Give the MFSA more space
That Malta has carved out a very good name for itself as an international financial centre is the result of four key factors, which started taking shape 16 years ago. The process continues, as global markets expand and change and their regulation develops and grows more demanding.
The first factor was the passing of a package of detailed legislation with bipartisan backing in the House of Representatives. Agreement was sparked off through pulling together by John Dalli, then Minister of Finance, and myself, at the time shadowing him.
My side, the Labour opposition, deliberated very objectively on whether to collaborate with the government on the legislative packet. Alfred Sant, opposition leader at the time, threw his weight behind it. He made one condition to me, which he stressed in the subsequent open debate in the House – that every effort must be made against the new laws allowing in money laundering.
That very valid point was well taken up with appropriate provisions made in a specific act and also underlying other acts. Former Labour leader and Prime Minister Karmenu Mifsud Bonnici was against the concept when we discussed it in the Labour Parliamentary Group. But once the group decided to back the concept and resultant legislation, he played a hugely important part in refining the various bills in the package when they were discussed at the Committee stage (where proposed legislation is examined in detail).
The bipartisan pro-active collaboration continued through the years as the legislation package was updated time and again to reflect changing times and requirements, no matter how much government and opposition disagreed on other matters.
The second factor was the evolution of the regulatory organisation, the Malta Financial Services Authority. In 2002 it became the single regulator for financial services, working assiduously under the inspiring leadership of Prof. Joe Bannister to turn Malta into a reputable financial centre.
The third factor was the growth of highly professional practitioners, who do their best to promote Malta as a financial centre, supported by a cadre of highly qualified and motivated staff, particularly in the legal and accounting sectors.
The fourth factor, Malta’s accession to the European Union in 2004, tied all those efforts together and provided a platform for very rapid but stable growth. Membership, we soon confirmed, is not a bed of roses, an unending net source of transfer of funds from Brussels to Malta. Perhaps the most significant impact of EU membership on Malta was, and remains, the strict standards and regulation imposed by the Union in the major walks of life, by no means least in banking and insurance and the rest of the financial sector.
As the regulator and the issuer of licences the MFSA is in the forefront of the effort to maintain and enhance the reputation and thereby attractiveness of the Malta financial centre. It has to ensure that the strictures of European and other international regulatory framework are understood and applied constantly and with precision.
To achieve that the authority follows the adapted principle of “physician, keep thyself strong”. To this end an independent assessment of its structure and operations was carried out in 2002/2003. The conclusions were good. Late last year the MFSA engaged an international team to carry out a fresh independent assessment. It was led by Pier Ugolini, a former Assistant Director of the International Monetary Fund (IMF) and mission Chief of the IMF/World Bank team that conducted the 2002/2003 assessment.
The Board of Governors of the MFSA decided (beforehand) to make the result of the assessment public. Mr Ugolini summarised it in a presentation to a professional gathering, which the Prime Minister and the Minister of Finance also attended, last week. The assessment team reported very favourably on the MFSA’s compliance with the international and legal requirements under which it operates, with good improvements on the already high levels noted in 2002/2003.
The report is technical, but also serves as a focused overview of financial services in Malta. The need for an appropriately staffed MFSA is at the heart of it. In that regard a comment on the authority’s independence, accountability and transparency bears wider dissemination.
The assessment team said that, while MFSA resources to date have been generally adequate for the scale and scope of its supervisory functions, new regulatory requirements and obligations resulting from coming changes in EU legislative frameworks will have various implications for staffing. This, along with the need to increase frequency and scope of on-site examinations, will require additional staff.
However, the independent assessment report continues, a 2005 Office of the Prime Minister Circular (which had introduced a process for recruitment in public sector organisations) has delayed considerably the time required for recruiting staff in the MFSA. “As a result of the cumbersome process and administrative layers under which the MFSA has to operate, the recruitment process could take several months and impact on the workload of the MFSA. The process should be streamlined and shortened.”
The language is diplomatic. The message is crystal clear – let the MFSA work efficiently, it is not just another public sector organisation. The Prime Minister and the Minister of Finance listened attentively to Mr Ugolini. One hopes they follow that up with appropriate action. If bureaucracy suffocates the MFSA, the whole financial services sector will be damaged.