Malta finance: risk on or off?
Navigating Malta’s financial landscape
What initiatives are Malta’s financial authorities pursuing as the country’s financial landscape faces the prospect of disruption? Christopher Attard caught up with the MFSA’s chief strategy officer, Dr. Christopher Buttigieg, to get the lowdown on this front.
Regulation is often touted as a necessary evil. How does one regulate while still being nimble enough to keep up with cutting-edge innovation?
Regulation is a tool to safeguard market integrity and financial stability and to protect consumers. Regulation also provides legal certainty thereby ensuring sustainable economic growth. This is advantageous both for service providers, given that the regulatory environment that they operate in remains constant; and for consumers, as regulation provides for their protection. Another important aspect of regulation is enforcement, given that regulatory action acts as a deterrent against future wrong-doing. Regulating a constantly evolving sector may prove to be challenging: however, as a jurisdiction, Malta is taking a proactive approach by promulgating legislative instruments which are technology-neutral and principles-based. Further detail and granularity is then provided within rules issued by the MFSA.
While regulation is justifiably the main focus of the MFSA, is there any additional role that includes attracting foreign direct investment into the country?
It is not the role of the MFSA to promote Malta as an international financial services centre – this falls Under finance Malta, a public private partnership set up specifically for this purpose. In this respect, the authority is currently working on a strategy Document which will detail our plans to enhance supervisory engagement. High standards of regulation and supervision make a jurisdiction attractive for serious operators – in this light it is Important that Malta continues to raise the bar in order to remain a jurisdiction of choice for financial Services. To this effect, under the VFA framework, for example, Malta has imposed requirements which go beyond the EU’s fifth AML directive.
Malta has been proactive in expanding its regulatory framework. Which sectors and concepts are you currently looking into and why?
As you are aware, the Authority’s main regulatory initiative for 2018 was the promulgation of the VFA Framework, with the first VFA Agents being registered in May this year. The registration of the first VFA Agents lead to the MFSA being in a position to start accepting and considering applications for VFA Services Licences. It is expected that the first VFA service providers are licensed in the coming months. Complementary to the VFA regime, the Authority has recently issued a Consultation Document on Security Token Offerings. This document is the first step of an overarching capital markets strategy and seeks stakeholders’ views on a policy which promotes innovation and the use of technology in the financial services sector whilst safeguarding investors, financial integrity and stability. Furthermore, the MFSA is also working on the implementation of its FinTech Strategy. Pillar 1 thereof, which has been issued for consultation last month, focuses on how the Authority is seeking to adopt regulatory and supervisory initiatives to support innovation and improve regulatory efficiency. In light of both consultation documents, readers can expect regulatory developments to take place in the coming months. As stated in Vision 2021, the Authority aims to pre-empt poor conduct to minimise wrong-doing. In this regard, going forward, the Authority shall be working to improve the quality of licensed entities’ boards and raise the bar for Corporate Service providers.
A harmonised European tax system would arguably have a devastating effect on Malta’s competitive advantage. What’s your position on this?
Whilst taxation per se does not fall within the Authority’s remit, one may safely state that Malta’s competitiveness is not solely dependent on its corporate tax system – there are other factors which make Malta an attractive jurisdiction for financial services operators, such as the fact that instruments promulgating regulatory frameworks are drafted in the English language, as well as the current push to raise standards with regard to financial supervision, particularly in the field of AML/CFT.
The ECB is set to restart the cash printing press for yet another monetary stimulus. Meanwhile, bitcoin’s fixed supply becomes ever-more interesting for people disillusioned by today’s devalued fiat currencies. What are your thoughts on this?
Whilst we are aware that the popularity of crypto assets is increasing – and this is one of the reasons behind last year’s regulatory initiative – it is still too early to predict whether such assets will pose a tangible challenge to fiat currencies.
The 2008 financial crash was over a decade ago, suggesting the possibility of another downturn. How is Malta positioned with regards to another possible crash in the global economy?
The MFSA forms part of a Joint Financial Stability Board established by the Central Bank of Malta Act. This Board is tasked with ensuring effective cooperation between the Central Bank of Malta and the MFSA in the area of financial stability, including macro-prudential policy and, where relevant, micro-prudential instruments. It is also responsible for: [i] the formulation of policies to safeguard the stability of the financial system, [ii] to identify and assess macro-prudential instruments and where relevant, micro-prudential instruments required to be implemented to mitigate and control potential systemic and other risks to the financial system; and [iii] to give advice about whether and how an authority or public institution should act in respect of a credit or financial institution, where the issue appears to the JFSB to be relevant to the stability of the financial system. Recently, the CBM, in collaboration with the MFSA, following a recommendation by the JFSB issued borrower-based measures with the aim of strengthening the resilience of lenders and borrowers against the potential build-up of vulnerabilities stemming from the real estate market.
The MFSA issued a consultation paper on STOs earlier this year. What are the ultimate goals here and by what means will the MFSA make them a reality?
As stated above, the STO Consultation seeks stakeholders’ views on a proposed policy for STOs which promotes the use of innovative technology whilst at the same time safeguarding investors and the stability and integrity of financial markets. By virtue of this policy we are once again striving to be at the forefront of financial services regulation. That being stated, the STO policy is just one part of an overarching strategy to take our capital markets to the next level.
Financial crime and cybersecurity go hand in hand. Which institutions are most vulnerable and how do your efforts amplify consumer protection?
It is the Authority’s primary aim to safeguard the integrity and soundness of Malta’s financial services sector, as well as to protect consumers of such services. Given that literally any entity may be used for illicit purposes, it is not possible to pinpoint a category or class of entities which is more susceptible to financial crime than others. This year, the Authority has published its AML and CFT Strategy which sets out how AML and CFT supervision has been fused into the conduct and prudential supervisory framework, and how the Authority intends to enhance its AML and CFT supervision. In this light, the Authority has recently set up a Financial Crime Compliance Function within the Supervision Directorate and has also engaged an international team of experts to boost resources and expertise in the area. With respect to cyber security, the MFSA is in the process of setting up a Supervisory ICT Risk and Cyber Security Function which will be housed within the Supervision Directorate. Furthermore, the Authority has, this year, published Guidance Notes to this effect. These changes and more will, in the end, lead to higher standards of regulation and supervision, which are fundamental to continue strengthening Malta’s position as a jurisdiction of choice for financial services.
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