ID-DRITT XXXVI – Alternative dispute resolution in financial services: The expanding jurisdiction of Malta’s financial services Arbiter and the erosion of legal predictability

1. Introduction

The financial services industry plays an important role in Malta’s service based economy as it deals with originating or facilitating financial transactions, which include the servicing or management of financial assets like raising funds by taking deposits or issuing securities.¹ Malta’s financial services sector is an essential part of its economy, accounting for 8.2% of its total real gross value added.² It also accounts for a large workforce that has expanded by 21.6% since 2020.³ As a jurisdiction positioning itself as a competitive European hub for various financial services activities, with a growing complexity in the products and actors operating within its regulatory framework, the likelihood of consumer disputes is bound to increase.

Disputes have become more complex, especially in today’s world where consumers are engaging in different transactions not just within their respective countries.⁴ Alternative Dispute Resolution (ADR) schemes are becoming increasingly popular in the European Union (EU) and in the Member States, due to their usefulness in disputes that often involve small monetary claims.⁵ The role of ADR in financial services matters has always been a subject of discussion, especially due to the need of alternatives to court procedures, where disputes are settled more quickly and amicably instead of a consumer going through lengthy and costly procedures.⁶ This is particularly true in financial disputes, where a consumer and a financial services provider are typically locked into a long-term contractual relationship.

In Malta, complaints from consumers of financial services were initially handled by the Consumer Complaints Manager (CCM), which was established in 2002. This was part of a revamp of the Malta Financial Services Centre into the Malta Financial Services Authority (MFSA) as it is known today, through the Malta Financial Services Authority Act.⁷ However, the CCM’s role was extremely limited and its powers did not include the ability to grant binding compensation to the winning party in a dispute.⁸

To ensure that aggrieved consumers are compensated for any losses caused by a financial services provider, the CCM was eventually phased out in 2017. This followed the introduction of the Arbiter for Financial Services Act⁹ (the Act) via Act XVI of 2016, which today serves as an ADR entity¹⁰ for financial services, deciding disputes between financial services providers and their consumers. Unlike the CCM, the Arbiter’s competence was extended to investigate complaints filed by consumers and to issue binding decisions awarding compensation to the consumer if the Arbiter decides in its favour.

Although the Act provides consumers with accessible means of redress against entities offering essential financial services, the recent amendments to the Act via Act IX of 2025 (2025 amendments) have extended the definition of who can file a complaint before the Arbiter in a manner that may significantly alter financial services disputes. These amendments raise critical questions about legal foreseeability, and the article will examine, in chronological order, recent decisions by the Arbiter that appeared to anticipate the 2025 amendments. It will also assess how these developments may undermine Malta’s standing as a jurisdiction of choice for financial service providers.

2. The Evolution of the Eligible Customer

Prior to the 2025 amendments, the definition of ‘customer’ and ‘eligible customer’ had already been expanded to include consumer associations.¹¹ The 2025 amendments further refined this by aligning the definition of consumer associations with that found in the Consumer Affairs Act.¹² Notably, the amendments went a step further by including ‘any other consumer association that has been officially recognised in any other country’.¹³ Similarly, voluntary organisations, as defined under the Voluntary Organisations Act¹⁴, were also brought within the scope of customers and eligible customers. As with consumer associations, this inclusion extends to voluntary organisations registered in foreign jurisdictions, thereby broadening access to the Arbiter far beyond traditionally recognised domestic entities.

Aside from the inclusion of consumer associations and voluntary organisations, the most important aspect of the 2025 amendments concerns the addition of a new proviso in both definitions. The new proviso for the definition of eligible customers now provides that:

…in the case of suspicious fraudulent payment transactions involving financial services providers, the victim of fraud exhibiting immediate, genuine and legitimate interest shall be deemed to be an eligible customer of any one of the financial services providers involved in the suspicious fraudulent payment transaction and this proviso shall be applicable with effect from 1st October 2025.

2.1. Initial Interpretation

Originally, the Act defined a customer as ‘a natural person, including his successors in title, or a micro enterprise’ and an eligible customer as:

a customer who is a consumer of a financial services provider, or to whom the financial services provider has offered to provide a financial service, or who has sought the provision of a financial service from a financial services provider. It includes the lawful successor in title to the financial product which is the subject of the relevant complaint.

Thus, only a complaint from an eligible customer falls under the purview of the Arbiter’s competence.¹⁵ If the customer was not an eligible one, then the case ends there.

Different cases illustrate the issue of competence, such as the DC vs Lazarus Long Limited (formerly Phoenix Payments Limited) case¹⁶, where the plaintiff was defrauded via a scam orchestrated by another company and accused the defendant company of facilitating the scam. The defendant company rebutted this accusation by raising two preliminary pleas, one of which stipulated that since the plaintiff was not its client and they never had any contractual relationship, it could not be considered as a customer in terms of the Act. In analysing this plea, the Arbiter indicated that the plaintiff failed to provide any evidence to challenge the assertion that he was not a ‘customer’ and since the plaintiff admitted that he was a victim of ‘Fraudsters’ and not of the defendant company, he was not considered as ‘a customer who is a consumer’ of the defendant company. Moreover, the company did not provide a financial service to the plaintiff, and the defendant did not seek ‘the provision of a financial service from Phoenix for the purposes of the Act’. Therefore, the plaintiff was not considered as an eligible customer and the case ended there.

