Fintech Insights #2 –
Maltese EMIs

Electronic Money Institutions (EMIs) are financial institutions that offer electronic money services to customers. Legislation on EMIs is partially harmonised in the EU as there is only an Electronic Money Directive (Directive 2009/110/EC) (“EMD”) rather than a regulation. In Malta, the EMD is transposed in the Financial Institutions Act, Chapter 376 of the Laws of Malta.

Article 2 of the EMD defines electronic money as “electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions as defined in point 5 of Article 4 of Directive 2007/64/EC, and which is accepted by a natural or legal person other than the electronic money issuer.”¹

In other words, electronic money is a digital representation of value that is issued on receipt of funds for the purpose of making payment transactions. Electronic money transactions can be rapidly completed through a smartphone, tablet, or computer, without the need for physical cash or cheques. This makes electronic money the default choice for online purchases and international money transfers.

EMIs are the institutions that issue the electronic money and provide services related to the issuance, distribution, and redemption of electronic money. EMIs have passporting rights within the EU and they initially emerged as a popular alternative to brick-and-mortar banking solutions, particularly among consumers who prefer to use digital channels for financial transactions.

However, an EMI is not the only type of financial institution in the financial services sector that can be granted a licence to issue electronic money. In reality, banks also provide options involving the issuance of electronic money. Unlike banks, EMIs are not authorised to offer loans or accounts that pay interest; hence their name defines the singular licensable activity which they offer. Despite the limited range of services provided by EMIs, the licensing process for an EMI is still voluminous and requires a minimum capital requirement of €350,000.

Whilst EMIs can issue electronic money, the EMD does not give them power to issue electronic money in relation to new types of currencies which are not already in existence. However, the approval of MiCA by the EU Parliament on the 20^th of April 2023 provides that EMIs and credit institutions can create electronic money based on new e-money tokens issued according to the MiCA Regulation. Although MiCA also regulates issuers, EMIs would be exempt from requiring a new licence to issue new e-money tokens as long as the formalities prescribed therein are followed.

Preamble 19 of the MiCA Regulation says that: “strict conditions on the issuance of e-money tokens should be laid down, including an obligation for e-money tokens to be issued either by a credit institution…or by an electronic money institution authorised under Directive 2009/110/EC. For the same reason, issuers of e-money tokens should ensure that holders of such tokens can exercise their right to redeem their tokens at any time and at par value against the currency referencing those tokens.”²

Title IV of MiCA relates to e-money tokens and Chapter 1 of this title delineates the requirements to be fulfilled by all issuers of e-money tokens. Specifically, Article 48 MiCA provides the requirements for the offer-to-the-public or admission-to-trading of e-money tokens. Article 48 provides that:

“1.  A person shall not make an offer to the public or seek admission to trading of an e-money token, within the Union, unless that person is the issuer of such e-money token and:

(a)  is authorised as a credit institution or as an electronic money institution; and

(b)  has notified a white paper to the competent authority and has published [it]…in accordance with Article 51 [of the MiCA Regulation].”³

Furthermore, Article 48 of the MiCA Regulation provides that “e-money tokens shall be deemed to be electronic money” and paragraph 44 of Article 3 of MiCA defines electronic money as having the same meaning “as defined in Article 2, point (2), of Directive 2009/110/EC [i.e., EMD].”

Malta’s laws on EMIs have not been amended to reflect changes brought about by MiCA. Having said that, as such, no amendments are required in the Financial Institutions Act (Chapter 376 of the Laws of Malta) in relation to EMIs because the EMD was not amended and MiCA is directly applicable. Consequently, Maltese EMIs are increasingly becoming homogenised with EMIs that are licensed by other EU Member States because the EMIs’ sphere relating to e-money tokens issued under MiCA has been harmonised throughout the EU.