Forex Trading in Malta
Malta is one of the main Financial centers in Europe, thanks to its position, stable political climate and economy, and legal and tax system. The island of Malta is also a member of the European Union and its small size allows is to react quickly and professionally to business needs which makes it a very sought-after place for new businesses.
Financial stability is an important factor which the Maltese government constantly strives to achieve via a strong banking system and regulatory climate that allows businesses and financial institutions to operate in a safe and efficient climate.
There is a good pool of well educated Maltese work-force but also foreigners who come and work in Malta as they find the island’s climate and character very appealing to build a career and also raise a family.
Various tax incentives are in place for professionals who would like to work in Malta as well as entrepreneurs who would like to set up and register companies on the island.
Maltese Regulation for Forex Brokers
The Malta Financial Services Authority, or MFSA in short, is the body that regulates all financial services in Malta, including the Foreign Exchange Brokers and Trading systems.
The MFSA issues licenses and oversees that companies are following regulations and the safety of the investors who open accounts with the various forex trading institutions in Malta. The role of the MFSA is extremely important in safeguarding the image of the Maltese financial systems and ensuring that the island keeps its reputation as a professional and highly regulated jurisdiction for both companies wanting to set-up investment services and also the general public who relies on these same companies to invest their funds and conduct their forex and stock trades in a secure environment.
The Malta Financial Services Authority which was created in 1988 is an autonomous regulatory agency that falls under the MiFID derivative which regulates finance enterprises across the various financial markets in Malta. The MFSA reports to the Government of Malta and is seen as one of the most important institutions for the Malta Government, in fact it undergoes regular updates and changes in policies and structure to ensure it keeps up with, adheres to and also contributes to the latest international regulations and policies.
In recent years the MFSA has implemented a system of routine audits conducted by its supervisory division across all financial companies operating in Malta. The audits are extremely thorough and ensure that all companies are following the rule of the Law and have correct processes in place to carry out their due diligence and implement AML procedures (Anti Money Laundering).
The MFSA also works closely with the Central Bank of Malta in different financial aspects.
The fact that Malta is part of the EU ensures that the financial institutions and Forex Brokers registered under the MFSA have to follow the guidelines and legal framework recommended by the European MiFID. This framework offers high protection for consumers, investors and forex traders who use brokers registered with the MFSA.
Apart from this, Malta’s membership in the European Union also means that it is part of the European Economic Area (EEA) agreement. This agreement is a significant piece of legislation that allows all member state companies to provide services across Europe without the need to actually open outlets or branches in those specific countries.
This means that Maltese brokers registered with the MFSA can legally operate within any EU country offering their services to other EU investors.
International Forex Brokers operating in Malta
As mentioned above the Maltese government has implemented a very secure and highly regulated system around Forex Brokers and Agents who operate in Malta. As such Malta does not allow any brokers or intermediaries to set up shop on the island if they are not regulated and licensed by the MFSA or the MiFID derivative.
In fact, quite often, the Malta Financial Services Authority will publish on the local newspapers and on its own website, a list of scammers or black-listed companies (https://www.mfsa.mt/consumers/scams-warnings/) that are not authorized to operate in Malta.
Apart from this the MFSA website also includes all the main legislation and policies covering Financial Services in Malta as well as various tips and guidelines for consumer protection in order to help investors and ensure they do not lose their savings and investment portfolio on by investing with rogue agents.
Following the spread of unregulated scam Forex agencies and brokers that flooded the Market across Europe and beyond, the Maltese Government amended its requirements for licensed agents on its shores and increased its due diligence process and minimum financial requirements for brokers to get their license in Malta.
In fact anyone who wishes to register and get licensed under the MFSA to offer Forex Trading and other Financial services must have at least €730,000 of funds deposited in Maltese banks as operating capital and are also required to prepare and submit monthly and Quarterly reports to the MFSA, as well as yearly Audited Financial Statements (AFS), irrespective of the size of their operation. These AFS need to be audited by an internationally recognized Audit Firms.
Due diligence for the Forex Brokers and agents is also carried out on its employees and Directors. The MFSA regulations require that Directors and employees working with the Brokers in the more senior and advisory positions are trained, experienced individuals who can offer a professional service to their clients and who will not scam them out of their savings just to make a commission.
These same Forex Brokers are also required to have part of their Board of Directors who are completely independent and are experts in the field. The role of these independent directors is to have the authority to over-ride decisions made by shareholders and management which can be financially deceiving to the customers.
The MFSA also imposes restrictions on licensed Forex Brokers as to who they can have as Business Partners in their operations and dealings. In other words, they can only partner up with other MFSA licensed entities to offer Financial Service Business.
Also, MFSA licensed agents must always go through the interbank exchange when processing client transactions and cannot therefore act themselves as market makers which would give rise to various potential Fraud opportunities.
Default of any or all of the above requirements could easily lead to hefty fines for the forex agency or termination of the license and the MFSA is very serious in upholding their requirements to safeguard the general public and their savings.
Protecting the Individual Traders and Investors
The MFSA’s mission is first and foremost to protect the consumers, that is, traders and investors that use financial firms or forex brokers licensed in Malta. For this purposes there are several different branches within the agency to ensure that individuals and consumers can easily contact them and report any breaches or irregularities they encounter in their day to day trading or dealing with these licensed agents.
Following these reports from consumers the MFSA will set about investigating any financial scams through the help of the local law enforcement agency if necessary.
Apart from this, the MFSA also promotes several investments and trading educational programs for the local public including physical seminars held around the island and educational material that can be found on its website and in pamphlets around their Head Office.
All in all the regulations and operations performed by the MFSA allow investors and forex traders to ensure their trading capital is safeguarded and protected from dishonest foreign exchange platforms and agencies. After all as a trader you already have enough to worry about when trading in the very erratic and risky Forex market and the last thing you want to be thinking about is whether your initial capital is at risk of being stolen by the agency that you invest with.
Keeping hold of the MFSA license is not an easy task for operators, but obtaining the license in the first place is even harder.
The MFSA licensing procedure is a very detailed and long process that requires various information on the Financial service company being registered, its history and all the directors and shareholders who play an important role in the company. Factors, such as individual’s past roles and criminal records, as well as whether they are Politically exposed persons (PEPS) are all taken into consideration.
The Malta Financial Services Authority will collaborate with other international financial institutions also in order to ensure that all worldwide records are taken into consideration when performing the due diligence before issuing a license to trade. Thanks to various double taxation treaties and agreements that the government of Malta has in place with all the major countries in Europe and beyond.
In conclusion the legal framework offered by Malta and its governing financial institutions provide an environment of serious protection to the investors. No wonder this little island has grown into one of the biggest financial hubs worldwide.