Another case that followed through a similar line of thought was SE vs Trust Payments (Malta) Limited,¹⁷ where the plaintiff stated that he was a victim of an internet fraud from a merchant who claimed to be a professional adviser authorised to trade in regulated financial tools. The plaintiff indicated that the defendant company, as the acquiring bank, should not have permitted the transactions, even claiming that the same company provided service to a scam merchant. He requested the Arbiter to order the company to pay him the sum of €6,750. The defendant company raised the plea of the plaintiff’s lack of eligibility as a customer as he did not have a direct relationship with the company. When analysing this plea, the Arbiter noted that the plaintiff was under the impression that he was giving his money to a particular company, via his letter addressed to the defendant company, but later, via his complaint form to the Arbiter, he indicated another company and that the defendant company was just the payment processor. Also considering the defendant company’s detailed reasoning on why there was no direct relationship between a payment processor and a merchant’s customer, the Arbiter concluded that there was no relationship between the plaintiff and the company, thus failing to be considered as an eligible customer.

2.2. A Different Approach

However, certain guidelines and decisions by the Arbiter seem to have extended the definition of ‘eligible customer’, even before the 2025 amendments. This is evident in the Guidance on considerations that the Arbiter will adopt in determining complaints related to ‘pig butchering’ type of scams¹⁸ (the Pig Butchering Guidance) issued in February 2025. This guidance uses a model to determine fault that differs vastly from the one used by the Arbiter for payment fraud scams.¹⁹

Unlike the Pig Butchering Guidance, the model used for payment fraud scams provides for a balance of fault between the Payment Service Provider (PSP) and the customer (or the Payment Service User (PSU), as the Arbiter provides for an allocation of responsibility which would shift between the PSP and the PSU depending on their respective actions. By using this model, the Arbiter aims to ensure fairness, consistency, transparency and a more objective approach when deciding on such cases, especially due to the rise of numerous fraud scams.²⁰ The model is also heavily based on the second Payment Services Directive (PSD II), particularly Recital 72, which provides that negligence and gross negligence by PSUs should be determined based on all circumstances and that the evidence and level of degree of alleged negligence should be considered according to national law.

A case that used this model, albeit not fully, is RN vs APS Bank p.l.c.²¹ which concerned fraudulent payments that were made on behalf of the plaintiff to third parties via her account held with the defendant bank. The plaintiff was defrauded of €19,150, when the fraudster managed to use the means of communication normally used between the defendant Bank and the plaintiff, and included a link, where the plaintiff was informed that her account was being held. The Bank contacted her on the matter only after the payments were executed. When analysing the decision, the Arbiter referred to the model, but added that although banks do not have a means of prohibiting spoofing within its channels of communication, they are not doing enough to properly warn customers to pay attention to these types of scams. In this case, the Arbiter also referred to PSD II, which emphasises that the consumer must give one’s consent to any specific payment, and that the existence of a general consent, as per any Terms of Business Agreement, does not suffice. In handing down his decision, the Arbiter indicated that based on the model, the Complainant should bear 10% of the loss whilst the Bank had to bear 90%. However, the Arbiter decided that based on the facts of the case, the Bank should be fully liable to the losses borne by the plaintiff due to its failure in directly warning the plaintiff about the fraudulent schemes. The decision was subsequently appealed, but the Court of Appeal (Inferior Jurisdiction) upheld the Arbiter’s decision, further adding that the observations made by the Arbiter could not be considered as arbitrary or that they result in an unjust decision for the Bank.²²

By contrast, the Pig Butchering Guidance, particularly with respect to financial institutions, clarify that their defence should not be based only on the Arbiter’s lack of competence that the complainant is not an eligible customer, but rather, should be based on their merits. The same Guidance also obliges financial institutions to adopt more robust onboarding procedures for corporate customers who receive transfer of funds from retail clients, ensuring that such corporate customers have proper onboarding systems for their own clients. Such obligations with respect to eligible customers are not only restricted to financial institutions but also extended to other financial entities, particularly credit institutions and Virtual Financial Assets Service Providers. In developing his reasoning for such additional obligations, the Arbiter argues that unlike Authorised Push Payment fraud schemes, pig butchering consists of a series of transactions over a span of time that would generally involve larger losses. Thus, to ensure that customers continue to enjoy confidence in the financial sector, it is up to the industry ‘to go the extra mile, even beyond regulatory requirements’.

