The financial sector in Malta has undergone significant growth and diversification in recent years, with banks playing a critical role in the economy. However, the banking landscape in Malta is also exposed to various risk factors, such as external economic shocks and potential operational risks, which necessitate robust protective measures for depositors.

Bank deposit insurance is a financial safety net for retail depositors and small businesses, designed to protect their deposits in the event of a bank failure. This system aims to maintain public confidence in the banking sector, prevent bank runs, and contribute to the overall stability of the financial system. Deposit insurance is particularly important for retail depositors and small businesses, as it provides a guarantee for their savings and operating capital, ensuring they do not suffer significant financial losses in case of a bank’s insolvency.

In Malta, the Deposit Guarantee Scheme (DGS) is administered by the Depositor Compensation Scheme (DCS), which is a separate legal entity established under the Malta Financial Services Authority Act. The DCS is managed by a Management Committee appointed by the Malta Financial Services Authority (MFSA), the country’s financial regulator. The DCS is located in Attard, Malta.

The legal framework governing the DGS in Malta is based on the EU Directive 2014/49/EU and is transposed into Maltese law by the Depositor Compensation Scheme Regulations, 2015 (S.L. 370.12). The DCS’s mandate is to provide compensation to eligible depositors of banks authorized by the MFSA, should a bank be unable to meet its obligations.

The DGS in Malta is triggered when the MFSA or a court determines that a bank is unable to meet its obligations to depositors, such as when a bank becomes insolvent or has its license revoked. The trigger event is referred to as a “deposit insurance event” and initiates the process of compensating depositors through the DGS.

Once a deposit insurance event occurs, the DCS initiates the compensation process automatically. Depositors are not required to submit a separate application, as the DCS calculates the compensation amount based on the account balance on the day before the insurance event. Compensation is aimed to be paid within 20 working days, with possible extensions in specific circumstances.

Eligible depositors include individuals, small businesses, and other entities with deposits held in current accounts, savings accounts, term deposits, and certain other types of accounts. Ineligible depositors include financial institutions, public authorities, and deposits arising from criminal activities.

The maximum insured amount under Malta’s DGS is €100,000 per depositor, per bank. This limit applies to the aggregate balance of a depositor’s accounts held with the same bank. In certain cases, such as when a depositor sells their residential property, receives an insurance payout, or benefits from certain life events, temporarily higher coverage of up to €500,000 may be available for a period of six months.

If a claim is ineligible for deposit insurance coverage or gets rejected, depositors may seek alternative avenues for recovering their funds. These may include participating in the bank’s liquidation process or pursuing legal action against the bank or its management.

In recent years, Malta has experienced a relatively stable banking environment, with a few exceptions. One notable bank failure was Pilatus Bank, which had its license revoked by the European Central Bank (ECB) in 2018 following allegations of money laundering and the arrest of its chairman on charges of financial crimes in the United States. Another instance was Satabank plc, which faced regulatory actions in 2018 due to concerns related to anti-money laundering and risk management. The MFSA appointed a competent person to administer the bank’s assets and liabilities, and operations were subsequently halted. These events highlight the importance of stringent regulatory oversight and compliance with anti-money laundering regulations to maintain the stability of Malta’s banking sector.

Recovering Deposits

In the event of a bank failure, account holders should take several steps to recover their money. Apart from the deposit guarantee scheme, local laws in Malta provide for additional measures during resolution, deposit insurance, and bank liquidation.

During resolution, the MFSA may appoint a competent person or a resolution authority to administer the bank’s assets and liabilities, with the aim of restoring its financial health or transferring its viable operations to another bank. If the bank’s situation cannot be resolved, deposit insurance comes into play, with the DCS compensating eligible depositors up to the coverage limit.

If a bank is declared insolvent and goes into liquidation, depositors can file their claims as part of the bank’s liquidation process. During this process, assets are sold, and the proceeds are distributed among creditors, including depositors, according to the priority of their claims. Account holders can also consider pursuing legal action against the bank or its management for losses incurred due to negligence, mismanagement, or other wrongful acts.