Investment Firms - Introduction

 

Investment Services in Malta are regulated by the Investment Services Act (“ISA”) and rules established by the Malta FSA.  When preparing an application for an Investment firm, Fiduscorp, the intended activities by the applicant Investment firm will be clarified to then progress on the correct classification of the type of license to be applied for from the Malta FSA.

 

The Investment Firms which Fiduscorp services includes:

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• Fund Managers

• Investment Funds

• Securitisation

• Listed Entities (issuers of Equities / Debt), which process can be through Malta FSA or with Malta Stock Exchange

• Crowd Funding

• FX Brokers 

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Investment Firms - Activities 

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The ISA provides that Investment Firms can choose from a wide variety of different activities to be offered to clients as follows:

 

1. Reception and transmission of orders in relation to one or more financial instruments - reception from 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 itself.

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 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.

5. 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 of 1, 2, 3, 4 or 6.

6. 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.

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

8. Placing of financial instruments without a firm commitment basis – The Investment firm will be 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.

9. Operation of a Multilateral Trading Facility - a system which brings together multiple third party buying and selling interests in instruments in accordance with non-discretionary requirements in a way that results in a contract.

10. Reception, transmission and submission of a bid relating to emission allowance.

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Investment Firms - Classes

 

Once an Investment Firm has been licensed by the Malta FSA, 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 and Class 1 Minus:

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These are Investment firms deal on their own account and/or underwrite financial instruments and/or place financial instruments on a firm commitment basis. While Class 1 investment firms have total consolidated assets equal to or in excess of Eur15 billion Euro,  Class 1 Minus investment firms would have total assets equal to or in excess of Eur 5 million but less than Eur15 billion Euro. 

 

Class 2 and Class 3 Investment firms:

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Class 3 Investment Firms are small and non-interconnected and must at all times satisfy the following requirements: 

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• Assets under management are less than €1.2 billion

• Client orders handled are less than either:

  • €100 million per day for cash trades, or

  • €1 billion per day for derivatives

• Assets safeguarded and administered are zero

• Clients’ money held are zero

• Daily trading flow is zero

• Net Position Risk or Clearing Margin Given is zero

• Trading Counterparty Default is zero

• The on- and off-balance sheet total of the investment firm is less than €100 million

• The total annual gross revenue from investment services and activities of the investment firm is less than €30 million calculated as an average on the basis of the annual figures from the two-year period immediately preceding the given financial year.

 

Class 2 Investment firms relates to small and interconnected firms and may be referred to as the residual Class. Indeed, unlike Class 1, Class 1 Minus and Class 3 Investment firms, in the case of Class 2 firms there is no specific list of requirements which must be adhered to. Conversely, these are firms which do not satisfy the requirements of Class 1, Class 1 Minus and Class 3.

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Investment Firms - Initial Minimum Share Capital

 

The initial capital requirements for investment firms is based on the activities performed by the investment firm are set out as follows:

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1. Dealing on own account and underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis or perform operations of an Organised Trading Facility - Eur750,000

2. Reception and transmission of orders in relation to one or more financial instruments, execution of orders on behalf of clients, portfolio management, giving investment advice, and placing of financial instruments without a firm commitment basis, and that do not hold client money or assets belonging to its clients - Eur75,000

3. Activities other than those specified above, the initial share capital shall be that of Eur150,000. 

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