Some decisions also foreshadowed the Arbiter’s change in mindset in extending the Maltese financial services provider’s fault towards certain customers, as evidenced in PI vs HSBC Bank Malta p.l.c.²³ In this case, the plaintiff, who worked as a senior officer in an insurance company, lost approximately €70,100 from a sophisticated scam when she transferred money from her HSBC accounts to Revolut, then to Binance and finally to the fraudsters. She claimed that HSBC, as her bank, did not have any controls to protect her from this fraud as she received no warnings from the Bank and although she authorised the transfers in questions, she did so because she was in a state of panic after being told to act quickly. As a result, all the money she lost should be remedied by HSBC. In contrast, HSBC raised the plea that it was not the correct defendant as the transfers in question were clearly intended to be credited to her Revolut account and she later used the same account to buy cryptocurrency. It was at that stage that the complainant should have ensured that the funds she transferred were going to a legitimate company. In deciding the case, the Arbiter, by referring to the Pig Butchering Guidance, concluded that PSD II obliges banks like HSBC to monitor payments made by clients and that some payments, although authorised by clients, may contain suspicion of fraud. Here, according to the Arbiter, the payments made by the plaintiff were anomalous when compared to her account history, meaning that HSBC should have intervened at some point and asked the plaintiff about those transactions. In deciding the remedy, the Arbiter concluded that HSBC failed in its payment monitoring obligations when it came to certain transactions by the complainant but there were also certain material shortcomings from the plaintiff. Thus, HSBC had to pay 40% of the amount lost, totalling €16,800.

This line of argumentation was again reflected in PU vs Openpayd Financial Services Malta Limited,²⁴ which also provided for a vastly different interpretation of who is an eligible customer and further cemented the eventual change in the legal framework via the 2025 amendments. Here, the plaintiff claimed to have made three payments to an account held with the defendant company, which totalled £23,300. One of the main arguments was based on the plaintiff’s vulnerability due to her age. It was argued that tighter security should have been implemented to help vulnerable adults in managing technology that they did not understand. In its reply, Openpayd indicated that there was no legal or contractual relationship between the plaintiff or with the company that the plaintiff invested her money in. Thus, it could not be argued that the plaintiff was an eligible customer of Openpayd and thus, the Arbiter did not have the competency to deal with this matter.

However, by means of a decree issued during the proceedings, the Arbiter concluded that he had competence to deal with the merits of the plaintiff’s complaints. His reasoning was that because the plaintiff was considered to be the named beneficiary, and since her name was directly tied to the account receiving the funds, there was an interaction with Openpayd’s services, even if done indirectly. In his final decision, the Arbiter observed that although Openpayd had no legal obligation to conduct customer due diligence on the merchant’s clients, this obligation was only with respect to AML/CFT matters. In the context of virtual IBANs, the obligation not to undertake due diligence on such clients should not be interpreted as meaning that these clients were automatically excluded as an eligible customer. The Arbiter also observed that the PSP of the plaintiff, via a letter, considered her as a customer of Openpayd, albeit incorrectly referring to Openpayd as a bank, since the transfers made to the complainant were made to the account opened with Openpayd under her name. Although the plaintiff did not directly own a payment account with Openpayd, the Arbiter considered that there existed a linked account or a sub-account. Therefore, Openpayd’s argument that the plaintiff was not an eligible customer because she was only allocated a virtual IBAN was not justified and consequently, the preliminary plea fell through. Ultimately, the Arbiter decided against Openpayd who was ordered to pay the full amount lost by the plaintiff. Recently, however, the Court of Appeal (Inferior Jurisdiction) overturned the Arbiter’s decision, concluding that the plaintiff could not be regarded as an eligible customer of OpenPayd.²⁵ The Court held that, in the absence of any direct legal or contractual relationship between the plaintiff and OpenPayd, the statutory definition of eligible customer as it stood prior to the 2025 amendments did not encompass the plaintiff. The Court therefore found that the Arbiter had lacked jurisdiction to entertain the complaint. This interpretation, however, was reached under the pre2025 amendments framework, and it remains to be seen whether the Court would adopt a similar approach when applying the 2025 amendments.

3. The PSD II and PSD III: Consistency Gone?

To understand the legal friction created by the 2025 amendments, one must examine the EU payment framework, as the new definition of “eligible customer” is now fundamentally tied to the nature of the payment transaction itself. As referenced in this article, the PSD was an important development in the regulation of the payment area which further harmonised the entire payments market within the EU.²⁶ With its introduction and its eventual revision under the current framework of PSD II, it provides for a detailed regime for loss allocation between the PSP and consumers in cases of unauthorised payment regimes, which Member States implement into their national rules.²⁷ For a payment transaction to be considered an authorised one, there needs to be consent from the payer to execute the payment transaction. The payment transaction may also be authorised prior to, or, if it is agreed between the payer and the PSP, after the execution of the payment transaction.²⁸ In this context, the use of the word ‘consent’ has been interpreted as meaning ‘entering into a contract/concluding a contract’.²⁹ Such an interpretation goes against the 2025 amendments because of the extending definition of eligible customer which now includes individuals that do not have a direct contractual relationship with a financial services provider.

