MFSA Enforcement and the Limits of Appeal Rights in Malta: Key Takeaways from the Phoenix Judgment

The Civil Court, First Hall (Constitutional Jurisdiction), in the judgment Phoenix Payments Limited (now Lazarus Long Limited) v the Malta Financial Services Authority and the State Advocate (Application Number 272/2021), delivered by the Honorable Madam Justice Rachel Montebello on 27 April 2026, examined the administrative enforcement powers of the Malta Financial Services Authority (“MFSA”) and, critically, whether the available appeal mechanism satisfies the right to a fair hearing.

Phoenix’s Application

Phoenix Payments Limited (subsequently renamed Lazarus Long Limited) (“Phoenix”), a financial institution licensed and regulated by the MFSA under the Financial Institutions Act (Chapter 376 of the Laws of Malta) (the “FIA”), was subjected to an administrative penalty of €32,400 by the MFSA under Articles 13 and 23 of the FIA and the Fines and Penalties for Offences Regulations (S.L. 376.02) (the “Regulations”), following findings of regulatory shortcomings in Phoenix’s operations.

While Phoenix appealed this felt aggrieved by the Decision before the Financial Services Tribunal (the “Tribunal”),  it also instituted constitutional proceedings arguing that:

(a) the MFSA simultaneously acts as investigator, prosecutor and adjudicator; and (b) the statutory right of appeal is inadequate; thus breaching its fundamental right to a fair hearing under Article 39(1) of the Constitution of Malta (the “Constitution”) and Article 6(1) of the European Convention on Human Rights (the “Convention”).

Article 39(1) of the Constitution provides that:

whenever any person is charged with a criminal offence he shall, unless the charge is withdrawn, be afforded a fair hearing within a reasonable time by an independent and impartial court established by law.

Article 6(1) of the Convention guarantees the same right.

The Statutory Appeal Framework

With regard to the argument that the right of appeal is inadequate, Article 21 of the FIA provides that:

Any person who is aggrieved by a directive, decision and, or measure taken by the competent authority pursuant to the Act and any regulations or Rules issued thereunder, may appeal to the Tribunal within such period and under such conditions as established under the MFSA Act.

Article 21(9) of the MFSA Act provides that:

The question for the determination of the Tribunal shall be whether, for the reasons adduced by the appellant –

(a) the competent authority has, in its decision wrongly applied any of the provisions of this Act, or any regulations issued thereunder;

(b) the decision of the competent authority constitutes an abuse of discretion or is manifestly unfair:

Provided that the discretion of the competent authority may not, so long as it has been exercised properly, be queried by the Tribunal.

Article 21(14) of the MFSA Act then provides that:

An appeal on a question of law only from a decision of the Tribunal shall lie to the Court of Appeal.

Phoenix thus requested the Court: –

1. a) to declare that a number of provisions in the FIA, the Regulations and the MFSA Act, whereby the MFSA is given the power to act simultaneously as investigator, prosecutor and adjudicator; and where the right of appeal provided by law is inadequate; breach its fundamental rights as protected by Article 39(1) of the Constitution and Article 6(1) of the Convention; and/or
2. b) consequently, to declare the investigations carried out by the MFSA to be null; and/or
3. c) to declare the Decision or part thereof null and to cancel it in whole or in part; and/or
4. d) to condemn the defendants, or any one or more of them, to pay moral damages for the breach of Phoenix’s rights; and/or
5. e) decide and grant any other remedy that may be opportune.

The State Advocate and the MFSA’s Reply

Both the State Advocate and the MFSA raised preliminary objections including that the proceedings were premature given that Phoenix had not exhausted all the available remedies, and that Phoenix’s fair hearing rights were not breached.

Another preliminary objection of the State Advocate was that the claims of Phoenix did not relate to a criminal offence or criminal procedures.

The Court’s Findings

1. Whether the current proceedings instituted by Phoenix were premature

This objection of the State Advocate and of the MFSA was rejected by the Court (differently presided) in a partial judgment of 28 April 2022, which ordered the proceedings to continue on the merits, and consequently, this Court decided to proceed on the merits.

2. Applicability of Article 39(1) of the Constitution: Is this a “criminal charge”?

The Court adopted the autonomous interpretation of “a criminal charge” developed in the jurisprudence of the European Court of Human Rights (hereinafter referred to as the “ECtHR”) in order to ensure that persons subject to criminal penalties or sanctions are guaranteed a fair hearing.

Applying the Engel[1] criteria, the Court held that, although the penalty is formally classified as administrative under Maltese law, its punitive and deterrent nature and potential severity render it “criminal” in nature for the purposes of Article 39(1) of the Constitution and Article 6(1) of the Convention.

However, the sanctions were not considered to fall within the “hard core” of criminal law.

3. Since the relevant proceedings do not qualify as “hard core of criminal law”, did the MFSA need to be independent and impartial and, if the affirmative, did the MFSA qualify as such?

The Court confirmed that the MFSA formulates regulatory policy, conducts investigations, and determines breaches, effectively acting as investigator, prosecutor and adjudicator.

