Financial Services M&A 2024

Authors: Andrew J. Zammit & Kurt Hyzler

1. Market and policy climate

1.1 Market climate

1.1.1 How would you describe the current market climate for M&A activity in the financial services sector in your jurisdiction? (Please include any relevant market statistics, deal volumes and key market players.)

The M&A market in Malta (excluding cross-border transactions) has experienced a slowdown between 2022 and 2023, with a total deal value drop of 66%, according to local statistics. This can be attributed to several key factors which include  principally, the higher interest rate environment, and, to a lesser degree, a more stringent regulatory environment and increased foreign direct investment supervision. On the cross-border side, activity also slowed down but not to the same degree as the local market.

Despite these challenges, the near future looks promising with various international forecasts predicting an increase in M&A activity in 2024 and a return to levels comparable to those seen in 2021 and early 2022, by 2025, according to various international broadcasters who predict heightened economic stabilization over the course of the next two years.

1.2 Government policy

1.2.1 How would you describe the general government policy towards regulating M&A activity in the financial services sector? How has this policy been implemented in practice?

Maltese financial services legislation and regulation is based on the EU legislative framework. Changes in qualifying shareholdings and changes of control are subject to prior authorisation or notification and undertaken by the Malta Financial Services Authority (MFSA), being the single regulator for financial services in Malta. The MFSA applies rigorous due diligence screening on the proposed purchasers and its beneficial owners, besides undertaking a detailed assessment of the impact that the proposed acquisition may have on the licensed entity’s business model, resources and licensed activities. These assessments are based on detailed submissions made for the MFSA’s consideration. Transactions relating to a change of qualifying ownership in a licensed entity may be declared to be null and void if these are implemented without the MFSA’s prior approval or notification.

2. Legal and regulatory framework

2.1 Legislation

2.1.2 What primary laws govern financial services M&A transactions in your jurisdiction? (Please include any relevant national and subnational legislation.)

Besides being subject to general contract and corporate law provisions under the Maltese Civil Code, the Commercial Code, the Companies Act and sector-specific laws, including the Banking Act, Investment Services Act, Financial Institutions Act, Insurance Business Act,  Virtual Financial Assets Act and the Malta Financial  Services  Authority  Act (European  Crowdfunding  Service Providers for Business) Regulations, financial services M&A transactions, may also be regulated, to a greater or lesser degree, by  various other statutes. These include the Competition Act, Employment and Industrial Relations Act, Financial Markets Act, Financial Markets Abuse Act, Malta Financial Services Authority Act and the National Foreign Direct Investment Screening Office Act. The applicability or otherwise of these latter statutes will very much depend on the nature, size, complexity and structure of the proposed transaction, and the profile of the proposed purchaser. Takeover bids of public companies listed on the Malta Stock Exchange will also be regulated by Chapter 11 of the Capital Markets Rules published by the Malta Financial Services Authority (MFSA). The Malta tax and transfer duty aspects of the transaction will also be affected by the provisions of the Income Tax Act, Income Tax Management Act and Duty on Documents and Transfers Act.

2.2 Regulatory consents and filings

2.2.1 What regulatory consents, notifications and filings are required for a financial services M&A transaction? Should the parties anticipate any typical financial, social or other concessions? (Does the response differ depending on the deal structure?)

Transactions involving companies in the financial services sector invariably require pre-approval or notification by the MFSA, where the transactions involve a change to a ‘qualifying shareholding’ under the applicable rules. A qualifying shareholding is defined as a 10 per cent or more of the direct or indirect holding in the capital or voting rights or other means to exercise a controlling influence over the financial services operator concerned and this 10 per cent threshold finds application across all regulated industries, including banks, investment firms, financial institutions and insurance undertakings.   
Certain transactions may also require pre-clearance or non-opposition from the Malta Competition and Consumer Affairs Authority (MCCAA) and/or the National Foreign Direct Investment (NFDI) Screening Office (Considered in more detail below). With respect to the latter clearances (NFDI), it is only those transactions involving undertakings that operate critical financial infrastructure, whether physical or virtual, by non-EU purchasers that require prior screening and approval.   

Once the aforesaid transaction filings are complete, the filings of the relevant statutory corporate forms and returns may be made with the Malta Business Registry, which houses Malta’s public company register, typically within a period of 14 days from the effective date of the transaction.

