As corporate governance standards continue to evolve, the responsibilities of company directors are increasingly coming under the spotlight. In Malta, both the Malta Financial Services Authority ("MFSA") and the Companies Act (Cap. 386) establish clear guidelines on board structure and director suitability. With recent regulatory updates introduced in 2025, it is crucial particularly for directors in regulated sectors to stay informed and compliant.
Board Composition in Malta: Legal and Regulatory Framework
Statutory Requirements Under the Companies Act
▪ Private companies must appoint at least one director.
▪ Public companies are required to have a minimum of two directors.
▪ The company's Memorandum and Articles of Association may define a broader range, offering flexibility in board size.
As Malta continues to align its financial regulatory framework with international standards, the MFSA has reinforced its expectations around board composition and governance, particularly for regulated entities. The latest updates from 2024–2025 reflect a stronger emphasis on independence, competence and accountability.
Updated Governance Standards
The MFSA's Strategic Update 2024 and recent circulars highlight the following key expectations for boards:
▪ Diversity of Skills and Experience: Boards must include members with varied backgrounds to support effective oversight and strategic direction.
▪ Independent Non-Executive Directors ("INEDs"): At least one INED is required for most regulated entities, ensuring impartiality and independent judgment.
▪ Proportionality Principle: Governance structures should reflect the scale, nature, and complexity of the business, allowing flexibility for smaller firms while maintaining core standards.
Sector-Specific Developments
▪ Collective Investment Schemes ("CISs"): A dedicated Corporate Governance Code now applies to CIS directors, focusing on ethical conduct, independence and sector-specific risks.
▪ Insurance and Pensions: Entities in these sectors must comply with enhanced board composition rules, including INED appointments and MFSA approval via Personal Questionnaires.
Implementation and Oversight
The MFSA has adopted a risk-based approach to implementation:
▪ High-risk entities must comply within 6 months.
▪ Others have up to 18 months to meet the new requirements.
Boards are also encouraged to adopt practices such as succession planning, performance evaluations and Environmental, Social, and Governance ("ESG") integration.
The Fit and Proper Test: An Ongoing Responsibility
The MFSA applies a fit and proper test to all individuals in key roles, including directors. This is not a one-time assessment but a continuous requirement throughout a director's term.
Assessment Criteria
The test evaluates four main areas:
Competence – Relevant qualifications, experience and capability to fulfil the role.
Reputation and Integrity – A clean record, free from misconduct or criminal activity.
Financial Soundness – Demonstrated financial responsibility and stability.
Independence and Commitment – The ability to act impartially and dedicate adequate time to the role.
Directors are also expected to avoid conflicts of interest and exercise sound judgment in their decision-making.
Key Regulatory Updates in 2025 - New Notification and Registration Rules
As of July 2025, the MFSA has implemented a risk-based framework for directors of commercial partnerships:
▪ Individuals serving as directors in up to two companies must notify the MFSA by 16 July 2025.
▪ Those holding directorships in up to ten companies are required to register as Limited Company Service Providers.
▪ Exemptions apply to directors of licensed entities and their holding companies.
These changes aim to strengthen transparency and oversight, aligning Malta's governance standards with international best practices.
Action Points for Directors
To ensure compliance and uphold governance standards, directors in Malta should:
▪ Evaluate their current roles to confirm they meet the MFSA's fit and proper criteria.
▪ Submit all required notifications or registrations to the MFSA within the stipulated deadlines.
▪ Pursue ongoing professional development to stay current with governance trends and regulatory expectations.
▪ Promote board diversity and independence, particularly in regulated sectors.
Conclusion
Malta's regulatory environment places a strong emphasis on ethical leadership, accountability, and sound governance. Directors must not only comply with legal obligations but also embody the principles of integrity, competence, and independence. By understanding and adhering to the requirements for board composition and the fit and proper test, directors can play a pivotal role in fostering trust, transparency, and long-term success for their organisations.
