KYC Compliance in Malta

As a key financial hub in the European Union, Malta upholds strict KYC regulations to maintain transparency, prevent financial crimes, and ensure compliance with both local and EU-wide directives.

Businesses operating in banking, fintech, iGaming, cryptocurrency, and other regulated sectors must adhere to comprehensive KYC processes in Malta, ensuring that customer identities are thoroughly verified and risk assessments are conducted effectively. These measures are crucial for preventing fraud, illicit transactions, and the misuse of Malta’s financial system for money laundering or terrorist financing activities.

The KYC compliance in Malta is governed by national legislation, including the Prevention of Money Laundering Act (PMLA) and the Financial Intelligence Analysis Unit (FIAU) regulations, alongside broader EU directives such as AMLD6. 

Compliance with these laws requires financial institutions and obliged entities to conduct KYC checks in Malta, including identity verification, customer due diligence (CDD), enhanced due diligence (EDD), and ongoing transaction monitoring.

With increasing regulatory scrutiny and advancements in digital identity verification, companies must stay ahead of evolving compliance demands. This guide explores KYC verification in Malta, the latest KYC regulations in Malta, and emerging trends shaping the compliance landscape. 

Whether you're a financial institution, a fintech startup, or an iGaming operator, understanding KYC and AML in Malta is critical for regulatory adherence and risk mitigation.

What is KYC?

Know Your Customer (KYC) is a mandatory process used by financial institutions and regulated businesses to verify the identity of their customers. It is a crucial component of AML regulations and framework, ensuring that businesses assess and mitigate risks associated with fraudulent activities, money laundering, and financial crimes.

The KYC process involves verifying a customer’s identity through official documents such as passports, national ID cards, or driver’s licences. Additionally, businesses may require proof of address, financial history, and details on the source of funds to determine potential risks. KYC is not a one-time process; ongoing monitoring of transactions and customer activity is essential to ensure continued compliance.

Companies in Malta follows Risk-Based Approach (RBA), where entities are required to categorise customers into risk levels—low, medium, or high. For instance, politically exposed persons (PEPs) and offshore companies are typically classified as higher risk. Based on this categorization, entities must apply proportionate due diligence measures.

Entities must adhere to guidelines and directives issued by Maltese regulatory bodies, such as the Malta Financial Services Authority (MFSA) and the FIAU, to ensure compliance with the Prevention of Money Laundering and Funding of Terrorism Regulations (PMLFTR).

Companies in Malta can face substantial penalties for non-compliance with Malta’s KYC regulations. Fines can reach up to €2.5 million, and in severe cases, companies may face dissolution. Individuals within these entities may also be subject to penalties.

KYC Process in Malta

KYC compliance in Malta comprises three essential components, each designed to ensure businesses can accurately identify their customers, assess potential risks, and maintain ongoing compliance. These steps are critical for meeting regulatory standards and mitigating financial crimes such as money laundering and terrorism financing.

KYC verification plays a key role in preventing fraud while ensuring businesses meet their obligations. The KYC compliance in Malta ensures that financial institutions and other regulated entities in Malta thoroughly verify the identities of their clients and assess potential risks associated with them.

Below are the 3 main components of KYC process in Malta

Customer Identification and Verification

The Customer Identification Verification (IDV) is the first and most critical step in the KYC compliance process in Malta, ensuring that individuals and businesses are who they claim to be. Under KYC regulations in Malta, financial institutions and regulated entities must collect, validate, and verify customer details to prevent fraudulent activities, identity theft, and financial crimes such as money laundering.

The process begins with gathering essential details from the customer. This includes:

• Full name 
• Date of birth
• Nationality
• Residential address
• Contact details

To verify the authenticity of the provided information, entities must request and validate government-issued documents. Under KYC and AML in Malta, acceptable documents for verification include:

• Government-issued ID cards (such as Malta’s e-ID, national ID cards, passports, or driver’s licences).
• Proof of address documents, such as Recent utility bills (electricity, water, or gas), Bank statements (issued within the last three months), and other official government correspondence confirming the residential address.

The KYC process in Malta mandates that the information provided in these documents aligns with the details captured in the customer’s profile. Any discrepancies may trigger additional due diligence procedures.

Customer Due Diligence (CDD) in Malta

Once a customer’s identity has been confirmed, Customer Due Diligence (CDD) is a crucial element of the KYC compliance in Malta, ensuring that financial institutions and regulated businesses verify customer identities, assess risk exposure, and monitor ongoing transactions. 

Businesses perform real-time checks using AML screening tools to ensure they are not engaging with high-risk individuals.

