Europe "crucial" for Malta as a financial centre to expand

European Union membership was crucial for Malta in order to enable it to expand its financial services sector, Malta Financial Services Authority chairman Joe Bannister said.

"You either become part of the single market or you're out," Prof. Bannister said in an interview.

The internal market has been exploited completely by local practitioners. There are a few international banks operating in Malta but insurance and investment services have not expanded beyond these shores, he said.

Firms providing such services would be able to spread overseas by marketing new products or by entering into alliances.

After Malta joined the EU, he said, investment companies could start establishing a base in Malta.

"If an international stockbroking firm decides to set up a branch in Malta, it would be able to find the employees it wants, and after EU membership it would be able to penetrate the European market.

"We regularly receive requests from foreign firms that enquire about the possibility of opening an office in Malta and their last question invariably is: 'when are you going to enter Europe?'

"It is that specific in our case. Europe is crucial for Malta as a financial centre to expand."

A trained labour force, English as the language of business, the time zone, the liberalised telecommunications market and costs, particularly office costs, are some of the advantages that Malta can offer investors.

"I do not expect Malta to compete with Dublin and Luxembourg but there is a southern European market that is underdeveloped and which can be exploited from Malta.

"It is not true that financial operations would be more flexible if Malta stayed out of the EU. The accepted model is the European model and, secondly, you cannot create your own rules and regulations, as it was possible to do in the old days.

"When operators sense that the MFSA regime is transparent, something which the EU has declared publicly, they would find no difficulty moving to Malta," the MFSA chairman said.

As from October 1, the Malta Financial Services Centre became the Malta Financial Services Authority. The MFSA regulates all banking, investment and insurance services.

"The change of name from MFSC to MFSA was important, especially perception-wise, because there were instances when the MFSC was thought to be a private company or a bank by local and foreign prospective clients."

As from January 1, companies that want to be listed on the stock exchange will have to get the green light from the MFSA. To date, companies wanting to be listed have applied directly to the stock exchange.

By January 1, it is expected that companies wanting to make a bond issue and be listed would first have to be rated. The mandatory rating would be carried out by an international rating agency.

The rating agency would not pass the rating on to the MFSA but to the company that applies for the bond issue. It would then be up to the company whether to proceed with the bond issue.

The company would then be able to mention the rating it acquires, certifying its financial standing as part of its advertising and marketing campaign in promoting the bond issue.

"In this way, the prospective investor would be in a better position to decide whether to invest or not. The protection of the consumer tops the MFSA's list of priorities," Prof. Bannister said.

One of the main fears of the MFSA is that most consumers of investment schemes are not aware of their rights. According to the law, the obligations of financial consultants, including stock brokers, are to explain the implications of any investment portfolio.

"MFSA has repeatedly cautioned the investing public on the need to seek financial advice from licensed intermediaries on the suitability of high-risk products to their particular circumstances," Prof. Bannister said.

Investors should totally ignore any letters they get through the post or via email from Nigeria, Zimbabwe and South Africa among other places.

From time to time, the MFSA issues notices warning the public against getting involved in such seemingly get-rich-quick schemes.

"In spite of these warnings, there are people who get involved in such schemes and then expect the MFSA to get them out of the mess. There is no way one can do this.

"Retirement plans based on investments can be affected by the fluctuations in the market. There is always a risk in investment".

The fall in the prices of shares quoted on the Malta Stock Exchange was something that was replicated in most stock exchanges worldwide.

For example, when British Telecom was privatised, shares were sold at £1.20. Two years ago, the price had shot up to £16, but they are currently around £1.40.

Fortunately, the upheavals at the Malta Stock Exchange were not as extensive as the disruptions in foreign stock exchanges.

For example, prices in the Cyprus stock exchange had grown by 700 per cent and then crashed. In Malta the growth was closer to 200 per cent.

As the regulator, the MFSA has established a consumer complaints manager who receives complaints directly from the public. The MFSA has published a booklet called Invest Wisely and there is a version in Maltese.

Soon the MFSA will be distributing a booklet on which pitfalls to avoid when buying insurance.

Early next year, the MFSA will introduce a freephone service to enable consumers to lodge their complaint.

The MFSA is an independent public authority which is self-sufficient. Every year, on average, the government nets about Lm250,000 from the MFSA.

With a workforce of 112 employees, the MFSA subsists on licence fees. The annual budget is close to Lm2 million.