Finance Malta conference reflects on FS’s business environment

Finance Malta’s fifth annual conference last Friday is already being hailed as “possibly the best ever” in initial feedback from the 240 Maltese and international delegates – 60 more than last year – who gathered for a day of updates and discussion on key sectors.

Regulation gets you so far – it is about human behaviour

Themed “Malta’s financial services industry – sustaining the momentum”, the event at the Radisson Blu Resort and Spa Golden Sands also saw the participation of numerous international delegates who travelled purposely for the event, according to Finance Malta officials.

The annual conference has developed into an important diary entry as the nascent jurisdiction continues to grab the international circuit’s attention with its consistent success, while Maltese professional service firms experience healthy growth as they win more business.

Finance Minister Tonio Fenech used his opening address to announce plans to establish a think tank to propose ideas to map the sector’s future and maintain the culture of excellence.

The minister reiterated the Maltese authorities’ opposition to European proposals for the introduction of the Financial Transaction Tax and the Common Consolidated Corporate Tax Base. Mr Fenech maintained the government’s position that unless the first was introduced globally, it risked driving financial services outside Europe. Similarly, the CCCTB would not encourage efficiency within the EU and threatened the bloc’s attractive fiscal advantages and potentially hindered foreign direct investment.

Finance Malta chairman Kenneth Farrugia launched the organisation’s social media platform, which has already garnered a respectable following in just two months since launch. More than one million people have seen Finance Malta’s posts on Facebook, an encouraging indication that online efforts are reaping results. Meanwhile, there are plans to optimise Finance Malta’s site for mobile.

Mr Farrugia outlined how the funds sector was the fastest growing of the key industries, driven by new funds and redomiciliations from non-EU jurisdictions.

By last December 31, there were 109 investment services licences (a year-on-year growth of seven per cent), 24 fund administrators (up 33 per cent), 539 funds and 179 new licences (up 24 per cent), and a total €8.3 billion in net asset value (up five per cent).

The insurance sector now boasts 52 operators (from just eight in 2004) with a total gross premium written of over €1.4 billion. Banks now number 25 with assets of €50 billion as at end 2011, and more than 121 entities were authorised under the Trustees Act by last September. The pensions sector has seen the number of operators grow to 13.

Malta’s competitiveness has won international attestations in recent months, named the 12th soundest banking system, the first for both online sophistication and full online availability, first in the time implementation of EU internal market rules into national law, third for overall quality of life, and first for best climate.

Edgardo Maria Iozia, a member of the European Economic and Social Committee, the EU advisory body which issued 200 opinions a year, praised Malta’s sound vision of regulation.

In a presentation on regulating financial services for sustainable growth, he said the “very small great country” had been smart enough to understand that regulation is an added value.

He said the EESC supported the European Commission’s efforts to see the legislative process to its conclusion, adding the body was willing to shoulder the responsibility to promote proposals and draft regulation to organisations and financial services consumer groups.

Mr Iozia said credit rating agencies’ role had to be reconsidered as they were unregulated, sometimes contradictory, and yet very powerful. The EESC, he added, had proposed an in-depth study of recent US legislation with a view to establish a financial services consumer protection authority in Europe.

“Stronger and efficient regulation is needed,” he concluded. “Stronger and efficient supervisory authorities are needed, financial education of customers is needed. Public powers have a responsibility to give clear answers.”

John Vella, senior research fellow at the Oxford University Centre for Business Taxation, unwrapped the financial transaction tax being proposed by the European Commission, and concluded that Malta’s and some other member states’ opposition to it is justified.

Dr Vella discussed the Commission’s stated objectives to raise revenue from the financial sector, to create disincentives for transactions that do not enhance the efficiency of financial markets, to avoid a fragmentation of the internal market, and to pave the way towards a global introduction of the tax. He examined the suitability of the proposed FTT, and other measures like a Financial Stability Contribution (a bank levy) and a family of taxes named Financial Activities Tax to meet these objectives.