Articles 73 and 74 of PSD II provide for the liability of PSPs and payers respectively in the case of unauthorised payment transactions. In the case of the PSPs’ liability, Article 73(1) obliges them to refund the unauthorised amount of the payment transaction immediately, and in any event, no later than at the end of the following business day, after becoming aware or being notified of the transaction. This obligation does not apply if the PSP has reasonable grounds that the transaction was done fraudulently. As for the payer, Article 74(1) provides that if the loss is related to the use of a lost, stolen, or misappropriated payment instrument, then the loss is limited to a maximum of €50. An important aspect in the same sub-article is that the payer will be liable for all losses of an unauthorised payment transaction if he acted fraudulently or failed to fulfil one or more of the obligations set out in Article 69 with intent or gross negligence. This Article is important to consider as it deals with the obligations of the PSU when using payment instruments, which include the obligation of using the payment instrument in accordance with the contract terms.30 This continues to highlight the importance of the contractual relationship between the PSP and its user as any issues that stem from this relationship are ones that originate from the existence of a contract. At the same time, extending the obligations of a PSP to other individuals beyond any contractual relationship goes against the whole idea of the PSD II, which is also evident in Recital 87 which provides that ‘This Directive should concern only contractual obligations and responsibilities between the payment service user and the payment service provider’. The same Recital also emphasises the importance of legal certainty, especially when PSPs and their intermediaries have contracts that ensure the proper functioning of credit transfers and other payment services.

3.1. The PSD III: Same Approach?

The upcoming PSD III, which is currently in its proposal phase, aims to replace the current PSD II and seeks to strengthen what the PSD II failed to fulfil in certain areas, particularly on the divergent implementation and enforcement, resulting in different regulatory conditions in Member States which has impacted competition between PSPs.³¹ The definition of consumer has also remained unchanged in the current proposal, which remains defined as ‘a natural person who, in payment service contracts covered by this Directive, is acting for purposes other than his or her trade, business or profession’, seemingly emphasising the importance of the existence of a contract between the provider and the consumer.

Currently, the PSD III seems to continue with the same framework that PSD II has with respect to the contractual relationship between a PSP and a consumer, but it remains to be seen whether the current proposal will be further refined. Potentially, the 2025 amendments may end up going against the provisions of PSD III, because as indicated by the Arbiter, the amendments serve to widen the scope of the Arbiter’s jurisdiction to review complaints related to fraud, even if the victim of fraud has no contractual relationship with the financial services provider involved in the transaction.³²

4. Legal and Operational Risks for Financial Services Providers: Legal Certainty

In today’s age of globalisation and digitalisation and the increasing complexity of financial services, having legal certainty is of utmost importance to both the consumer and the financial services provider.³³ Gustav Radbruch, a German legal scholar, considers that the idea of law refers not only to justice, but includes expediency and legal certainty.³⁴ When justice and expediency fail to provide clear guidance, legal certainty serves to ensure that determinations of law are real and enforceable not merely declaratory.³⁵ His philosophy is important to consider in this context because it not only describes the importance of enforcing the law, but also emphasises the fact that legal certainty could be limited in certain circumstances. This can be seen with the use of the Radbruch Formula, which states that if a law is extremely unjust, then it is no law.³⁶ In Robert Alexy’s framework, an extremely unjust law is defined as a norm that crosses a threshold where the conflict between legal certainty and justice becomes “intolerable,” meaning the norm’s violation of fundamental principles is so grave that its status as law must be denied.³⁷ Legal certainty is also a crucial mantra in the EU, where the CJEU, in numerous decisions, has declared that EU legislation ‘must be clear and predictable for those who are subject to it’.³⁸ Having legal certainty is of utmost importance for everyone, especially for consumers, because having good consumer protection benefits both consumers and the financial services sector, as it creates a sense of security and trust within the entire industry.³⁹

One of the main points of contention in the 2025 amendments is the inclusion of the term ‘immediate, genuine and legitimate interest’ in determining whether a victim of fraud can be considered as an eligible customer. This is because it is not clear as to whom the interest must be directed, as the 2025 amendments offer no statutory definitions to clarify the scope of this criterion. The same can be said for the term ‘suspicious fraudulent payment transactions’, given the lack of definition via the 2025 amendments. Both these terms and the lack of any definitions for them can potentially create unpredictability for PSPs, in properly assessing and determining who can institute a case against them in front of the Arbiter.

Having laws that are ambiguous create uncertainty about rights and obligations, which could discourage trade and other types of economic activities which require legal protection for their proper functioning.⁴⁰ It also makes the legal consequences of filing actions less predictable.⁴¹ From an economic perspective, having poorly drafted legislation has resulted in substantial economic costs, with a research paper that analysed Italian legislation stating that Italy’s GDP would be almost 5% higher had the quality of all laws been similar to the standard of the Italian Constitution.⁴² As a result of an increase in uncertainty, firms might respond by reducing capital investment, research and development, and any type of business activity that is dependent in legal certainty.⁴³

The same can be said for Malta’s financial services sector. Having legal uncertainty in this area could potentially lead to negative impacts towards Malta’s financial services sector, as it might discourage both current or potential financial services providers from either investing or further integrating themselves into Malta’s economy.

