Malta has a robust regulatory framework, but it is also a place where things can get done, with the MFSA, the single regulator, willing to advise firms so that their projects comply with regulations.

Financial regulators tend to be regarded as a necessary evil by bankers and other market practitioners. They may recognise the importance of regulation, but they are equally aware of its burden. The typical approach is to find out what the regulator wants, tick all the boxes and then get on with business.

The Malta Financial Services Authority (MFSA) claims to be different. It says accessible and flexible are two of its hallmarks, but argues that it is not a soft touch. As a member of the EU, the country operates to high standards and firmly upholds all relevant EU laws and rules; but being a small country, it is easy to meet senior officials at short notice and they can be understanding of an individual institution’s issues and requirements. By the same token, however, if any firm or practitioner begins to act inappropriately the regulator will soon find out. News travels fast on an island that is only 27 kilometres long and 14.5 kilometres wide.

An approachable menner

Professor Joseph Bannister, MFSA chairman for many years, is the recognised architect of the regulatory framework and responsible for its ethos and modus operandi. “The approach has been to meet companies and discuss the application of regulations with them, both at the pre- and post-licensing phase,” he says. “Most importantly, the MFSA uses two guiding principles particularly at the licensing phase – they are that the regulatory process must be exhaustive, and no licence is granted without proper due diligence.

“Malta’s system follows the EU. After all, we are members of the EU and we have not created our own system. We apply all the necessary regulations as required. With all the new regulations coming after the 2008 financial crisis, companies appreciate having regular meetings with the regulator. The ‘firm but flexible’ approach should not be taken to mean that we are dispensing with any regulation; the flexibility is about how we discuss a project and see how it can be modified to fit in with the regulations.”

Passing the test

A 2003 IMF/World Bank review concluded that Malta’s financial sector was well supervised. The EU also conducted a regulatory review prior to EU entry in 2004. The MFSA carried out internal audits in 2005 and 2007 and another was due in 2009, but the board of governors decided that that audit should be an independent assessment along IMF/World Bank lines, and with a view to increasing transparency it should be published.

Consequently, a team of experts normally used by the IMF and World Bank was called in last year to review how well Malta’s regulatory structures complied with the Basel core principles for banking, IOSCO’s (International Organisation of Securities Commissions) principles for securities, and IAIS’s (International Association of Insurance Supervisors) principles for insurance.

“This was rather a bold step because obviously nobody knew what the result was going to be,” says Mr Bannister. “The team was led by Piero Ugolini, former assistant director at the IMF, who was also mission chief for the IMF/World Bank review of 2002-03. The results of the assessment, published in January this year, were excellent. For example, in the case of banking, the number of principles the MFSA was found to be compliant with increased from 11 in 2002-03 to 21, out of 25. An abridged and a long version of the report is available on the MFSA website.”

Rejecting applications

Malta's financial sector has grown considerably, particularly since EU membership in 2004, but the MFSA says Malta does not have a policy of increasing the size of the sector for size’s sake. The quality and integrity of the firms is paramount. “We do reject applications, particularly those that go against our principles. Insurance and collective investment schemes have grown considerably, and the type and quality of companies seeking to obtain a licence indicates that the sector is well regarded.”

The tax regime for all companies, including those in the financial sector, is a favourable one, but it is not a tax haven, says Mr Bannister. “Malta follows an imputation system of taxation. Companies pay 35% tax and on declaration of a dividend shareholders are entitled to claim a six-sevenths refund. I have not heard anyone criticising the tax regime as being unfair competition. It should be kept in mind that once the refund and dividend are repatriated by the shareholder to his country of residence, then they may be subject to further taxation.”

Mr Bannister points out that Malta’s tax system was agreed with the EU under the State Aid and Code of Conduct in 2007, and Malta does not feature in the OECD’s list of tax havens.


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