Sanctions & Watchlist Screening

One of the most important aspects of CDD is screening individuals against global sanctions lists and watchlists to detect any involvement in financial crimes, fraud, or terrorism financing. Institutions must check clients against various watchlist issued by EU, UN, FATF, OFAC, etc. 

Read More: What is Sanction Screening?

Politically Exposed Persons & High-Risk Individuals

Under KYC regulations in Malta, Politically Exposed Persons (PEPs) require special attention due to their potential involvement in corruption or financial crimes. A PEP is someone who holds, or has held, a prominent public position, including:

• Government officials (e.g., ministers, members of parliament, ambassadors)
• Senior executives in state-owned enterprises
• High-ranking military officers
• Judicial and law enforcement authorities

Since PEPs often have greater access to public funds and financial influence, KYC verification in Malta requires additional scrutiny for these individuals. 

Customers flagged under sanctions may face restricted financial access or enhanced due diligence before onboarding. As part of KYC and AML in Malta, institutions must implement stringent identity checks, transaction monitoring, and risk assessments to prevent financial crimes such as money laundering and terrorist financing.

Read more: What is AML Screening?

Enhanced Due Diligence (EDD) in Malta

Enhanced Due Diligence (EDD) goes beyond standard Customer Due Diligence (CDD) by implementing stricter verification, continuous monitoring, and thorough risk assessments.

EDD is a critical component of the KYC process in Malta, applied to customers and transactions deemed high-risk. 

Malta follows a risk-based approach (RBA) to due diligence, requiring EDD in situations where a higher level of scrutiny is necessary. Common cases include:

• High-risk customers (PEPs, RCAs, offshore entities, adverse media presence).
• High-risk jurisdictions (FATF Grey/Black List countries, tax havens).
• Large, unusual, or high-value transactions (cross-border, cryptocurrency).
• Industries prone to financial crime (gaming, finance, maritime trade).

Under KYC and AML regulations in Malta, businesses must apply stricter verification processes for high-risk clients. This includes additional identity checks, continuous monitoring, and detailed financial assessments.

Read more: The Difference Between CDD and EDD

Ongoing Monitoring in Malta’s KYC Process

The KYC compliance process doesn’t end with customer onboarding. Ongoing monitoring is a crucial aspect of KYC and AML compliance in Malta, ensuring that businesses continuously assess customer activities for potential risks.

Continuous Transaction Monitoring: Financial institutions must track transactions in real time to identify unusual patterns. Large, high-risk, or cross-border transactions are flagged for further scrutiny. Automated AML screening tools help detect potential money laundering, fraud, or terrorist financing activities.

Periodic KYC Checks: As part of the ongoing KYC process, customers must periodically update their details to ensure records remain accurate. These updates may include:

• Identity documents (passports, national IDs, or driving licences).
• Proof of address (utility bills, bank statements, or government-issued documents).
• Source of funds and wealth (especially for high-risk individuals and businesses).

Updated Customer Records: Institutions must ensure all customer information remains accurate. Outdated or suspicious data must be investigated, updated, or reverified to maintain compliance with KYC regulations in Malta.

Suspicious Activity Reporting in Malta

In Malta, Suspicious Activity Reporting (SAR) is a critical component of the country's Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) framework. The Financial Intelligence Analysis Unit (FIAU) oversees this process, ensuring that financial institutions and other subject persons promptly report any activities that may indicate money laundering or terrorist financing.

Key Aspects of Suspicious Activity Reporting in Malta:

Identification of Suspicious Activities: Unusual transaction patterns, such as sudden large deposits or frequent international transfers. Transactions that appear inconsistent with a customer's known profile or business activities.

Internal Reporting Procedures: Employees are required to report any suspicious transactions to their institution's Money Laundering Reporting Officer (MLRO) no later than the next working day after becoming aware of the suspicious activity. The MLRO is responsible for assessing internal reports and determining whether a formal Suspicious Transaction Report (STR) should be submitted to the FIAU.

Submission of STRs to the FIAU: Once the MLRO concludes that a transaction or activity is suspicious, an STR must be submitted to the FIAU promptly, ideally on the same day the determination is made. In complex cases where immediate reporting is challenging, the STR should be submitted within the shortest possible timeframe.

Use of the goAML Platform: The FIAU utilizes the goAML platform for the submission of STRs. Reports can be categorized into various types, including:

• Suspicious Transaction Report (STR)
• Suspicious Activity Report (SAR)
• Terrorism Financing Report (TFR)
• Politically Exposed Person Report (PEPR)

Upon submission, the reporting entity receives feedback on the report's status and must address any issues if the report is rejected.

Legal Obligations and Penalties: Failure to report suspicious activities can result in significant penalties for subject persons. In 2020, the FIAU increased monetary fines for non-compliance, emphasizing the importance of timely and accurate reporting. 