5. The Arbiter’s role: Adjudicative Function vs Regulatory Impact

Another question that the 2025 amendments bring about is on the Arbiter’s role as an adjudicator because the Act does not restrict the Arbiter only in analysing and deciding on cases that pertain to consumers of financial services products. Rather, the Act provides the Arbiter with different powers that seem to go beyond those of a typical adjudicator. To some extent, the Arbiter has taken on a role not just of a dispute service but also of a financial services regulator, particularly with respect to the functions and powers that are provided to him. As an example, Article 26(3) of the Act provides for the Arbiter’s power in issuing decisions which are not restricted only to providing compensation for the damages suffered by the complainant, but also other measures, such as directing the financial services provider ‘to review, rectify, mitigate or change the conduct complained of or its consequences’.⁴⁴ Such a provision grants a wider remit of tools to the Arbiter, which do seem to overlap with the MFSA’s role as a regulator.⁴⁵ Another aspect of the Act is the power it gives to the Arbiter to decide cases not just on what the law stipulates, but also on ‘what, in his opinion, is fair, equitable and reasonable in the particular circumstances and substantive merits of the case’.⁴⁶ Again, having a wide discretion in deciding cases which will now be further expanded via the 2025 amendments, can be quite problematic in the future, especially due to the legal uncertainty the Act is currently presenting.

The wide discretion of powers attributed to the Arbiter is important to highlight, especially when considering that in Malta, such extensive powers are not provided to Judges and Magistrates.⁴⁷ These powers can be compared to the ones judges are provided for in the United Kingdom, due to the doctrine of precedent where the outcome of disputes are shaped by previous disputes, influencing the role of the court in society not by legislation, but by the nature of decisions stare decisis.⁴⁸ In Malta’s case, this doctrine does not exist and Maltese law does not adhere to the law of precedent.⁴⁹ Instead, decisions are given to the extent provided for by law. This inconsistent power given to the Arbiter must be emphasised, especially due to recent studies that have shown that the reduction of legal uncertainty, which stems from changes in legal rules, improves credit access and stimulates investment.⁵⁰

6. Comparative Analysis: United Kingdom

In the United Kingdom, an equivalent to the Maltese Arbiter is the Financial Ombudsman Service (FOS), which was established via the Financial Services and Markets Act, 2000 and given statutory powers in 2001.⁵¹ Prior to its establishment, the UK had eight different ombudsman schemes which were scattered and regulated differently, ranging from ones that were regulated via a legal statute, such as the Building Societies Ombudsman, to others that operated on a voluntary basis, such as the Insurance and Banking Ombudsman.⁵² Similar to the Arbiter, the FOS has the ability to investigate and decide cases that fall under its competence, can issue decisions, and can award the complainant, if it finds in his favour;⁵³

1. a money award of a maximum of £100,000; or
2. direct the entity to take such steps in relation to the complainant which the Ombudsman considers just and appropriate; or
3. use both options.

What differs from the Arbiter’s decisions is that as a public body, the Ombudsman itself can be judicially reviewed, but its decisions are final and are not subject to appeal.⁵⁴ The rationale for this is due to the inconsistency of having an appeal system, where it further elongates a system of deciding financial disputes quickly and with minimum formality.⁵⁵

Like the criticisms of the 2025 amendments, as well as the expanding jurisdiction of the Act, the FOS has also faced critique not only due to its role as an adjudicator but also as a quasi-regulator. Such an approach has created a significant ripple effect across the financial services industry because of the uncertainty created in certain areas, where on one hand, it uses its powers to decide on matters such as insurance claims, but on other areas like pensions scams, it adopts more wide-ranging policies on matters of due diligence.⁵⁶ Therefore, it has created doubt on whether the FOS’ role is also stepping into areas that are typically regulated by the Financial Conduct Authority,⁵⁷ the UK equivalent of Malta’s MFSA. Even an independent review of the FOS has acknowledged this precarious situation, where it indicated that although the FOS’ role is not of a ‘campaigning consumer champion or a regulator, [this] is not always well understood or explained’.⁵⁸

Following this criticism towards the FOS, the HM Treasury has published a Review of the Financial Ombudsman Service (the Review) which provides for the findings and proposed reforms which are designed ‘to stop the FOS acting as a quasi-regulator and ensure that the FOS is delivering its role as a simple, impartial dispute resolution service’.⁵⁹ Amongst the most important aspects that are considered in the Review is the use of the fair and reasonable test in dividing cases which is similar to Article 19(3)(b) of the Act. In the Review, the HM Treasury concluded that this test should be retained and adapted, arguing that moving to a more strict application of law and regulation ‘would duplicate the approach of the courts and move the FOS away from simple and quick dispute resolution toward a more formal tribunal model’.⁶⁰ Moreover, it also stated that the fair and reasonable test applies to both the complainant and respondent. To further clarify the scope of the fair and reasonable test, the HM Treasury indicated that the UK government would legislate to ensure that in cases where the conduct complained of falls under the scope of FCA rules, compliance with such rules would mean that a firm has acted fairly and reasonably.⁶¹ It would also mean that the rules that have to be considered by the FOS are those applied at the time the alleged misconduct took place.⁶²

