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Given the recent proposals issued by chief regulators of financial services in the EU, MFSA released a statement about proposed changes to the rules for obtaining a Forex license in Malta. 

The changes focused on two questions:

  • raising the minimum capital for obtaining a Forex license in Malta and CFD brokers.
  • a 50-fold decrease in leverage limit

In its statement, MFSA reported negative reaction to both proposals. In particular, it focused on the fact that, if adopted, the changes would put brokers in Malta at a disadvantage, and thereby obtaining a broker license in Malta would be a far more complicated process. MFSA also said that it is determined to stiffen capital requirements, although this would slightly reduce leverage-related restrictions.

Instead of introducing a 50-fold net leverage limit, the MFSA now proposes:

  • 1:50 for retail customers
  • 1:100 for retail customers acting in the capacity of professional investors as defined by the MiFID Directive
  • no leverage limits for the rest of the clients

Given the new and much stricter rules in Great Britain & Cyprus (the 2 popular destinations for the majority of EU brokers), Malta is now perceived as an increasingly attractive jurisdiction for brokers engaged in CFD & Forex trading. However, given that the new MFSA rules are not significantly different from those proposed by the FCA and CySEC, obtaining a broker license authorizing Forex-related trading in Malta makes less sense.

MFSA published a consultation document that lays forth updated standards for organizations wishing to be engaged in provision of Forex-related services online.

The document was meant as a response to problems that MFSA faced when considering applications, as well as warning of risks for retail investors involved in Forex-related trading activities.

At the moment, the document is only intended for C2 and C3 Investment-Related Services License applicants who wish to provide on-line trading services under the ISL.

Apart from that, MFSA came up with a statement on feedback received from the key players. MFSA claims that although companies providing comprehensive speculative products are quite diverse, they can be divided into 2 main types:

  • companies directly directly providing products of speculative nature to retail customers;
  • companies providing mediation services for retail customers and providers of liquid assets

Increase of Statutory Capital

‘Companies applying for C2 license in Malta will be required to have a minimum statutory capital of €700,000. The aforementioned capital is to be maintained continuously, and not only at the licensing stage.’

Some industry participants were doubtful about compliance with the requirement, especially in view of the higher risks and operational complexity of C3 companies.

Moreover, industry participants noted that such a proposal runs counter to what regulators in other countries are proposing and puts Malta in a non-competitive position.

Industry participants also drew attention to the fact that the requirement for increased capital would not play a big role in solving the problem of protecting investors. Also, there are additional measures that could be undertaken for these purposes.

MFSA Position

As described in the consultation document, CFDs and/or spot forex contracts are considered products of complex nature.

MFSA duly noted proposals with regard to alternative measures that can further shield potential investors. However, MFSA came up with a capital requirement of EUR 700,000 and more for C2 companies. This is because C2 companies pose a significant risk (as do C3 companies), albeit for a very brief duration of time, until this kind of instruments get transferred to the relevant counterparty.

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