One of the very first steps in any licensing process is the determination of the appropriate license. This is a very important step, since a mistake at this stage can saddle you with an authorisation which is not fit for purpose. The obtainment of a Maltese investment services license (the sort of license that has become much sought after by investment advisors, fund managers and foreign exchange businesses) also necessitates the determination of a suitable license category.
There are four license categories under Maltese investment services rules. Distinguishing between them can be difficult, and a detailed analysis of each category is beyond the scope of this post. What I intend to do below is to outline in broad terms what each category is best suited for.
Investment Services Category 1: this category is primarily for investment advisers and investment intermediaries that simply receive and transmit orders. The key thing here is that the business cannot hold or control client moneys, so you cannot have a client account. This category carries a capital requirement of EUR50,000.
Investment Services Category 2: this category is best suited for fund managers, wealth managers and stock brokers. This category permits licensees to hold and control moneys, meaning that it is ideal for those businesses which exercise some form of discretion over the management of client money or which execute transactions. This category carries a capital requirement of EUR125,000.
Investment Services Category 3: this is the most sophisticated of the license categories and is suitable for multi-lateral trading facilities, market makers and firms which place instruments on a firm commitment basis. This category permits the conduct of all activities except fund custody. Firms are of course permitted to hold and control client money. Category 3 carries a capital requirement of EUR 730,000.
Investment Services Category 4: this category is reserved for businesses offing custody services to funds. This category carries a capital requirement of EUR 730,000.
Of course, if one reads into the detail of the rules, there are additional layers of complexity to the categorisation process in the context of Maltese investment services licenses. However the above should serve as a handy guide which covers the basics of investment services category selection.
Get in touch if you have questions.
Dr Charles Cassar
Financial Services Lawyer
Chetcuti Cauchi Advocates
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