When the transaction involves the transfer of shares in a Maltese company, it will also involve Malta tax filings, regardless of whether the transaction is subject to Malta capital gains or duty on documents and transfers or exempt from such capital gains or duty. These filings must be processed prior to filing the share transfers with the Malta Business Registry.

It is important to note that there can be significant variations in turnaround time-periods to obtain these regulatory approvals driven by various factors including the complexity of the ownership structure of the proposed new owner, any proposed changes to the target’s business model post-transaction and the approval of incoming directors and other key persons. This process must be carefully managed to achieve the successful and timely completion of the transaction.  

2.3 Ownership restrictions

2.3.1 Are there any restrictions on the types of entities and individuals that can wholly or partly own financial institutions in your jurisdiction?

There are generally no restrictions on the types of entities and individuals that can wholly or partially own financial institutions in Malta. However, any changes in direct or indirect qualifying shareholding in regulated financial institutions shall be subject to a fitness and propriety assessment by the MFSA. 
It is noteworthy, however, that in the context of the acquisition of licensed credit institutions (banks), there are significantly more onerous assessments undertaken by the MFSA in considering the suitability of any proposed acquirers. The specific requirements are set out in Banking Rule 13 on Prudential Assessment of Acquisitions and Increase of Shareholdings in Credit Institutions Authorised under the Banking Act, which essentially captured the recommendations made in the Joint Guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector (JC/GL/2016/01) published by the Joint Committee to the European Supervisory Authorities (European Banking Authority, European Securities and Markets Authority and European Insurance and Occupational Pensions Authority) on 20 December 2016.  This assessment is essentially undertaken on the basis of five specific criteria, namely:

• The reputation and track-record of the proposed acquirer;
• The reputation and experience of any person who will direct the business of the credit institution as a result of the proposed acquisition;
• The financial soundness of the proposed acquirer, in the context of the type of business pursued and envisaged in the credit institution in which the acquisition is proposed;
• The credit institution’s continued ability to comply with the prudential requirements applicable to credit institutions, in particular whether the group of which it will become part makes it possible to exercise effective supervision, exchange information within the competent authority and overseas authorities and determine the allocation of responsibilities among the competent authority and overseas authorities; and
• Any risks that the proposed acquisition may raise or increase in respect of money laundering or terrorist financing.

The role of the NFDI Screening Office, on the other hand, is to safeguard the security or public order of Malta, implementing the provisions of Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments by non-EU persons into the Union.

2.4 Directors and officers – restrictions

2.4.1 Are there any restrictions on who can be a director or officer of a financial institution in your jurisdiction?

While the provisions of article 142 of the Maltese Companies Act sets out a list of the obvious circumstances where persons are disqualified from holding office as director or company secretary of a Maltese company, including minors, interdicted and incapacitated persons, and persons convicted of crimes against the public trust, holders of certain positions within regulated financial institutions are clearly expected to satisfy significantly higher thresholds of integrity.

While the applicable rules for the various types of licensed financial institutions may vary slightly, in essence, proposed directors or holders of key operational or compliance functions of financial institutions are subject to a rigorous fitness and propriety assessment undertaken by the MFSA, which must be positively concluded prior to any such appointment becoming effective. Several criteria are taken into consideration by the MFSA in reaching its conclusions (see the guidance here), such as reference to professional experience and qualifications,, financial solvency and integrity,, absence of conflicts of interest, residency considerations capacity to  perform the proposed functions, and the contribution of the individual to the proper management of the financial institution. Needless to say, the nominated person must demonstrate knowledge or experience in the specific sector in which the undertaking operates if they are to be considered suitable and eligible to hold the position.  In order to properly assess these factors, the MFSA requires new directors or officers of financial institutions to submit a comprehensive questionnaire, referred to as the Personal Questionnaire, serving to disclose all relevant personal information for the MFSA’s consideration.

2.5 Directors and officers – liabilities and legal duties

2.5.1 What are the primary liabilities, legal duties and responsibilities of directors and officers in the context of financial services M&A transactions?