The Court confirmed that not only does the MFSA not qualify as a tribunal or a court for the purposes of Article 39(1) of the Constitution or Article 6(1) of the Convention, it (the MFSA) acts as an investigator, prosecutor and adjudicator in its determination of breaches of the legal obligations of a licensed entity and the imposition of punitive sanctions related to such breaches.

However, consistent with established jurisprudence, this in itself does not necessarily amount to a breach provided that the decision is subject to subsequent review by an independent and impartial judicial body with full jurisdiction over both facts and law[2].

4. Is the MFSA’s Decision subject to review by a tribunal or court set up by law on all issues, of fact, as well as of law?

The central issue addressed by the Court – and the decisive point in the judgment – was not whether an  appeal exists, but whether that appeal satisfies constitutional fair hearing guarantees.

i. The Existence of an Appeal

The Court confirmed that the legal framework provides for a two-tier appeal mechanism:

• • First, an appeal before the Financial Services Tribunal; and
  • Second, a further appeal to the Court of Appeal, limited to points of law.

Accordingly, the system formally provides a right of appeal against MFSA decisions.

ii. The Adequacy of the Appeal Mechanism

Notwithstanding the existence of this appeal structure, the Court found that it is constitutionally insufficient.

In particular:

• • The Tribunal does not exercise “full jurisdiction”, as its review is limited to misapplication of law, abuse of discretion, or manifest unfairness;
  • The Tribunal cannot fully reassess findings of fact or substitute its own evaluation of the penalty imposed;
  • The Tribunal itself does not satisfy the requirements of independence and impartiality; and
  • Any further appeal to the Court of Appeal lies solely on points of law, with no review of factual findings or of the proportionality of sanctions.

iii. The Court’s Conclusion on Appeal

The Court therefore held that, although an appeal formally exists, it does not amount to an effective appeal for the purposes of Article 39(1) of the Constitution and Article 6(1) of the Convention.

In particular, the absence of a review mechanism with “full jurisdiction” over both fact and law means that the existing appeal framework is incapable of curing the structural deficiencies of the MFSA’s enforcement process.

5. Was there an actual breach of the right to a fair hearing?

The Court could not find an actual breach of Phoenix’s right to a fair hearing, as the appeal proceedings were still pending.

However, the Court found that there exists a real and imminent risk of a future breach given that:

• The sanction is of a criminal nature; accordingly, Phoenix had the right to have such issues concerning its fundamental rights decided upon at this stage;
• The Tribunal is not independent and impartial and since the Court of Appeal can only decide on points of law; and
• The Court of Appeal cannot conduct a full review of the sanction, including its proportionality.

Consistent with ECtHR jurisprudence (including Dimech v. Malta, No. 34373/13, § 43, 2 April 2015 and Farrugia v. Malta (App. 5870/24)), the Court acknowledged that whether proceedings satisfy Article 6(1) of the Convention can ordinarily only be determined by examining the proceedings as a whole, once concluded.

6. Court Orders

While the Court declined to declare the MFSA’s Decision null or to award damages at this stage, it recognized a likely future breach of fair hearing rights and exercised its constitutional jurisdiction to prevent such a breach.

In particular, the Court held that if the appeal process were allowed to run its course under the current legislative framework, a violation of the right to a fair hearing would likely materialise.

To this end, the Court:

• ordered a stay of the appeal proceedings before the Tribunal (Phoenix Payments Ltd v. Malta Financial Services Authority) pending legislative reform; and
• emphasised the need for legislative amendments to ensure that appeals from MFSA decisions can be brought before a court with full jurisdiction over both fact and law.

The Court also ordered that a copy of the judgment be transmitted to the Tribunal and, once the judgment becomes res judicata, to the Speaker of the House of Representatives pursuant to Article 242 of the Code of Organisation and Civil Procedure.

Final Comments

The key implication of the judgment is not that no appeal exists against MFSA decisions, but that the current appeal mechanism is structurally inadequate.

The Court’s analysis makes clear that the constitutional requirement is not merely the existence of an appeal but the availability of an appeal that enables a full review – on fact, law and proportionality – before an independent and impartial judicial body.

The stay ordered by the Court in the above-mentioned case effectively suspends the Tribunal proceedings pending legislative reform. Should other parties in similar cases seek the same relief, it is conceivable that other proceedings before the Tribunal could be similarly stayed, creating significant regulatory enforcement uncertainty.

The Court emphasized that legislative reform is required to ensure that persons subject to MFSA sanctions have access to a court with full jurisdiction, including the ability to review both factual findings and the proportionality of penalties.

The Court distinguished this case from ‘Phoenix Payments Ltd v Financial Intelligence Analysis Unit et’, delivered by the Constitutional Court, 18 November 2024, where it was held that the right of appeal from the Financial Intelligence Analysis Unit (FIAU) to the Court of Appeal under the Prevention of Money Laundering Act (Chapter 373 of the Laws of Malta) satisfied Article 39(1) of the Constitution because it provided full jurisdiction review on both fact and law. The critical distinguishing factor is that in the Phoenix/MFSA context, the appeal from the Tribunal to the Court of Appeal lies only on points of law.

[1] Engel and Others v The Netherlands decided on the 8 June 1976 (App. No. 5100/71, 5102/71, 5354/72, 5370/72);

[2] Reaffirmed by the ECtHR in Janosevic v Sweden;