The Review also acknowledges the disadvantage within the FOS’ framework, where there isn’t coherence between the regulatory role of the FCA as the financial services regulator and the way the FOS settles complaints between consumers and firms.⁶³ It also recognises that firms might be left operating in an uncertain regulatory environment, ‘with damaging consequences for the ability of firms to invest, innovate and grow, and can lead to unpredictable outcomes for consumers’.⁶⁴ To settle this uncertainty, the UK government has set out to reform the FOS’ legislative framework to ensure more regulatory coherence by formalising the roles of the FOS and the FCA. One of the suggestions included in the Review is the possibility of obliging the FOS to seek the view of the FCA in cases where there is ambiguity in how the FCA’s rules apply, as well as the possibility for a party to request that the FOS seek the FCA’s view on the interpretation of the rules if this is appropriate.⁶⁵

6.1. Germany

Germany’s approach in resolving disputes vastly differs from Malta. This is because most financial services providers cooperate with private ombudspersons that are known as consumer dispute resolution entities which are recognised by the Federal Office of Justice.⁶⁶ Therefore, these consumer dispute resolution entities appoint ombudspersons who must meet special requirements, particularly qualifications to exercise the functions of a judge or that they are certified mediators.⁶⁷ Since a large number of financial services providers have agreed to settle disputes with the help of private ombudsmen, it has created a fragmented system consisting of both private and public ADR providers⁶⁸

An example of a public ADR provider is the dispute resolution entity of the Deutsche Bundesbank, Germany’s central bank, which is made up of an Arbitration Board that deals with disputes of distance selling of financial services, consumer loans, and payment services.⁶⁹ As for private ADR providers, a notable example is the Ombudsman Scheme of the Association of German Banks which was established in 1992, and forms part of the private commercial bank’s consumer policy scheme.⁷⁰ Such an approach differs from the way the Arbiter in Malta was set up since it was a new approach where the banks chose to establish the scheme with the aim of building trust in their services.⁷¹ A consumer wishing to file a complaint is free of charge and if the consumer disagrees with a decision or recommendation from the ombudsman, they can file the case in a court of law.⁷² Should the complainant file a complaint and the bank disagrees with it, it goes directly to the ombudsman, where he can issue a decision in favour of the complainant that are binding up to €10,000.⁷³ The rulings are not binding above that amount, but in most cases, banks have accepted non-binding decisions that exceed this amount.⁷⁴ This system seems to have been positively recognised by customers and banks as an effective ADR system as both the consumers and the banks recognise where they stand in terms of their rights.⁷⁵ The system that Germany has adopted in dealing with ADR matters has yielded some good results for certain sectors that seek to resolve disputes more swiftly and cheaply, but it is also a system that might lead to confusion within consumers who might desire an ADR structure that is easy to understand.⁷⁶

7. Conclusion

Although the establishment of the Officer of the Arbiter has served as a good step in consumer rights, the 2025 amendments have created legal uncertainty due to the wide discretion the Arbiter is being given in deciding cases that may come from complainants that have no contractual relationship with a financial services provider. Moreover, the expansive adjudicative discretion exercised by the Arbiter, coupled with the 2025 amendments, risk upsetting the delicate balance between consumer protection and legal certainty. By expanding the definition of eligible customer to include individuals with no contractual nexus to the financial services provider, Malta risks introducing a degree of unpredictability that could discourage investment and blue the lines between adjudication and regulation. This article has shown that jurisdictions such as the UK, grapple with similar tensions, but their approaches reveal key lessons. Although the UK’s FOS has faced criticism for its quasi-regulatory function by the financial services industry within that jurisdiction, the HM Treasury has taken this criticism so seriously that it is now reviewing the FOS’ mandate. With the 2025 amendments, it seems that Malta is moving closer to the UK’s criticised model. The 2025 amendments should strive for further clarity, by providing an explicit criterion for what constitutes ‘immediate, genuine and legitimate interest’, as well as define what the criteria for ‘suspicious fraudulent payment transactions’, to further reduce interpretative ambiguity. This uncertainty is further elevated by the upcoming implementation of the PSD III, as the important aspect of the existence a direct contractual relationship between the PSP and the consumer might end up being inconsistent with the Act. Moreover, the Arbiter’s role as an adjudicator should not overlap with the MFSA’s regulatory role, and the decisions issued by the Arbiter should remain tied to redress and not used as a means to create additional systemic regulatory standards. Rather than further establishing the Arbiter as a sort of de facto regulator, the Act should be adapted to reinforce the Arbiter’s role as a dispute solver. Other comparative models, such as the UK’s choice in amending the FOS’ role, should be taken into consideration, especially if any amendments enacted in that area remove any doubt of the FOS’ role as a dispute solver. Doing so would enable consumer protection and legal certainty to operate in tandem, safeguarding both market confidence and the long-term growth of Malta’s financial services industry.

Malta faces a critical juncture where it must strike a careful balance between safeguarding consumers, especially in today’s environment where fraud schemes are becoming more sophisticated, whilst also preserving the integrity of its legal framework. In the context of financial services, where high-value transactions are routine, having unclear legal standards on liability and eligibility could discourage market entry, and potentially drive existing providers to increase indemnity covers and compliance costs. Ultimately, a legal system that sacrifices predictability in pursuit of consumer friendliness may produce short-term gains for the consumers but will undoubtedly undermine Malta’s long-term competitiveness as a financial centre.

