified compensation for possible costs directly linked to early repayment of the loan so long as such early repayment falls within a period for which the borrowing rate is fixed.

The Regulations also allow for consideration to be given to the impact of early repayment on administrative costs irrespective of whether the borrowing rate is fixed or variable.

Even if a sanction letter gives a legal right to a bank to apply the charge, a bank might be able to reconsider its decision (effectively waiving its right to charge). Some banks for instance, do not apply an early repayment charge at all.

In regard to the second question, home loans issued prior to 1 January 2012 remain regulated by the Consumer Credit Regulations (Legal Notice 84 of 2005, as amended in 2007 and 2010). These Regulations do not specifically preclude a bank from applying a different structure of charges in the case of early repayment but it does require that such costs are fair and reasonable.

It is very questionable – perhaps also anti-competitive – if a bank charges a different fee purely on the basis of the way the loan account has been closed before maturity date. If this charge did not form part of the list of charges when the sanction letter was drawn up, the matter may be in breach of the contractual agreement apart from being in breach of consumer protection legislation. If the charge is an item on the list of charges on a sanction letter and the consumer accepted it, it remains to be seen whether that too may be in breach of consumer and competition legislation as it is unlikely that a bank incurs differentiated charges depending on the way the customer closes his loan account.

The Home Loan Regulations (Legal Notice 415 of 2011) in force since 1 January 2012 do not allow a bank to charge different early repayment fees depending on the manner the loan has been closed. Indeed, a bank is required to apply the same early repayment tariff to all its customers, irrespective of the reason given by the client for such early termination.