In Malta, directors are bound by fiduciary obligations set out in article 1124A et seq of the Maltese Civil Code and article 136A of the Companies Act. In keeping with Anglo-Saxon company law doctrine, the general duty imposed on directors by virtue of the Maltese Companies Act is that they act honestly and in good faith in the best interests of the company. Directors must promote the well-being of the company and are responsible for the general governance and proper administration, management and general supervision of the company and its affairs. Among the general duties of the directors, the Companies Act also provides that directors must:

• Not make secret or personal profits from their position without the consent of the company, nor make personal gain from confidential company information;
• Ensure that their personal interests do not conflict with the interests of the company;
• Not use any company property, information or opportunity for their own or anyone else’s benefit, nor obtain benefit in any other way in connection with the exercise of their powers, except with consent from the company in a general meeting or as permitted by the company’s memorandum or articles of association; and
• Exercise the powers they have for the purposes for which they were conferred and not misuse them.

In the context of an M&A transaction the directors and officers of the target undertaking are subject to significantly onerous obligations, requiring them to ensure that the proposed acquisition process is managed as objectively and smoothly as possible, ensuring that no personal interests of the directors and officers in any way cause an obstruction to the due diligence process or the negotiations relating to the proposed transaction. One particularly sensitive issue that tends to crop up repeatedly in such transactions is the expectation that directors provide warranties to the purchasers about the proposed target and its operational and financial standing, creating potentially significant liability on the part of directors in the eventuality that such warranties are inaccurate or incomplete. Directors must also be vigilant not to pursue any personal gain, whether directly or indirectly, in connection with the proposed transaction, particularly since they are in possession of price sensitive information, or allow the consideration of their respective security of tenure post-acquisition to conflict with their obligation towards the shareholders to ensure that the proposed transaction is properly managed to achieve the objectives established by the shareholders when approving the negotiation of a proposed bid or transaction.

In the context of a Malta regulated financial services operator targeting the acquisition of another, it is incumbent on the directors to undertake legal, financial, tax and operational due diligence on the proposed target to ensure that all related risks are identified and properly managed throughout the course of the transaction.         
The liability of directors to the company is joint and several, based on the principle that the board of directors is expected to act collectively, with the consequence that any resulting liability is to be borne in solidum. Directors are liable for any improper performance or breach of any fiduciary or other duty in relation to the company. Directors are also liable for any act that by law must be performed by a company. Having said that, the Maltese Companies Act recognises exceptions to this rule, exempting a director from liability if they can prove unawareness of the breach before or at the time of its occurrence, signifying dissent in writing or taking all reasonable steps to prevent such breach.

2.6 Foreign investment

2.6.1 What foreign investment restrictions and other domestic regulatory issues arise for acquirers based outside your jurisdiction?

The NFDI Act imposes a requirement for non-EU investors investing in Malta to undergo a formal prior notification and screening process with the NFDI Office in Malta if the following factors exist cumulatively:

the investment is likely to affect security or public order in terms of its potential effects on activities that include critical infrastructure, critical technologies and dual use items, supply of critical inputs, access to sensitive data and the freedom and pluralism of the media. The factors to be considered are whether the foreign investor is directly or indirectly controlled by a third country government (including state bodies or armed forces), whether the foreign investor has already been involved in activities affecting security or public order in a member state or whether there is a serious risk that the foreign (non-EU) investor engages in illegal or criminal activities;

there is an ultimate beneficial owner (ie, direct or indirect ownership by a third country national of 10 per cent or more of the shares, voting rights or ownership interest in the target); and

there is a foreign direct investment, that is, an investment of any kind by a natural person or an undertaking of a third country (non-EU) aiming to establish or to maintain lasting and direct links in order to carry on an economic activity in Malta.

Should a proposed transaction be caught under the NFDI Act in Malta, the attainment of approval or no objection will need to be obtained from the NFDI Office prior to the effective date or completion of the transaction. It is noteworthy that the application of such notifications will find very limited application in the context of M&A activity in the financial services sector, since it is only those transactions affecting the critical financial infrastructure that will need to be notified and pre-cleared. It will, however, be incumbent on the parties to the transaction to assess the applicability these provisions to the transaction in question, being mindful that defaulting on the obligation to notify could result in the unwinding of that transaction altogether.

2.7 Competition law and merger control

2.7.1 What competition law and merger control issues arise in financial services M&A transactions in your jurisdiction?

The Maltese Control of Concentration Regulations establish two tests that, if both satisfied, trigger a notification requirement of a proposed acquisition by a prospective purchaser with the MCCAA.