¹ Emmanuel D (Manos) Hatzakis, Suresh K Nair and Michael L Pinedo, ‘Operations in Financial Services – An Overview’ (2010) 19(6) Production and Operations Management 633.
² Malta Financial Services Authority, ‘Annual Report 2024’ <https://www.mfsa.mt/wp-content/uploads/2025/06/MFSA-Annual-Report-2024.pdf> accessed 21 August 2025.
³ ibid 94.
⁴ Joni Harayanto, ‘Cross-Border Enforcement of Consumer Banking Law’ (2024) 2(4) West Science Law and Human Rights 339.
⁵ Hans W Micklitz, Norbert Reich, Peter Rott, Understanding EU Consumer Law (Intersentia 2009) 341.
⁶ Iris Benöhr, ‘Out-of-court settlement of consumer disputes in financial services’, in Christopher Hodges and Astrid Stadler (eds), Resolving Mass Disputes: ADR and Settlement of Mass Claims (Edward Elgar Publishing 2013).
⁷ Malta Financial Services Authority Act, Chapter 330 of the Laws of Malta as amended by Act XVII of 2002, Special Funds (Regulation) Act.
⁸ ibid Article 20; This Article was repealed in 2017.
⁹ Arbiter of Financial Services Act, Chapter 555 of the Laws of Malta.
¹⁰ As defined in Regulation 2(1) of the Consumer Alternative Dispute Resolution (General) Regulations, S.L. 378.18.
¹¹ Act XXVI of 2023, Arbiter for Financial Services (Amendment) Act.
¹² Consumer Affairs Act, Chapter 378 of the Laws of Malta, Article 2.
¹³ Arbiter of Financial Services Act (n 9) Article 2(1)
¹⁴ Voluntary Organisations Act, Chapter 492 of the Laws of Malta.
¹⁵ ibid Articles 11(1)(a) and 22(2).
¹⁶ Case ASF 066/2023 DC vs Lazarus Long Limited (formerly Phoenix Payments Limited), The Arbiter for Financial Services 13 October 2023.
¹⁷ Case ASF 095/2021 SE vs Trust Payments (Malta) Limited, The Arbiter for Financial Services 27 July 2022.
¹⁸ Arbiter for Financial Services, ‘Technical Note: Guidance on Considerations that the Arbiter will Adopt in Determining Complaints Related to ‘Pig Butchering’ Type of Scams’ (11 February 2025 <https://financialarbiter.org.mt/sites/default/files/Technical%20Note%20-%20EN%20%5BFebruary%202025%20v1%5D.pdf> accessed 21 August 2025.
¹⁹ Arbiter for Financial Services, ‘A Model for Allocation of Responsibility between Payment Service Provider (PSP) and Payment Services User (PSU) in Case of Payment Fraud Scams’ (11 December 2023) <https://www.financialarbiter.org.mt/content/model-allocation-responsibility-between-payment-service-provider-psp-and-payment-services> accessed 21 August 2025.
²⁰ ibid.
²¹ Case ASF 116/2023 RN vs APS Bank p.l.c., The Arbiter for Financial Services 21 December 2023.
²² 4/2024 Dawn Degiorgio vs APS Bank p.l.c., Court of Appeal (Inferior) 25 September 2024.
²³ Case ASF 085/2024 PI vs HSBC Bank Malta p.l.c., The Arbiter for Financial Services 24 January 2025.
²⁴ Case ASF 155/2024 PU vs OpenPayd Financial Services Malta Limited, The Arbiter for Financial Services 28 February 2025.
²⁵ 21/2025 Diane Flaye vs OpenPayd Financial Services Malta Ltd., Court of Appeal (Inferior) 25 February 2026.
²⁶ Michał Polasik, Agnieszka Huterska, Rehan Iftikhar and Štěpán Mikula, ‘The Impact of Payment Services Directive 2 on the PayTech Sector Development in Europe’ (2020) 178 Journal of Economic Behaviour & Organization 385.
²⁷ Marte Eidsand Kjørven, ‘Who Pays When Things Go Wrong? Online Financial Fraud and Consumer Protection in Scandinavia and Europe’ (2020) 31(1) European Business Law Review 77.
²⁸ Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC [2015] OJ L 337/33, Article 64.
²⁹ European Commission Directorate-General for Financial Stability, Financial Services and Capital Markets Union, A Study on the Application and Impact of Directive (EU) 2015/2366 on Payment Services (PSD2) (Publications Office of the European Union 2023)
³⁰ Directive (EU) 2015/2366 (n 28) Article 69(1)(a).
³¹ European Commission, Proposal for a Directive of the European Parliament and of the Council on Payment Services and Electronic Money Services in the Internal Market COM (2023) 366 final.