By adhering to these SAR procedures, Malta aims to maintain the integrity of its financial system and comply with international AML/CFT standards.

Regulatory Framework for KYC in Malta

Malta’s robust framework for KYC and AML in Malta is built upon three key pillars. These elements work together to ensure that every entity carries out stringent KYC checks in Malta, thereby protecting the financial system from money laundering, terrorist financing, and other financial crimes. Below is an in-depth look at each component:

Prevention of Money Laundering Act (PMLA)

The PMLA is the cornerstone of Malta’s KYC process in Malta. It is the primary legislation that defines the obligations of financial institutions and other regulated entities regarding customer identification and verification.

• Comprehensive Legislative Mandate: The Act requires entities to establish robust internal policies and procedures to verify the identity of their customers. This means collecting detailed personal data—such as full name, date of birth, nationality, and residential address—and performing thorough document-based checks. In effect, this is the foundation of KYC verification in Malta.
• Risk-Based Approach (RBA): Under the PMLA, businesses are mandated to classify customers into different risk categories (low, medium, or high). High-risk clients, including politically exposed persons (PEPs), undergo enhanced due diligence measures. This tailored approach ensures that KYC checks in Malta are proportionate to the potential risk posed by each customer.
• Enforcement and Penalties: The Act also outlines strict penalties for non-compliance, including substantial fines and potential dissolution of non-compliant companies. These measures underscore the critical nature of adhering to KYC regulations in Malta and reinforce the integrity of the overall system.

Financial Intelligence Analysis Unit (FIAU)

The FIAU plays a pivotal role in ensuring the effective implementation of KYC and AML in Malta. As Malta’s national financial intelligence unit, it operates independently and is central to the oversight of KYC compliance.

• Monitoring and Supervision: Established under the PMLA, the FIAU is responsible for receiving, analysing, and disseminating financial intelligence from various regulated entities. It monitors the effectiveness of KYC verification in Malta by scrutinising suspicious activity reports and ensuring that customer due diligence practices are rigorously applied.
• Issuing Guidelines: The FIAU provides detailed guidelines and directives to assist financial institutions and other regulated businesses in implementing a robust KYC regulations in Malta. These guidelines help standardise the procedures across different sectors, ensuring a uniform application of KYC and AML checks.
• Enforcement Powers: In addition to supervision, the FIAU has the authority to impose administrative sanctions on entities that fail to comply with established KYC procedures. This enforcement mechanism is vital to maintaining high standards and deterring practices that could undermine the financial system.

EU Directives and Regulations

As a member of the European Union, Malta is also bound by EU-wide regulations that significantly influence its KYC compliance.

• Harmonisation Across Member States: Malta complies with directives such as the 6th Anti-Money Laundering Directive (6AMLD), which ensure that KYC checks in Malta align with a common standard across the EU. This harmonisation means that the processes and due diligence measures adopted in Malta are consistent with those in other member states, fostering an integrated approach to combating financial crime.
• Enhanced Beneficial Ownership Transparency: EU directives mandate the clear disclosure of beneficial ownership information. This requirement is a critical aspect of KYC verification in Malta, as it prevents the use of complex corporate structures to conceal illicit activities.
• Ongoing Regulatory Updates: The EU AML framework is dynamic and subject to continuous review and enhancement. Recent amendments require businesses to update their KYC and AML in Malta procedures regularly, ensuring they keep pace with evolving international standards and emerging risks.

Bottom Line

In conclusion, KYC compliance is indispensable for maintaining the integrity and reputation of Malta's financial sector. By implementing robust KYC procedures, businesses not only adhere to regulatory mandates but also contribute to a secure and transparent financial environment.

Malta's KYC framework is evolving rapidly, driven by technological advancements and regulatory rigour. Businesses must prioritise agility, adopting AI-driven tools to streamline the KYC process.

One such innovative solution is Binderr, a Malta-based startup that has developed an advanced automated platform for setting up and managing companies. Binderr's platform offers comprehensive KYC and AML features, including:

• User Identification Solution: AI-powered facial recognition technology utilising biometrics and NFC-based authentication with global coverage.
• AI-powered AML screening for both individuals and businesses, which reduces false positives by 70%, which includes watchlist checks for sanctions, Politically Exposed Persons (PEPs), and adverse media.
• Digital client onboarding, eliminating the need for certified copies and enabling customizable questionnaires aligned with firm branding.
• Customizable risk assessments, tailored to each firm's unique risk tolerance, with daily updates on jurisdictional risk from over 10 sources.

By leveraging platforms like Binderr, businesses can enhance efficiency, ensure compliance, and stay ahead in the dynamic regulatory landscape.

KYC Malta FAQs