Malta adopting EU's single payments system

The House of Representatives has started to debate a Bill for the adoption of the EU's Payment Services Directive.

Parliamentary Secretary Tonio Fenech said, when opening the debate on Monday, that the Financial Institutions Act was being amended in line with the directive so as to facilitate payment transactions across countries within the EU. In this way consumers could enjoy easier and faster transactions within the internal market.

Facilitation of such transactions had been vital for the EU following the introduction of the euro, Mr Fenech explained. It was incongruous that one could use euro notes throughout the euro area but payment by, say, a cheque or a debit card, was cumbersome or impossible. This directive, therefore, was a step towards the harmonisation of payment systems into what was being called the Single Euro Payment Area, set to be completed by 2010.

In this way, for example, bank accounts or card numbers would be recognised and could be accepted throughout the euro area. Such systems, many of which were already being introduced, also applied to other payment methods, such as payment via mobile phone.

This system was clearly very beneficial for businesses as well as private individuals. Since the banks would recognise each other's accounts, fund transfers would be faster and consumers would not have their money stuck somewhere for days on end, with somebody earning interest from it.

Mr Fenech said this system would broaden the banking sector and open it for more competition, from which the consumer would ultimately benefit.

The parliamentary secretary said the development of the Single European Payments Area was being governed by a roadmap issued in 2003 by the European Payments Council which established the protocols to be followed by the banks for the various payment transactions. The European Commission, in parallel, moved proposals to harmonise legislation to permit the financial institutions to adopt the new systems. The result was the directive now before the House.

The single payments directive ensured clearer information for consumers and provided that a bank may not automatically deduct payment from transaction funds. In the case of loss or theft of a payment instrument (such as a credit card), the maximum liability for the consumer was being fixed at €150.

The directive, directly or by regulation, laid down timeframes within which payment had to be made and guarded against the banks raising charges, since the ultimate aim was for services to actually be cheaper.

Labour MP Jose' Herrera said there was no doubt that payment systems needed to be harmonised across the EU, and much remained to be done.

He observed that several laws needed to be amended before the Single Payments Directive could be brought into force in Malta, with very little being provided for under this Bill itself.

Dr Herrera insisted that the MFSA, which enjoyed respect, should be the only regulatory authority over all financial institutions.

He asked if, when the single payments system was eventually fully introduced, bank charges would be uniform in Malta and across the EU. Would there be standardisation such that there would not be free competition?

Parliamentary Secretary Edwin Vassallo welcomed this Bill as a means to eventually reduce bureaucracy, something from which business would benefit.

The new procedures would further remove barriers to trade and lead to liberalisation and further competition among financial institutions which handled payment transactions.

Mr Vassallo said the need for greater support from the banks, lower bank charges and easier access to finance were among the key features mentioned in a GRTU survey on requirements for business growth. This Bill would go some way to achieving these needs.

Overcoming competitive pressures was a key aim of his office, Mr Vassallo said, and this Bill was a valuable instrument towards this aim.

Opposition leader Alfred Sant said financial services were showing themselves to be competitive and one needed to consider how other sectors of the economy could share the same success.

One reason for the success of the financial services industry was undoubtedly the longstanding political consensus. Malta was successfully exploiting all possible areas to retain a competitive advantage. Up to 95 per cent of recommendations made in a report commissioned by the Labour government from the financial services industry in the 1990s had been implemented.

One should conduct a new study to assess how the competitive scenario was developing so that Malta could adjust its position accordingly.

Dr Sant insisted that competitiveness needed to be protected in all sectors of the economy, something which, he said, was not happening. Financial services, however important, did not have much of a trickle-down effect on the rest of the economy. Over the past five years the per capita value-added of the financial services industry had quadrupled, yet the economy had not benefited as much.

With Malta being competitive in financial services, why wasn't it competitive in tourism and manufacturing industry? VF Corporation had just announced it was closing down, and he wanted to express solidarity with the workers. But what was being done for competitiveness in such sectors to be retained? The government, he believed, was not doing enough. It needed to partner the industrial sector to improve the conditions to improve competitiveness. One could treat financial services, or information technology, as privileged sectors while ignoring the others.

In the tourism sector the government blamed everyone and everything when things went wrong and sought kudos when numbers rose. Yet the fundamental issue of how competitiveness had been eroded was not being tackled. Not enough was being done on product development, real targets and plans were not being prepared and marketing often lacked direction and focus.

The MLP was saying that Malta needed to attract 1.6 million tourists with revenue rising to a minimum of Lm620 million in about five years from the current Lm422 million.

This Bill rightly addressed competitiveness in the financial services industry but the same needed to be done for the other sectors.

There was no doubt that the government was to blame, to a considerable extent, for the loss of competitiveness in several sectors. The government lacked efficiency, accountability and focus, with the public service sometimes being given conflicting decisions and with regulations being confusing. A case in point was how indecision meant that even footpaths for divers at Qawra could not be built because of confusion between Mepa and the MTA.

All too often ministers were fighting among themselves, did not know what was happening, or were simply indifferent. All this fuelled uncertainty and undermined competitiveness.

For example, when would industry see real results from the port reform? When would consumers benefit from realistic, and hence lower medicine prices? What had become of the packaging waste arrangements particularly in the case of plastic bottles?

Over the past few years government agencies had become more inefficient and Lm190 million were over-spent on government projects. Costs at Mater Dei Hospital had risen to Lm300 million.

Instead of improving efficiency, the government raised tax revenue at a faster rate than economic growth. Ever since Dr Gonzi became prime minister, tax revenue had risen by Lm60 million per year. That was the only way how the government's financial deficit, on paper, had gone down. But so had competitiveness.

He was surprised, Dr Sant said, that the prime minister appeared not to know of the incidence of VAT on education and housing.

So far financial services appeared to be weathering the storm of increasing tax burdens, but other sectors simply could not continue to be ignored. The government needed to realise the harmful consequences which its taxation policies were causing.

One of the aims for the future needed to be to ease the tax burden on businesses and families.

Winding up, Mr Fenech regretted that opposition MPs had spoken for less than 10 minutes on this law and used the rest of the time to make allegations on the Maritime Authority, which had nothing to do with the Bill (see separate reports).

Referring to Dr Sant's claim about 95 per cent of a Labour-commissioned report having been implemented, Mr Fenech said this claim had been made before, and he had never been able to trace this report.

The government appreciated the opposition's backing on financial services, but it was a joke for the opposition to try to take credit for the success which the financial services industry was achieving. Indeed the Labour government had been against EU membership and it had wanted Malta to be an offshore financial services centre, which was the total opposite of the way the financial services industry was structured.

Mr Fenech denied that the government was giving less importance to other sectors of the economy. Financial services were growing thanks to sound legislation and expertise, and the government was allocating far more resources to manufacturing industry and tourism.

Dr Sant was now claiming he would raise tourist arrivals by 400,000 to 1.6 million, without mentioning a single new initiative. This clearly was yet another electoral gimmick. In contrast the government was continuing to act to raise tourist numbers, the most recent measure having brought low-cost airlines to Malta.

Mr Fenech said he too wanted to express solidarity with the VF workers, and the government would do everything to help them reintegrate into the economy. He was confident this process would not take too long because the economy was growing. The government was far from being indifferent to the needs of manufacturing industry and results were showing, with major investment by many large firms.

As for increased tax revenue, Mr Fenech said the government had actually reduced tax rates. Therefore, the fact that tax revenue was up meant the economy was growing and tax collection had become more efficient. Concluding, Mr Fenech said there was no VAT on education and new home owners had their VAT refunded. Dr Sant needed to inform himself better.

The Bill was then given a second reading.