Firstly, there must be a ‘concentration’ as defined under the Regulation 2 of the aforementioned regulations, which provides that  a concentration is triggered where either of the following occurs:

i. The merging of two or more undertakings that were previously independent from each other; or

ii. The acquisition by one or more undertakings or by one or more persons already controlling at least one undertaking, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings

Where the audited accounts of the previous financial years are not yet accessible, the preceding year’s figures will be utilized. The necessary adjustments may be required to be made to the most recent audited accounts in order to account for any subsequent acquisitions or divestments. when determining the turnover of each of the parties involved. 

3. Deal structures and strategic considerations

3.1 Common structures

3.1.1 What structures are commonly used for financial services M&A transactions in your jurisdiction? (What are the advantages and disadvantages of each?)

The most common structure used for financial services M&A transactions in Malta involves the transfer of shares in private limited liability companies, although some transactions are structured as asset transfers, in circumstances where the purchaser targets specific assets within the target undertaking.

Given Malta’s small geographical size, which is reflected in its capital markets, takeover bids involving listed financial services undertakings are very rare occurrences.

Special purpose holding vehicles are commonly used for the purpose of share acquisitions, driven primarily by tax structuring considerations targeted at managing dividend distributions through a holding company.

3.2 Time frame

3.2.1 What is the typical time frame for financial services M&A transactions? What factors tend to affect the timing?

Although the time frame for M&A transactions may differ on a case-by-case basis, typically financial services M&A transactions take between three and six months to close due to the regulatory approvals that are required to be obtained from the Malta Financial Services Authority (MFSA), although admittedly these time frames may protract significantly more where the business model of the target undertaking may be materially affected as a result of the proposed transaction.

The time frames applicable from a regulatory approval differ in terms of law. The MFSA rulebooks provide specific time frames within which the reply or approval will be granted, depending on the type of financial services institution involved.  Other general considerations for the time frames include, inter alia, the compliance with anti-money laundering obligations to be fulfilled by legal and other advisers, the performance of legal, regulatory, financial and tax due diligence exercises,  the negotiation of transaction documents such as share sale purchase agreements and financing agreements, the valuations to be undertaken by auditors, the organisation of banking logistics in relation to the transaction, and the fulfilment of agreed conditions precedent for completion that may be beyond the direct control of the parties.

3.3 Tax

3.3.1 What tax issues arise in financial services M&A transactions in your jurisdiction? To what extent do these typically drive structuring considerations?

The tax considerations applicable to financial services M&A transactions will largely depend on the nature, size, complexity and structure of the transaction concerned. Tax and VAT considerations certainly have a significant impact on the structuring of M&A transactions generally, and the financial services industry is no exception.

3.4 ESG and public relations

3.4.1 How do the parties address the wider public relations issues in financial services M&A transactions (eg, commitments to social issues)? Is environmental, social and governance (ESG) a significant factor?

With the implementation of sustainable finance legislation at EU level, namely the Sustainable Finance Disclosure Regulation (SFDR), ongoing public and targeted consultations published by the European Commission to enhance such legislation, local corporate governance codes issued by the MFSA are factoring in ESG considerations, and increasing investor interest in climate change and sustainability. ESG is already a factor contemplated by boards of directors and investors in financial services firms. As it currently stands, disclosure requirements including engagement strategies as well regarding ESG compliance apply solely to financial market participants which hold article 8 and article 9 financial products. The European Commission is, however, seeking feedback on whether uniform disclosure requirements should be imposed on all financial products offered within the EU, as opposed to only those making sustainability-related claims.   This current trend is expected to intensify, and it is likely that parties will increasingly reference ESG in public relations relating to M&A transactions. 

3.5 Political and policy risks

3.5.1 How do the parties address political and policy risks in financial services M&A transactions (eg, potential changes in law or regulations)?

Maltese financial services legislation and regulation mostly derives from the EU legislative framework, and thus political and policy risks are low and not directly addressed within M&A transaction terms in Malta.

