IFS-Malta Annual Seminar, 23 November 2017 Challenges and Opportunities in Financial Services Hon. Dr Adrian Delia

Mr President, Distinguished Guests, Ladies and Gentlemen, 

Good afternoon. 

I would like to commence by thanking the organizers of this national seminar – the Malta Institute of Financial Services - for inviting me here today and giving me this opportunity to address such a distinguished audience and share my views on the challenges and opportunities we are facing in financial services, one of the most important sectors of our economy.

Since Malta became a European Union member in 2004, it has enjoyed impressive growth in all sectors of its financial services industry. This is no coincidence.Nationalist Party governments thought of EU membership not as the end of a political journey, but as the beginning of an economic and social journey too, shaping Malta into a modern European state.

While we strengthened established industries in which Malta enjoys a comparative advantage, we also sought new sectors where Malta is now reaping substantial benefits.

The resilience of our financial services sector was seriously tested during the global financial crisis and various geo-political tensions which had very serious repercussions for neighbouring countries and certain EU member states.

We are adding value to our economy through your sector and other new ones, together with low cost airlines through which have developed our traditional hospitality industry, together with infrastructural projects benefiting of EU funds, and – importantly – through the enterprising spirit and the hard work of our investors and workers.

While our financial services sector benefits from the European market of over 500 million citizens in 27 other countries, it, in turn, now sustains a significant part of the Maltese economy and contributes hugely to its growth.

This sector expanded by 36% in terms of value added over the past six years. Between 2010 and 2016, compensation of employees in the financial services sector rose from €226 million to €353 million, an increase of 56%. Almost 98% of foreign direct investment in Malta emanates from the financial and insurance sector.

In a few weeks’ time, we shall also celebrate ten years of the euro for Malta, another step in our European vision which has helped the financial services sector grow even faster.

As we look forward, a better international and European economic outlook can give us the impetus to keep building upon our economic strengths and face the challenges we have.

While Malta’s financial sector emerged from this turmoil relatively unscathed, as part of the EU and international financial community, there was no escaping the onslaught of legislation and regulation that followed. The latter has continued to impact us, with tighter rules on capital adequacy and new liquidity ratios, enhanced anti-money laundering measures, stricter customer due diligence, mandatory financial crime compliance and classification of systemically important financial institution (SIFIs) with direct supervision by the European Central Bank, just to name a few. 

So what are the challenges ahead?

Challenges

·       There are definitely challenges ahead and we can expect to experience more regulatory change. During today’s seminar you heard about MiFID II, the Insurance Distribution Directive and changing landscape of data protection.  Rest assured there is more to come.  It is, therefore, important that we do not overlook the practical implications for financial services organisations, regulators and businesses of this ongoing regulatory change. The burden of regulation and compliance costs can stifle much needed funding and liquidity to fuel economic growth. It is, therefore, imperative that we find the right balance.

·       Safeguarding Malta’s reputation as an international financial services jurisdiction is paramount. Unfortunately, our beloved island has been in the international press lately for the wrong reasons and this has not helped the image of our country overseas. If we are to continue to attract interest and investment in the financial services sector, we need to ensure that we attain the highest international standards and that our good reputation remains intact

·       If we lose confidence and do not have a stable and effective financial system that enjoys everyone’s trust, it will leave a negative impact on our economy. Financial services is a key contributor to GDP economic grow in terms of value-added, provides high quality employment and facilitates a lot of ancillary work. We cannot afford to lose this

·       Ensuring a high level of regulatory compliance is paramount and having a clean bill of health from EU audits, credit rating agencies and the forthcoming Moneyval assessment

·       Regional stability and deterrence of financial crime both to the North and South of our shores is needed as otherwise we can easily be categorized as a high risk jurisdiction that no one will want to do business with

·       Competition in this area is continuously increasing and we need to ensure that we play to our strengths and continue to invest to ensure our financial practitioners have the requisite professional competencies to cope with the new world order. I know the Institute of financial services is at the forefront of the provision of financial services education and training and thank them for their ongoing initiatives in this area

·       We cannot ignore a major challenge, which is more political than technological, namely the present discussions related to tax harmonization. On this issue, let there be no doubt whatsoever: the Nationalist Party is four-square with Government. Our position has always been very clear: we are against tax harmonization initiatives which restrict EU Member States’ autonomy in tax matters. Such measures unduly harm small, service-oriented peripheral Member States, such as Malta, by restricting us in our initiatives to use our tax system to counteract some of the disadvantages we inherently suffer from our geographical position. The Nationalist Party is strongly against measures such as public country-by-country reporting, a common European consolidated corporate tax base, and other such measures.

·       The rapid emergence of FinTech, RegTeck, blockchain, crypto currencies, robotics and artificial intelligence and other technological advancements in the area of financial services needs to be understood and channeled correctly 

Moving on to opportunities, we can also view these so called disruptive technologies as an opportunity.

Opportunities

·       To benefit from the innovative developments in financial technology (FinTech) we need to be at the forefront of these developments and ensure that our industry embraces them in a rapid manner. This requires a concerted effort through enacting the right legislation, having a proper regulatory framework in place, having skilled and competent financial practitioners and safeguarding the rights of consumers and protecting society in general. To achieve this we have to be nimble and all work together in a pro-active manner

·       We need to continue to promote our jurisdiction as an attractive domicile. Our strategic location and enviable climate, strong work ethic, English speaking and multi-lingual skills, modern legislation, relatively low cost business environment and EU membership are just some of the benefits we have to offer 

·       While what will actually happen after BREXIT is still being debated, what is certain is that many UK based financial companies are working on contingency plans and this involves having a base in an EU jurisdiction. Malta is an ideal and attractive alternative location and we should do our utmost to exploit this unprecedented opportunity

·       The improvement and upgrading of Malta’s legislative and regulatory framework for financial services has become a continuous process reflecting the dynamism of the sector, and enabling the industry to continue to grow. By being leaders in understanding and implementing regulatory requirements we can instill greater confidence in our jurisdiction and turn this into a competitive advantage

·       We must be at the forefront to exploit the opportunities arising from change and concentrate resources to more value added areas

·       We must continue to invest in Human Resources which is our greatest asset.  We must ensure they have necessary skills and flexibility to work in the ever-changing area of financial services. It is only through our people that we can guarantee future success.

Conclusion

The Nationalist Party is proud to be associated with your sector which is today a huge contributor to our economic growth. As we look towards the future and plan opportunity where we see challenge, as we live in a rapidly changing world due to technological transformation and political pressures too, I can assure you of my commitment to the financial services sector and to being very close to its main actors, who, with all due respect to us politicians, are you, enterprising operators in what is today the sector that should show the way forward to the modern and quality economy we envisage for Malta.