³² Arbiter for Financial Services, ‘Newsletter Issue 4’ (May 2025). <https://financialarbiter.org.mt/sites/default/files/OAFS%20MAY%202025%20Newsletter%20Issue%204%20r.pdf> accessed 21 August 2025.
³³ Galih Rahmawati, Ermanto Fahamsyah, Bhim Prakoso, ‘Legal Certainty of Financial Services Authority Regarding Consumer Protection in Consumer Financing’ (2025) 5(1) International Journal of Advanced Multidisciplinary Research and Studies) 261.
³⁴ Robert Alexy, Law’s Ideal Dimension (OUP 2021).
³⁵ ibid 115.
³⁶ ibid 107.
³⁷ ibid 31 and 104.
³⁸ Joined Cases C-212 to 217/80 Amministrazione delle finanze dello Stato v Srl Meridionale Industria Salumi and others; Ditta Italo Orlandi & Figlio and Ditta Vincenzo Divella v Amministrazione delle finanze dello Stato [1981] ECLI:EU:C:1981:270.
³⁹ Legal Certainty of Financial Services Authority Regarding Consumer Protection in Consumer Financing (n 33) 268.
⁴⁰ Massimo Morelli, Luigi Guiso, Claudio Michelacci and Tommaso Giommoni, ‘The Economic Costs of Ambiguous Laws’ (2025) SSRN Electronic Journal <https://dx.doi.org/10.2139/ssrn.5309098> accessed 21 August 2025.
⁴¹ ibid 2.
⁴² ibid 40.
⁴³ ibid 8.
⁴⁴ Arbiter of Financial Services Act Article 26(3)(c)(i).
⁴⁵ David Fabri, Studies in Maltese Regulation: Financial Services Law (Midsea Books 2022).
⁴⁶ ibid (n 9) Article 19(3)(b).
⁴⁷ ibid (n 46) 114.
⁴⁸ Jacob J Meagher, ‘Common Law Courts: The Judiciary as a Regulatory Mechanism’ (2017) 12(1) The Journal of Comparative Law 108.
⁴⁹ 40/2007/2 Ignatius Debono et vs Direttur tal-Artijiet, Court of Appeal 9 May 2017.
⁵⁰ Jiwon Lee, David Schoenherr and Jan Starmans, ‘The Economics of Legal Uncertainty’ (2024) SSRN Electronic Journal <https://dx.doi.org/10.2139/ssrn.4276837> accessed 21 August 2025.
⁵¹ ‘Who we are’ (Financial Ombudsman Service, 2025) <https://www.financial-ombudsman.org.uk/who-we-are> accessed 21 August 2025.
⁵² Iain MacNeil, ‘Consumer dispute resolution in the UK financial sector: the experience of the Financial Ombudsman Service’ (2007) 1(6) Law and Financial Markets Review 515.
⁵³ ibid 522.
⁵⁴ ‘How to complain about a financial service’ (House of Commons Library, 23 July 2025) <https://commonslibrary.parliament.uk/how-do-i-complain-about-a-financial-service-such-as-a-bank-or-insurance-company/> accessed 21 August 2025.
⁵⁵ Iain MacNeil (n 53).
⁵⁶ Ima Jackson-Obot, ‘Fos under fire: why Treasury review signals potential overhaul of complaints landscape’ (FT Adviser, 16 June 2025) <https://www.ftadviser.com/financial-ombudsman-service/2025/6/16/fos-under-fire-why-treasury-review-signals-potential-overhaul-of-complaints-landscape/> accessed 21 August 2025.
⁵⁷ ibid.
⁵⁸ ‘Independent Review’ (Financial Ombudsman Service, 12 July 2018) <https://www.financial-ombudsman.org.uk/news/independent-review> accessed 21 August 2025.
⁵⁹ HM Treasury, ‘FS Sector Strategy: Review of the Financial Ombudsman Service’ (GOV.UK, 15 July 2025) <https://www.gov.uk/government/consultations/fs-sector-strategy-review-of-the-financial-ombudsman-service> accessed 21 August 2025.
⁶⁰ HM Treasury, ‘Review of the Financial Ombudsman Service Consultation’ (2025). <https://assets.publishing.service.gov.uk/media/68752db039d0452326e28e23/20250709_FOS_review_consultation_document_-_FINAL_V4.pdf> accessed 21 August 2025.
⁶¹ ibid 14.
⁶² ibid.
⁶³ ibid 10.
⁶⁴ ibid.
⁶⁵ ibid 17.
⁶⁶ ‘Resolving disputes out of court using the financial ombudsman services’ (BaFin, 17 May 2025). <https://www.bafin.de/EN/Verbraucher/BeschwerdenStreitschlichtung/StreitSchlichtungsstellen/StreitSchlichtungsstellen_node_en.html> accessed 21 August 2025.
⁶⁷ ibid.
⁶⁸ Christopher Hodges, Iris Benöhr and Naomi Creutzfeldt-Banda, Consumer ADR in Europe (Civil Justice Systems) (Bloomsbury Publishing 2012).
⁶⁹ BaFin (n 66).
⁷⁰ ‘Complaints with private banks: How the banking ombudsmen can help you’ (bankenverband, 1 February 2022). <https://bankenverband.de/en/verbraucher/complaints-private-banks-how-banking-ombudsmen-can-help-you> accessed 21 August 2025.
⁷¹ ibid
⁷² BaFin (n 66) 102.
⁷³ ibid.
⁷⁴ ibid.
⁷⁵ ibid 107.
⁷⁶ ibid 115.