Beyond licensing: Can Malta become a launchpad for Europe’s next fintechs?

Mark Farrugia Debrincat

Malta has built a reputation as a financial services hub, with fintech becoming an increasingly important niche within its economy. From payments and electronic money to digital assets and other technology-enabled financial services, the sector has evolved considerably in recent years. With EU regulation becoming ever more harmonised, Malta has an opportunity to position itself as a launchpad from which fintech businesses can build and scale their operations across the European Union. That opportunity, however, should not be confused with simply attracting more potential licences. A licence may provide access to a market, but it does not, by itself, create a successful business.

The opportunity is bigger than Malta

For a global fintech, Malta’s domestic market, although gradually growing and attracting large players, is unlikely to be the primary attraction. The more advantageous prospect lies in utilising Malta as a base from which to access the wider European market by virtue of the harmonisation of financial services regulation across the EU. For certain regulated activities, this can allow authorised entities to provide services across Member States through passporting mechanisms, without necessarily establishing a separate regulated entity in each jurisdiction. The practical ability to expand, however, remains dependent on the applicable regulatory framework and the nature of the services being provided.

The evolution of EU regulation is also illustrated by the introduction of the Markets in Crypto-Assets Regulation (“MiCA”), which has established a harmonised framework for crypto-asset service providers across the EU. For businesses operating in this sector, the regulatory landscape has therefore shifted from a collection of national approaches towards a more integrated structure. Malta’s early experience in digital assets gives it an opportunity to build on the expertise and ecosystem developed over recent years, provided that this experience can be translated into a broader proposition for businesses seeking to establish and scale in Europe.

Applicants, however, should not assume a frictionless route into the European market. Regulation may be increasingly harmonised, but European markets remain commercially diverse. Customer expectations, payment preferences, languages, competitive environments and established financial infrastructure can differ significantly from one Member State to another. For Malta, this creates an opportunity to offer something more valuable than simply a jurisdiction in which to obtain a licence: a credible European base from which businesses can build, operate and scale across multiple markets.

In practice, Malta’s approach to financial services has also increasingly placed emphasis on quality over quantity. The strength of the businesses establishing themselves here should therefore matter more than simply the number of licences granted. Factors such as local substance, financial backing, the potential of a product to contribute to or disrupt the market, and an applicant’s regulatory track record are important considerations in determining whether a business can genuinely add value to Malta’s ecosystem.

For a business intending to use Malta as its European base, the question of substance is an important consideration. Establishing a Maltese entity does not mean that the business has established a meaningful operation in Malta. The location of decision-making, senior management and key control functions, together with the resources supporting them, can be important in determining whether the structure reflects genuine local substance.

Building beyond the licence

Obtaining a licence should not be viewed as a standalone regulatory exercise. The authorisation process itself requires a business to demonstrate that it has the foundations necessary to operate effectively and sustainably. A fintech seeking to establish itself in Malta needs to consider matters such as local substance, governance, financial resources, compliance and risk management arrangements, technology and operational infrastructure, and the oversight of outsourced functions. These factors form part of the regulatory assessment of whether the proposed business has a sustainable operating model, supported by adequate resources, expertise and clearly defined responsibilities. These considerations do not end with the granting of a licence. A regulated business must be able to maintain the substance, governance and operational capabilities that underpin its authorisation as the business develops. This becomes even more significant where Malta is intended to serve as a base for expansion into other European markets.

The operating model may also involve outsourcing certain functions to third-party providers. This can allow a fintech to access specialist expertise or technology without building every function in-house, but it does not remove the need for the business to retain appropriate oversight and control. Outsourcing the performance of a function does not necessarily transfer responsibility for that function away from the regulated entity.

This is where the distinction between obtaining regulatory access and building a sustainable European business becomes important. A regulatory framework may provide the means to access other markets, but the underlying business still needs the people, systems, capital and governance to support that expansion. The licence, in this context, should be viewed not as the end-product, but as the foundation of the business’s operating platform.

Malta’s challenge

Malta has several characteristics that can make it attractive to an international fintech considering an EU base. Its membership of the European Union, English-speaking environment, established financial services industry and relatively concentrated ecosystem of professional and regulatory expertise provide a foundation on which businesses can build. Malta has also developed experience across payments, electronic money and digital assets, creating an ecosystem that can be particularly relevant to businesses operating at the intersection of technology and financial services.

However, fintech is an increasingly competitive sector, and Malta is competing with other established European financial centres for businesses, investment and talent. A credible regulatory framework is therefore only one part of the proposition. Businesses also need access to specialised employees, reliable infrastructure, banking and financial services, professional expertise and an environment in which they can scale.

Malta’s objective should not be to attract every business seeking an EU licence, but to create an environment in which high-quality businesses have a genuine reason to establish and grow here. Doing so requires continued investment in the wider ecosystem and close cooperation between regulators, government and industry.

Malta does not need to become Europe’s largest financial centre to succeed in fintech. Its opportunity lies in becoming a particularly attractive home for the right businesses: applicants that view Malta not simply as a place to obtain regulatory approval, but as a jurisdiction from which they can build and grow. The test of Malta’s fintech strategy should therefore not be how many licences it attracts, but how many businesses choose to make Malta part of their long-term European operations.

If Malta can combine the credibility of its regulatory framework with an ecosystem that encourages high-quality fintech businesses to establish genuine substance and grow here, it can offer something more valuable than regulatory access: a genuine launchpad into Europe.

Mark Farrugia Debrincat is a lawyer