3.6 Shareholder activism

3.6.1 How prevalent is shareholder activism in financial services M&A transactions in your jurisdiction?  

There is no obligation in terms of law for the board of directors to engage actively with the company’s shareholders. The general governance of a company as well as its proper administration and management and the general supervision of its affairs is vested in the board, and hence, shareholder activism is not common practice in Malta. Although shareholder activism has increased in Malta in recent years and is promoted through publications such as the MFSA’s corporate governance code, it is albeit less prevalent in Malta than many of its EU counterparts. This phenomenon is principally attributable to the limited number of listed financial services undertakings in Malta.

3.7 Third-party consents and notifications

3.7.1 What third-party consents and notifications are required for a financial services M&A transaction in your jurisdiction? 

Apart from the regulatory approvals referred to above, financial M&A transactions in Malta do not typically require any third-party consent or notification, unless the target company is party to a contract or forms part of a corporate structure that specifically requires such notification or consent to another shareholder and/or to the relevant competent authority prior to a change of control in the company.

4. Due diligence

4.1 Legal due diligence

4.1.1 What legal due diligence is required for financial services M&A transactions? What specialists are typically involved?

Financial services transactions are usually subject to a thorough legal due diligence exercise involving a team of specialists in the corporate, regulatory, contract law, tax, employment, intellectual property and data protection sectors.

General practice is to initially run the following searches:

• review of local online and physical databases, such as the Malta Financial Services Authority (MFSA) financial services register, Malta Business Registry and Malta Public Registry, to assess the overall legal and regulatory status of the target company;
• court searches to determine whether the company has ever been the subject of any litigation matters; and
• insolvency searches with the Maltese register of companies and the office of the official receiver.

Furthermore, documents related to the following areas are generally requested:

• good standing certificates of the company;
• identification and/or passport documentation 
• police conduct certificates
• share registers
• minute book of meetings of the company’s board and its shareholders;
• copies of all licenses issued by the competent authority;
• material correspondence with regulatory authorities
• copies of the company’s policies and procedures and standard terms and conditions of business;
• insurance documentation;
• employment contracts and director agreements;
• all agreements in place with the company including commercial agreements and agreements with any service providers;
• compliance, AML and GDPR-related documentation;
• any and all intellectual property matters and registration certificates;
• any outsourcing agreements and details of any arrangements; and
• any loan and financing agreements in place.

4.2 Other due diligence

4.2.1 What other material due diligence is required or advised for financial services M&A transactions?

Depending on the client’s requests, there may be instances in which the following due diligence may be required to form part a due diligence report aside from the legal due diligence report:

• tax and financial due diligence;
• IT infrastructure and IT audits;
• compliance and AML due diligence; and
• ESG due diligence.

It is also recommended good practice for directors of companies, investment firms, financial institutions and fund managers to regularly review all updates to the Corporate Governance Manuals as issued by the Malta Financial Services Authority. The MFSA also regularly issues Corporate Governance Guidelines which should be adhered to on an ongoing basis. Similarly listed companies on the Malta Stock Exchange should abide by the listing rules which include corporate governance provisions relating to disclosure requirements.

4.3 Emerging technologies

4.3.1 Are there specific emerging technologies or practices that require additional diligence (eg, blockchain and cryptocurrency activities)?

With the launch of the legislative framework for virtual financial assets in Malta in 2018, service providers of virtual currencies and its corresponding technology must be registered with the MFSA in Malta in accordance with the Markets in Crypto Assets Regulation (MICA). When contemplating the acquisition of a firm active in blockchain and cryptocurrency activities, the purchaser should look into whether the target company has registered with the MFSA, if the activities require it to do so, and if so, whether it is in compliance with the applicable legislative framework. On this basis it is also prevalent to note that the MFSA has recently made amendments to Chapter 3 of the Virtual Financial Assets Rulebook (hereinafter ‘the Rulebook’) issued on 18 September 2023 wherein various amendments were proposed in order to align the requirements applicable to VFA Service Providers to those found within Title V of the Markets in Crypto-Assets (‘MiCA’) Regulation. The MFSA has also announced that, following the adoption of feedback regarding the consultation on changes to Chapter 3, it will be commencing an outreach in Q1 of 2024 with VFA Service Providers in order to discuss MiCA preparedness and issues raised vis-à-vis compliance with MiCA requirements.

Other typical due diligence of blockchain and cryptocurrency firms would include ongoing IT infrastructure audits, such as systems audits. It is also prevalent to note that with the application of  Digital Operational Resilience Act (DORA) in 2025, it is recommended that entities begin to take not of the relevant cybersecurity obligations being introduced by this Act in order to satisfy the necessary legal obligations emanating therefrom. 

