To maintain the growth in the financial services sector, we must continue to be innovative, says Joe Bannister, Malta Financial Services Authority chairman.

How is the local financial services sector performing?

The financial services sector in Malta is performing very well, especially in areas such as non-banking financial institutions, fund management and insurance. It’s not a numbers game – rather, what is important is that Malta is registering steady growth.

Joe BannisterJoe Bannister

As shown in the Malta Financial Services Authority annual report for 2014, new licences were issued by the MFSA, notably in the payment services, electronic money, and alternative investment management sectors. New employment opportunities in the financial services sector continued to grow in the direct financial intermediation segment as well as in other related professionals’ services activities.

Malta was also given a high ranking by the World Economic forum’s Global Competitive Index 2014-15 with respect to financial market developments while the soundness of banks improved by a further four points, placing Malta in 10th position among 144 countries.

What is the sector’s contribution to the economy, in terms of direct and indirect intermediation?

According to the latest figures published by the National Statistics Office, the sector’s direct contribution is of 8.5 per cent. The general view is that indirect contribution, mainly from law and accountancy firms as well as treasury companies, is of at least another 8.5 per cent.

What advantages does parliamentary consensus and the use of the English language for business give the sector?

We meet companies at pre-application, application and supervision stage. Companies appreciate this, especially due to the complexity of regulation. They also find that the regulator is pro-active in the discussions

Parliamentary consensus is very important for the financial services sector because it indicates stability – the rules don’t get rewritten with every change in administration. In fact, there has never been any division in parliament on matters related to financial services.

The use of the English language is also valuable. What is also attractive to operators in the sector is that while legislation is published in both Maltese and English, the interpretation in English prevails.

Despite the success of local financial services, Malta is not focusing solely on this sector. What are the advantages of having a diversified economy?

In any economy, one sector should not dominate over the rest. This is especially important because the financial services industry is a highly mobile one – if one company leaves Malta, we don’t want the impact on the economy to be significant.

In fact, it is best to have small and medium-sized companies employing, say, 50 people, than one large company employing 500 people. This is because if a small or medium-sized company quits its Malta operations, it is fairly easy for employees to be absorbed by other companies. However, in the case of larger companies, a similar absorption of employees would not happen overnight.

Following the 2008 financial crisis, we anticipated changes in company movements and so took steps to have other forms of activity in order to balance any losses. It is always important to be prepared. Fortunately, no such losses were registered and the sector continued to grow.

Does the local financial services sector have potential for further growth?

I believe that there is potential for further growth, even though it is difficult to anticipate by how much. In the past two years, we have seen more employment opportunities, and further female participation in the sector. We have also introduced innovative securitisation cell companies and regulations for reinsurance special purpose vehicles to stimulate capital markets as in order to continue to register growth in the sector, we need to keep being innovative.

We must also continue to strengthen the quality of our human resources through education and training. The role of the MFSA’s Education Consultative Council is to promote in-service and pre-service professional training and education within the financial services sector. The council reaches its objectives by working closely with its members, who are mainly the various training institutes, on initiatives and activities as well as disseminating industry-related information among secondary and post-secondary students who are regularly invited to visit the MFSA during the scholastic year. This programme is intended to promote careers within the financial services sector.

What is the role of the MFSA as a regulator?

The MFSA is an independent regulator reporting to Parliament. The MFSA also sets its own budget and fees, even though the latter still have to be approved by Government. In these past years, we have managed to keep fees stable for periods of five years and we hope to continue with this practice.

Companies must also understand that it serves them well to build their own in-house capabilities for compliance

The MFSA’s primary role is to supervise, regulate and licence. All companies and key persons have to undergo a due diligence process which is quite rigorous. This is key to maintaining a stable jurisdiction. We make it very clear – “no due diligence means no licence”.

The MFSA is also expected to take care of the legitimate expectations of consumers. This is being strengthened by introducing conduct of business. This means that we shall be looking more in the way companies deal with consumers as opposed to prudential supervision where we look at the financial strength of companies operating in the financial sector. We also handle consumer complaints – however, we have no enforcement powers. We can only advise. This will change with the eventual establishment of a financial services arbiter within the financial services sector. It will be the financial arbiter, who will be independent from the MFSA, who will be responsible for receiving complaints from clients of financial services and for making relative recommendations and delivering binding decisions.

Another role of the MFSA is to advise Government on financial services. This means that we also draft legislation according to our knowledge of market practices and within the context of EU legislation, and promote it with Government.

Do you maintain a direct contact with licensees?

We have an open door policy. We meet companies at pre-application, application and supervision stage. Companies appreciate this, especially due to the complexity of regulation. They also find that the regulator is pro-active in the discussions. Our open door policy is so effective that other jurisdictions are adopting the same model. Today it is important that companies meet regulators and regulators meet companies.

It’s all a matter of holding a frank and open discussion with licensees – I hope and intend to ensure that we sustain our efforts to maintain this direct contact.

Following the financial crisis of 2008, and the current situation in Greece and other EU countries, how has the regulatory framework changed?

Since the economic crisis of 2008, we have had innumerable regulation in the form of new or modified directives. In fact, we have to keep employing and training more staff in order to keep up with this continuously changing regulatory landscape. Companies must also understand that it serves them well to build their own in-house capabilities for compliance. Regulation may be seen as a burden, but it is a necessary one.

As for the Greek crisis, our banks were not exposed and therefore no intervention was needed from our end.

How real is the threat of over-regulation in the sector?

Over-regulation is always a risk in this sector. However, most directives now have a sunset clause and are not cast in stone. Every two to three years, directives are reviewed and updated accordingly. This helps us avoid over-regulation. Also, we regularly monitor our regulations because sometimes, a new directive is piled on an old one and therefore we would need to do a clean up exercise to avoid gold plating.

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