Want to Try Your Hand at Forex Trading in Malta? Read our Guide to MFSA Forex Brokers
Malta is cashing in on its strategic central location and becoming a force to reckon with in the world of financial market trading. It has also greatly benefited from its full membership of the European Union, which was completed in 2004. It is an independent country located slap bang in the middle of Europe and is proving to be a very attractive proposition for international financial services and brokers. The country is registering strong growth in both the insurance and investment funds sectors. Banking, wealth management sectors, and trusts are also experiencing strong growth as well as the number of Forex brokers in Malta.
Does Malta have a sound regulatory framework?
The entity in charge of regulating the financial industry is the Malta Financial Services Authority (MFSA). It has a well-developed infrastructure and regulatory framework which is just one of the reasons it has become a popular location for investment firms. In areas such as financial market sophistication, it rates very highly, as well as in the areas of banking, health and education. The MFSA is a regulatory agency with a solid reputation for maintaining high standards of compliance. But at the same time being able to eliminate unnecessary complexities and uncertainty for investors. Malta also has an excellent reputation for soundness of its banking systems, which has only been improved by the reliable, time-honored principles its leading credit institutions have stuck to. The country has been able to tempt a number of experienced market players in the sector of foreign exchange.These experts include trading platform developers, Forex asset managers, and Forex brokers. Malta provides all these and more with a great entry point into the EU market. As well as these entities it has also become popular for a business dealing in rolling spot forex and derivative contracts and for these entities to apply for official licensing and regulation.
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Why is the number of MFSA regulated brokers increasing?
There are a number of reasons Malta has become such a popular location for participants in financial markets trading, aside from its central location. It has very attractive levels of corporate tax, a solid regulatory framework, and access to Europe which is permitted under the Markets in Financial Instruments Directive (MiFID). MiFID is a European Directive that aims to bring about a harmonized regime for the authorization and operation of investment firms operating within the EU. The country has enjoyed increased interest from niche operators such as e-money, trade finance, and Forex trading operators. Many countries across Europe are experiencing a tightening of the belt with regards banking regulations which have led entrepreneurs to look further afield than the normal channels of investment. Malta is able to fulfill all the necessary criteria and the number of Forex brokers in Malta looks set to keep on rising.
The licensing requirements for MFSA Forex brokers
Carrying out investment services in Malta is a licensable activity under the Investment Services Act Chapter 370 of the Laws of Malta. It requires the completion of a formal application during which the integrity and competency of the applicant will be assessed. There are four different types of license available:
Category 1a – This license will authorize the holder to receive and transmit orders in relation to one or more financial instruments. Also to provide investment advice and place instruments without any firm commitment
Category 1b – This license authorizes the holder to place instruments without a firm commitment on behalf of professional clients only
Category 2 – This license authorizes the holder to provide an investment service and to hold or control clients money but not to deal on their own account or underwrite or place instruments on a firm commitment basis
Category 3 – This license authorizes the holder to provide an investment service and to hold and control clients money or customer assets
Category 4 – Category 4 license holders are authorized to act as trustees or custodians of collective investment schemes
The category of license you will be more interested in will be Category 3 and 4. A Forex company dealing on its own account will require a Category 3 license from the MFSA. However, a white label partner, or one who will only be matching trades with one entity being the client and the other acting as a counterparty to the trade, will require a Category 2 license. In terms of regulations, Forex refers to the trading of currencies. But it is possible for a license holder to deal in financial instruments on their own account and to provide other types of investment service, as long as it is covered by an individual license.
MiFID and passporting rights for MFSA regulated Forex brokers
The Markets in Financial Instruments Directive 2004/39/EC provides harmonized regulation for investment services across all member states of the European Economic Area. It is designed to increase competition and consumer protection in investment services. MFSA licensed Forex brokers are not necessarily authorized under MiFID to provide their services and therefore passporting may not necessarily apply. The reason for this is that the acquisition and holding of investment services do not fall under the MiFID definition of an instrument. However, it does include the provision of financial instruments such as futures, options, derivatives, and swaps in relation to yields, interest rates, securities or currencies. In these cases, the MFSA Forex broker will be eligible for passporting rights. What are passporting rights? Quite simply, it is an authorization which allows a broker regulated in Malta to offer its services to all European Economic Area member states.
What does the future hold for financial services and Forex brokers in Malta?
The operational and service framework in Malta is continuing to improve in strength. Its regulatory processing efficiency is certainly noteworthy and the set-up and ongoing costs of a new business are making this location an increasingly attractive proposition. Which is only going to be of benefit for new Forex traders. If you take nothing else from this page, remember to choose an MFSA regulated Forex broker as this is the best level of protection possible for safeguarding your funds.