Despite the Commission and the European Parliament pushing for the FTT, Dr Vella explained how studies had raised concern over it falling on consumers, taxing financial institutions whether they enjoyed the implicit state guarantee or not, and taxing both good and bad transactions. The FTT did not address excessive leverage, insufficient liquidity cover or other acknowledged causes of the past crisis. Bank levies were more suited to target these issues. The Commission’s objectives would be better achieved through a bank levy, the FAT, and regulation, Dr Vella concluded.

Thinking skills expert Edward de Bono shared anecdotes and some jokes to demonstrate the effectiveness of parallel thinking and humour to problem-solving, analysis, and discussion. In his overview of lateral thinking and his trademarked Six Thinking Hats method for the financial services industry, Prof. de Bono warned that the lack of thinking to create value was one of the dangers facing the world.

A network of 700 trainers around the world communicate his Six Thinking Hats method which separates thinking into specific functions and roles, and which major organisations have adopted. Prof. de Bono, who is writing a book on the creation of value, said human thinking had “a long way to go”. Interestingly, hundreds of thousands of schools in China were working to imbue children with thinking skills, and India was following suit.

Former Financial Times journalist Jane Fuller focused on corporate governance in the financial services sector, stressing that “regulation gets you so far – it is about human behaviour”. As more regulation was piled on the industry in reaction to one scandal after another, now there were complaints that people were operating in a compliance-driven environment. But regulators were doing the boards’ work – prescribing rules on pay, legal structures, dividend distribution and consumer protection, mopping up after the professionals’ poor judgment and decision-making. Financial services companies had turned into vehicles for public policy in both the emerging world and the west. The sector was politically sensitive and the politicians were back on top, Ms Fuller observed.

Reflecting on the financial and economic challenges in the euro area and beyond, Central Bank governor Josef Bonnici looked back on the “euphoria” during the euro’s creation and identified shortcomings like similar risk profiles assigned to debt in the area, and the bubble-causing consequences of low borrowing costs. He pointed out that it was not only Greece’s administrative system that had problems – there were management issues across the EU, including ensuring public sector competitiveness and efficiency.

Prof. Bonnici stressed the need for further efforts to maintain international competitiveness, for continued vigilance in the banking sector as uncertainty lingered, and for continuous fiscal prudence.

Participants were directed to break-out rooms for three industry-specific workshops on developments on the Alternative Investment Fund Managers directive and the UCITS regime, the crisis’s impact on insurance, and value creation for international wealth management clients in the current market and regulatory scenario.

They later returned to the main conference hall for a panel session between MEP Edward Scicluna, HSBC Bank Malta head of global banking and markets Chris Bond, and Brussels-based Association for Financial Markets in Europe director of advocacy Stefano Mazzocchi.

Answering questions by moderator Massimo Farrugia, acting head of the European Parliament Office in Malta, Prof. Scicluna said MEPs’ decisions were driven by society’s anger. MEPs understood the indignation of small business owners watching banks being bailed out as their own firms struggled for survival, he said, and they were looking at appropriate measures.

Mr Bond talked about Strategically Important Financial Institutions in the context of increased capitalisation and liquidity requirements, particularly under Basel III. The simplification of banking models was a positive development in many ways, as riskier models were not generating sufficient capital, and consolidation did not guarantee success.

“Being a SIFI could become a badge of honour,” Mr Bond added. “A lot of good will come from better capitalised banks.”

Prof. Mazzocchi explained that Europe’s new authorities were still finding their roles in implementing the “single rule book” and the tension at European and national levels was understandable. Additional rules were the result of mistrust and firms’ incapability to regulate themselves but the emphasis was on growth and making the system safer, not austerity,he pointed out.

Closing the conference, Shadow Minister for the Economy and Finance Charles Mangion reiterated the Opposition’s backing of the government’s resistance to tax harmonisation. He renewed Labour’s support for Malta to keep the advantages of independent tax regime formulation and underlined the importance of authorities keeping up dialogue with professionals to preserve Malta’s competitive advantage.

Calling for a clear focus to deepen the local talent pool, he warned that local standards of English had been taken for granted and were slipping.

Finance Malta’s conference was covered sector-specific journalists from Germany and the UK. Podcasts of presentations by key speakers will be made available at financemalta.org and on YouTube.