5. Pricing and financing

5.1 Pricing

5.1.1 How are targets priced in financial services M&A transactions? What factors typically affect valuation?

From our experience there aren’t hard-set formulae applied for the pricing of financial services targets, and the pricing would very much be established through the negotiation process between the parties. The pricing would essentially be based on valuation methods adopted within the relevant industry, but driven primarily by the attractiveness of the target to the prospective purchaser as an additional or complementary business. The target’s reputation, client base, cash generation and market positioning will invariably have a material impact on the target’s value.

5.2 Purchase price adjustments

5.2.1 What purchase price adjustments are typical in financial services M&A transactions (eg, earn-outs and net value adjustments)?  

Many local transactions tend to have components of earn-out provisions intended to tie key persons into the business over a period of time to ensure a smooth and stable transition and alignment of objectives between the purchaser and the key persons who drive the business. Besides earn outs, certain liabilities, such as outstanding debt or contingent liabilities, may be deducted from the purchase price if they are not being assumed by the buyer. This adjustment ensures that the buyer does not pay for obligations that it is not taking on after the acquisition.

Additionally, there may be adjustments in the Net Working Capital of the company which adjustments caters for the changes in the target company’s working capital between the signing and closing dates. In this case, where the Net Woking Capital at closing is different to that from a predefined Net Working Capital, the purchase price may be adjusted accordingly.

5.3 Financing

5.3.1 How are acquisitions typically financed? Are there any notable regulatory issues affecting the choice of financing arrangements?

 While there are no official statistics available in Malta in relation to the financing of M&A transactions acquisitions are typically financed through the purchaser’s own funds, or financed externally through lenders’ or investors’ funds.

However, debt financing has become more widely used as a method for financing transactions in the financial services space in Malta. One consideration that should be carefully assessed in the context of such transactions is the extent to which financial assistance rules would apply to the proposed transaction, prohibiting the leveraging of the target company’s assets to secure funding. Essentially, article 110 of the Companies Act prohibits a target Maltese company from giving, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of an acquisition or subscription made or to be made by any person of or for any shares in the company or its parent company.

6. Deal terms

6.1 Representations and warranties

6.1.1 What representations and warranties are typically made by the target in financial services M&A transactions? Are any areas usually covered in greater detail than in general M&A transactions?

Typical representations and warranties include warranties relating to title, wherein the seller represents and warrants legal and beneficial title of the shares, that the shares are free of encumbrances and that the seller has not entered into any other transaction for the sale of the shares. Other representations and warranties also include warranties relating to the target’s constitutional documents, corporate registers and minute books, the financial position of the target, the preparation of accounts and debtors and creditors of the target. Areas that are covered in greater detail in financial services M&A transactions are representations and warranties on compliance with the law and regulations applicable to the financial services business, such as, inter alia, anti-money laundering regulations, the Malta Financial Services Authority (MFSA)’s authorisation requirements and conduct of business rules, and General Data Protection Regulation requirements.

6.2 Indemnities

6.2.1 What indemnities are typical for financial services M&A transactions? What are typical terms for indemnities (eg, survival period, caps and special indemnity matters)?

Indemnities in M&A transactions in Malta are generally linked to the outcome of any of the due diligence exercises performed prior to the transaction. Typical terms for the indemnities are the payment of damages.

6.3 Closing conditions

6.3.1 What closing conditions are common in financial services M&A transactions?

Closing conditions in financial services M&A transactions are typically limited to matters that are legally required to complete the transaction, which include merger clearance, regulatory approvals and National Foreign Direct Investment approvals. Furthermore, the following completion conditions are common:

• the completion of the financing of the acquisition;
• required merger clearance, financial regulatory approvals, and NFDI approvals;
• the full payment of the purchase price;
• changes in the officers, managers and auditors of the target company;
• the amendment of the articles of association of the target company or the shareholder’s agreement, as relevant;
• the material transfer of the target company’s books and records, and title of ownership (register of member and share certificates) to the buyer;
• the buyer, seller or target company corporate approvals of the transaction;
• the termination of agreements entered into by the target company with service providers or members of the sellers;
• release of any debt owed by the target or security given by the target;
• waiver of any pre-emptive rights;
• release of any encumbrance on the shares or assets of the target, or both;
• subscription rights by other shareholders of the target company;
• resignation or appointment of certain officers of the target; and
• termination of bank mandates regarding the former managers, directors and proxies.

