This is a year of celebrations for Malta, and one comes to celebrate not only what the country has achieved in the last 50, 40, 35 & 10 years, but more importantly, the firm direction where the country is going. At a time of global economic recession, Malta has been one of the fastest growing economies in Europe with this new administration even doubling its GDP growth for last year alone. How has this growth though impacted the finance sector and indeed its financial stability?
It is clear that Malta’s finance sector is part of the economy. In fact, the financial sector is distinguishing itself as a pillar driving growth. The economy essentially comprises manufacturing, tourism, construction and services industries, but it is clear that financial services are now a fundamental sector. This is largely due to well-trained people. The economy is shifting towards more services, and I believe financial services will continue to play a leading role. The University is producing a good number of accountants, lawyers, economists and business managers. These are then complemented by training for the junior staff carried out by the training institutes. Competency requirements required by the financial sector are being satisfied. There is a program for licensed companies to hire experienced staff from overseas when there are skill-shortages in order to for these companies to continue to expand their operations until local staff can be trained. For example, there is a developing international pension sector, and this requires trained actuaries. We created this program so that trained actuaries from outside Malta could come and work here until local staff is trained.
The Minister of Education said he worked together with Lufthansa Technik to meet certain needs. Have you worked together with anyone?
We collaborate with training institutes, such as MCAST, through the Education Consultative Council. This council was set up by the MFSA to coordinate training programs. There are particular instances where we also support industries to do island-wide specialised training programs.
This year marks the 10th anniversary of Malta’s ascension into the EU. What would you say have been the biggest benefits of EU membership?
After joining the EU, the financial services sector grew in Malta. New investment funds and managers, and insurance companies were highly visible entering the country. The passporting rights enjoyed throughout the internal market have had a tremendous positive impact.
Was it arduous to get Malta’s regulations in line?
The process of harmonizing financial services regulation began 10 years before entry, so at entry there was not much left to change. Furthermore, all our current legislation s up to speed with EU legislation, Malta has always been at the top of the EU scoreboard for transposing EU legislation. We always transpose in time, and make sure everything functions properly in line with EU rules. We also invest in training our staff, even bringing trainers directly from the EU or from other European and US Supervisor Authorities.
Malta is one of the EU’s most resilient and stable economies with a healthy inflation rate of roughly 1%. It is also one of the only EU countries to experience growth in the job market. How have you been able to build this stability in an uncertain global economic landscape?
The sector is very resilient, regulation is very robust, and we have made substantial strides in keeping everything in check by holding discussions on a continuous basis with individual companies. It is the policy of the MFSA that the regulators meet all stakeholders, discuss issues before hand, and have in place an open-door policy. We believe companies should meet the regulator on a regular basis to avoid problems. In the banking sector, this has been a traditional routine which resulted in relative stability when the crisis arose. The exposure of the banking sector to the economy is only about 230%, which is below the European average. The remainder, which is currently over 400%, belongs to international banks, which are not a part of the economy. They do not take local deposits, nor invest locally.
The Ministry of Finance welcomed the appraisal of credit rating agency Standard & Poor, who affirmed that Malta’s economy is stable and is expected to grow in the coming years thanks to the new government’s energy reform, and policies that increased female labour participation. What do you think needs to be done to achieve investment grade credit rating?
I do not have a concrete answer on what exactly facilitates receiving an investment grade credit rating in Malta’s specific case. Certainly our current rating, has not affected investment particularly in the financial services sector.
In a recent interview, H.E. Dr. Joseph Muscat stated that Malta was considering issuing Islamic financing just to see the reaction of the markets and to give a political message that this is the sort of instrument Malta is in favor of. How would you grade the potential for Islamic banking here in Malta?
The government, so far, has managed to finance its debt internally. Most investors are essentially retail investors. To date, we have not discussed the basis for Islamic finance in the local economy. I believe a PPP would be helpful in that matter. There are rules for Shari’a funds. Indeed, we are currently processing an application for an insurance company. There is a slight limitation on the Islamic banking operations because under the Banking Act they cannot own property except for their own use. In a small market banks’ speculating on property should be avoided. However, if these banks are not operating locally, there is no problem.
Malta remains an attractive and strategic designation for companies worldwide within which to base their operations. This is thanks to the many advantages such as economic stability, excellent IT connectivity, and a hard-working and English-speaking workforce, to name a few. In terms of financial incentives, what would you say attracts companies to set up operations in Malta?
There are no incentives for the financial sector. Companies today weigh decisions on entering new markets after observing how the regulator is operating. Malta’s Financial Services Authority is proactive; we have a policy called Innovation through Regulation. The MFSA reviews legislation and proposes new programs; it sees how things can work up. One success story has been the “protected cell company” in the insurance sector, where Malta is the only Member State to have this legislation. We now introduced wholesale capital markets for international businesses to complement the local stock exchange. It is a regulated and recognised market. Basically, that was a new initiative to make things work.
Malta attracted 3x the amount of FDI in 2013 compared to 2012. This is combined with a recent EU attractiveness survey, outlining the optimism to expand for a majority of the top 100 domestic Maltese executives as well. Why is Malta such an attractive destination to invest?
The chances of failure are limited in Malta. In the financial sector, we have two strengths: first, the local community which services locals; and secondly, the international community which is substantial today. There are for example 8 insurance companies operating locally, and over 60 international companies which belong to large international corporations in Taxation is not a major issue. . We operate an imputation system. The effective rate in the hands of shareholders is 5%, but once repatriation takes place, companies face further taxation. Malta is therefore not a low-tax jurisdiction. This was approved by the EU in 2007. There are also exchange of information provisions. Malta recently signed the OECD multilateral exchange of information. Furthermore all our entities fall under the provisions of the EU Savings Directive. We carry out an extensive due diligence on all companies, qualifying shareholders and senior officers of all companies. We operate a “no due diligence, no license” policy.
The UK is Malta’s largest trading partner, investing over 400 million Euros into the economy at the moment. HSBC is one of the largest banks here in Malta. Where do you see opportunities for future bilateral investment and maybe a synergy for Maltese/UK expertise?
The potential is created by the operators themselves. For a long time, there was little UK investment in the financial sector. However, as we integrated in Europe, many companies decided to open subsidiaries here. Relations are great, we exchange a lot of information, and we are the only recognized jurisdiction for pension transfers. There is certainly scope for growth, but operators have to decide what’s best for them.
How has your role evolved as the Authority since 2002, with the rise of the EU and this new pension fund securitization?
As I have already stated we carry out innovation through researching regulation. Ultimately, it is the lawyers and accountants who manage this. This has been our major evolution. In the securitization area, which is part of introducing the wholesale capital markets, the response was strong and we expect further response when next year we introduce the protected cell company for securitization vehicles.
You have been chairman for a long time. In the coming years, when you plan to look back to your legacy, what would you like it to be?
The authority already has a legacy of being a strong and robust institution. I would like to leave a legacy of a good stock of well-trained people, brought up in a dynamic regulatory culture. From a personal aspect, I would like to see the consensus between the government and the opposition continuing as this has given the financial sector great stability. I have no doubt that it will.
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