6.4 Interim operating covenants

6.4.1 What sector-specific interim operating covenants and other covenants are usually included to cover the period between signing and closing of a financial services M&A transaction?

Even though interim operating covenants are generally sector specific to the M&A transactions and the trading business of the entities involved, certain common covenants specific to M&A transactions generally appear in the transaction documentation, which would relate to:

• the protection and preservation of the assets and working or regulatory capital of the target;
• preservation of employees of the target; and disclosure of information and duty of collaboration between the parties in relation to the MFSA’s prior approval or notification.

7. Disputes

7.1 Common claims and remedies

7.1.1 What issues commonly give rise to disputes in the course of financial services M&A transactions? What claims and remedies are available?

Most disputes following financial services M&A transactions relate to false, incomplete or misleading representations or breaches of warranties, and the enforcement of specific indemnities. However, since the Maltese market is rather small, and financial services M&A transactions are less common than standard M&A transactions, there are limited examples of such claims in Malta.

Disputes in financial services transactions may also arise in relation to valuation disagreements. For example, difference in the valuation of assets or companies can arise, particularly when assessing the worth of intangible assets, goodwill, or future potential earnings. Notwithstanding the foregoing, the most common remedy is for an aggrieved party to sue for damages in the Maltese courts. It is also evident that very often, share purchase agreements would typically include provisions for resolving disputes through arbitration or mediation rather than through court proceedings since arbitration and mediation provide a more discreet and usually more expeditious route towards resolving the impending dispute.

7.2 Dispute resolution

7.2.1 How are disputes commonly resolved in financial services M&A transactions? Which courts are used to resolve these disputes and what procedural issues should be borne in mind? Is alternative dispute resolution (ADR) commonly used?

The choice of law and jurisdiction in M&A transactions often depends on the types of parties involved in the transaction and where they are domiciled. In local transactions where the two parties are both domiciled in Malta, the applicable law clause is invariably Maltese law and the dispute resolution method would vary between arbitration or the Maltese courts. However, where one or both of the parties (buyer or seller, or both) are of different nationalities, the trend is that foreign law is selected as the governing law for the transaction documents and arbitration as the preferred method of dispute resolution. UK law is very often selected as the default governing law in many transactions that we deal with.

 Within the arbitration option, the rules of the International Chambers of Commerce or the Malta Arbitration Act are most chosen by the parties to M&A transactions in Malta. Parties to cross-border M&A transactions should undertake careful assessment of the choice of law that will regulate the transaction documents governing the relationships between them and the associated dispute resolution methods to be adopted in the case of disputes in the course of that relationship. The key consideration should centre on the practicalities of enforcing and award or judgment against the defaulting party (or its assets) as seamlessly and efficiently as possible.

In accordance with Chapter 555 of the Laws of Malta, the Office of the Arbiter for Financial Services is a local Office which is charged with the power to mediate, investigate, and adjudicate complaints filed by a customer against a financial services provider and in turn provide a fair and efficient resolution process for financial disputes within the jurisdiction of Malta. This method offers an avenue to consumers to address grievances outside of the formal court system.

8. Update and trends

8.1 Trends, recent developments and outlook

8.1.1 What are the most noteworthy current trends and recent developments in financial services M&A in your jurisdiction? What developments are expected in the coming year?

Regulatory reform and investor demand, in the environmental, social and governance space, is currently pushing acquirers to keep a close eye on new rules which come into force, which could impact their respective transactions. In this regard, the MFSA has published regular consultation documents to reflect the most recent relevant legislative developments relating to ESG practices from an EU level.

Furthermore, the Malta Financial Services Authority (MFSA), in its strategic statement, has stated that regulatory changes might expand the scope of due diligence to cover emerging risks and evolving areas such as cybersecurity, data privacy, sustainability, and environmental considerations. In this regard it is clear that the MFSA has placed emphasis on the regulation of cybersecurity in financial services, especially with the coming into force of DORA and NIS 2 in 2024. This will invariably have an impact on the financial services industry.

Law stated date

Correct on

Give the date on which the information below is accurate.

5^th January 2024